The Refragmentation
paulgraham.com
paulgraham.com
Also, it's also worrying the degree of infatuation or affection for the early 20th century years with central planning of the economy, crony capitalism, robber barons, an all-powerful big government, centralization and concentration of power at the hands of a few, regimented and uniformed society ...etc.
No leftie is arguing or longing for any of these policies. What we're looking for is just more equality in economic opportunities and esp capital and that distribution of capital to be more fair across all the classes and not to be a privilege only for rich and highly connected people.
That's how we envision the solution to fix this problem of "fragmentation" as he put when it exactly is more like a "segregation" problem but not based on racial or cultural factors but on economic one into two completely separate societies between the haves and have-nots, between the 1% and the 99% of the population and it's getting worse and uglier by the day.
I believe Paul means that these economic properties are to be expected because they arise naturally and it is not practical to eliminate them.
It doesn't have to be central, it can be a way of living that amplifies the changes you'd like to see in the world. So for example, say a person acquires a certain amount of wealth and wants to make his or her home solar to stop feeding investment in the fossil fuel industry. He or she should consider installing double the number of photovoltaics necessary and give back to the grid to lessen someone else's burden.
Now apply that philosophy of cooperation to our daily lives and I think that we can achieve a fairly rapid change in the status quo, and that we are seeing it happening all around us.
How can economics be Darwinian? The outcome of economic interactions is not a zero sum, whereas a lion who kills and eats an antelope is engaged in a zero-sum interaction. The antelope gets nothing out of it. As a point of contrast, if you buy a car from Toyota, you have not harmed Toyota, nor has Toyota harmed you (hopefully). It is theoretically possible, when humans engage in trade, for both parties to end up better off. But in nature, in the competition for finite resources, one often sees exchanges in which all species end up worse off. There are many documented cases where predators have been too successful, and killed off all their prey, and then gone extinct themselves -- a negative sum scenario that has no obvious comparison to economic exchanges among humans.
When we apply economic thinking, this interaction is actually not zero sum - antelopes in general benefit from the signal that they need to be faster.
The antelope loses its life. The lion gains nourishment for a week.
Clearly the total number of utils in the system has decreased.
If that were true nobody would ever feel ripped off. People irrationally engage in inefficient transactions all the time. For example, people who smoke cigarettes are more likely to be (and admit that they are) acting irrationally than truly deriving so much social or chemical utility from puffing on cigarettes that it exceeds the risk-weighted disutility of lung cancer, emphysema and so on.
Generating value out of nothing and ripping people off are not necessarily incombinable things.
Nature is zero sum, economies are not valued in those terms because people prefer houses to trees etc.
But, be careful: http://www.smbc-comics.com/index.php?db=comics&id=2569
You can make this statement being true by moving your definition of "nothing" from economics to lay-people common sense, but then we'd be outside of a territory where we can obtain any actually reasonable observations.
> Nature is zero sum
What is "nature"? Observable universe from now to heat death of the universe? Yes. Earth in near hundred years? No.
> Robbery is also an economic transaction, and it can be positive sum if for example you don't notice.
What? How does the outcome of a transaction change depending on whether it's observed or not? Does it involve quantum particles of trees falling in the middle of desolate forests?
> That does not mean it's a good thing.
My comment didn't state anything about good or bad: these are very stupid terms and using them can't bring anything but loud voices and hurt feelings into a conversation.
I think you 're being deliberately inflammatory here. He's probably well read about the period but there is no "degree of affection" for that kind of capitalism.
And what non lefties are asking is how do you solve income inequality without those policies?
And more fair? Fair by what metric exactly?
The solution is to 1) roll back the corrupt laws (like the preferential tax treatment of carried interest and high-speed trading) and 2) get rid of the absurd legal doctrine established by the Citizens United decision that money=speech and hence the First Amendment applies to bribery.
Unfortunately it's not that simple. The immediate question at hand in Citizens United was about a group of private citizens being prevented from releasing a movie criticizing a Presidential candidate during an election. A movie costs money to produce and requires a large number of people to coordinate, inevitably shading over into a corporate legal structure... just like, say, a union, or a political party, or a newspaper. So how are you going to decide which corporate legal structures are making "legitimate" political speech, whatever that means, and which aren't?
Personally, I would have had no problem with CU if it had remained the narrow decision that John Roberts originally wanted it to be. Clearly, if the First Amendment protects Michael Moore's right to make and show a politically charged film close to an election then it protects Citizens United's right to do the same thing.
The problem came when this narrow decision was extended to a broader one that included for-profit corporations and labor unions. (For-profit) corporations and labor unions are legally "persons" in that they can act as legal entities in their own right (no pun intended) independent of any individual human. And they ultimately consist of groups of humans. But they are not humans. They are human constructs. They are technology. And treating them as if they were humans, entitled to human rights, leads to problems.
So personally, I would advocate retract CU protections (and Hobby-lobby protections for that matter) from for-profit corporations.
I'd also re-instate the historical lower limits on direct contributions to political campaigns.
No, it's the speech of the management. The shareholders only have indirect control. The only power they generally have is to replace board members. And sometimes they don't even have that. Google, for example, is completely controlled by Larry and Sergey. Facebook is completely controlled by Zuck.
If you want "truth" commissions, go right ahead with removing CU, but unless that, this was a great decision.
Assuming that you do come up with a plausible way of drawing a line here, you also need to have general trust that this power will not be abused. Given the heavy politicization of regulatory agencies in the United States, a large portion of the population is worried -- not without substantial justification -- that "is this speech opposed to the party in power" will be one of the factors used to draw that line.
For example, right now, you should be allowed to make a movie about how Reagan sucked, but not one about how Hillary Clinton will suck if she gets elected.
And if a citizen notices that all the politicians are lying, he needs to just shut up about it?
Honestly, does it even matter? Everybody knows all politicians are liars. It's common knowledge; it's beyond being a trope and basically a synonym. But then somehow a large part of the population still cares about what politicians have to say. They know that the politician they oppose is full of shit, and yet they feel obliged to engage with said politician's arguments. And they support another politician, conveniently forgetting that... he is a politician too, so he won't make good on their promises.
Basically, everyone got the memo. Those who were to heed it have already done so.
This is something that confuses me about humanity. The amount of denial and cognitive dissonance going on in general population's interaction with politics is so great you could fuel a power plant with it.
But I tend to think that it's not so much that they were planning to con everyone all along, but rather that they tried to push their ideas and failed to convince the rest of the legislature to go along with it. Maybe it died out because nobody cared about it in that year's Congress, and then the politician gets busy with other things while another year passes until the next legislature.
I imagine it's the same mechanism at work in large companies: Haven't you ever had a new manager come on board, go gung-ho on changing a couple widely visible organizational thing and getting everyone's feedback, and then calm down a year or two later once they're busy with their work? I've probably seen that at least 5 times.
However, there's a key difference: In the above situation, I would expect a politician to keep to the same general platform even if he fails to perform some specific action. The simpler statement 'all politicians are liars' leaves open the possibility that he might completely change his platform and starts actively pushing for things that he never mentioned. I don't know that I actually believe that about all or most politicians.
It matters because, if Trump says he wants to deport all Muslims, I should be able to say thats a terrible idea without fear of reproach.
Despite the fact that all politicians may be lairs (although I personally believe thats horseshit), there are people who take the word of them very seriously.
>The amount of denial and cognitive dissonance going on in general population's interaction with politics is so great you could fuel a power plant with it.
Bull fucking shit. Just because Obama didn't end up closing Guantanamo, doesn't mean its all a farce. Political groups have a real effect, or we wouldn't be talking about this. Were the people who fought for gay rights for the past 20-odd years, living in denial? Are those pushing for marijuana reform, living in denial? Are the lobbyist pumping billions of dollars into the system living in denial?
Despite the fact that the system moves a snails pace (which may or may not be the intended goal of the system), the system does have very real effects that are caused by the tiniest nudges in certain directions.
I'm not convinced that content-based restrictions can be easily applied, either, even putting aside one's confidence in the regulators. To take the above example of a documentary attacking Reagan, it would be easy for it to have the subtext of "and don't vote for Mitt Romney this year, he's just like that Reagan jerk."
I don't think any solution that involves politics can work. We have to solve it outside of politics by making it too difficult to use money to influence politics. We have the technology to do this without winning any votes in Congress. Instead, we need to build tools and educate people.
If you want some major impact on government revenues (which would also open doors to things like public finance of campaigns, subsidized tuition, subsidized healthcare, etc.), remove the mortgage interest deduction and standard deduction, but then you quickly find out that one man's loopholes are another man's "Washington reaching into our pockets yet again".
If this condition isn't satisfied, our economic system doesn't work, period.
>I worry that if we don't acknowledge this, we're headed for trouble. If we think 20th century cohesion disappeared because of few policy tweaks, we'll be deluded into thinking we can get it back (minus the bad parts, somehow) with a few countertweaks. And then we'll waste our time trying to eliminate fragmentation, when we'd be better off thinking about how to mitigate its consequences.
A few people making rules didn't cause this to happen. It was the entire world reacting to things the entire world did for the past hundred years. A few people making rules can't stop that kind of force, even if they have good intentions for everyone else.
>What we're looking for is just more equality in economic opportunities and esp capital and that distribution of capital to be more fair across all the classes and not to be a privilege only for rich people and highly connected people... That's how we envision the solution to fix this problem
He mentions this:
>You can mitigate this with subsidies at the bottom and taxes at the top, but unless taxes are high enough to discourage people from creating wealth, you're always going to be fighting a losing battle against increasing variation in productivity.
I think you're looking at a lower scale than pg. From how I read it, he's saying that yes, you can do a little bit to ease the inequality, but you're not going to fix it unless you stop all technology from happening or you stop paying people their market rate. He's saying income inequality is a feature of technology allowing people to be paid their market value and that you can't 'fix' that; the most you can do is take from people at one end and give to people at the other end.
But he argues before that point that tax rates and tax receipts are very weakly correlated. This would seem to be a limiting factor governing how effectively a government can flatten inequality through wealth redistribution.
The capital gains rate under Eisenhower was only 25%, while the top bracket was 91%.
And the corporate tax rate under Eisenhower was only 50%.
Very few of the great sources of dynastic wealth in America were built by accumulating wages under normal income rates.
The thing that I worry about is whether this feature is destroying the conditions that allowed it to become a feature in the first place.
He mentioned the example of Apple and IBM, which I see as illustrative in another way. Would personal computing devices have become popular in a highly fragmented world? According to Wikipedia, the Apple II cost over $5k, accounting for inflation. Absent a healthy middle class, which was created by the era of conformity and relative income equality, would there have been enough consumers to create a market for a $5k computer? As we see income inequality rise, are we not also going to see the opportunity for wealth creation diminish as capital congregates in the hands of a class that largely conserves it?
I think we're already seeing this. As an exercise, try to think of something non-niche that costs around $5k, the price of the Apple II, for which there isn't some form of financing (auto/home/college loans and such). I'm hard-pressed to think of something and I believe it's because there's an increasingly small number of people that can afford such a product. We're already losing the conditions that allowed Apple to introduce the personal computer. There's a long ways that this trend can go before it becomes untenable, but the end result of income inequality will be an environment where it's quite difficult to get paid your market value because the market that funds the employment market will have dried up.
If someone can afford something with financing, they can afford it without. The difference here is not wealth or income, it's spending and savings habits.
So, I get your overall point.
The other thing to recognize is that being poor is MORE EXPENSIVE than being rich. This fundamental fact is often missed by richer (or just middle-class) folks who think that poor people could do better by saving and being frugal etc. Well, if you have no liquid cash at all, you can't even take advantage of quantity discounts or other opportunities, but you still need to eat and have clothes. A decent amount of wealthier people in our system get wealthy via taking advantage of the desperation of poor people, and until that changes, some amount of criticizing the personal financial decisions of poor folks is just victim-blaming.
If you have enough cash to buy a car and enough left to be an emergency buffer and cover other needs and don't have something to do with that cash which promises a higher investment return than the interest on a car loan, then it does not make sense to get the financing. It doesn't matter that the value of the car to you is spread out over time. Buying the car outright is better unless you needed the money for something else or didn't have it or had some investment that would outpace the interest on the loan.
http://www.pewsocialtrends.org/2015/12/09/the-american-middl...
As for 5k products, like fancy drones, 3d printers or high end bicycles, was the apple II non-niche?
What has happened is instead technology allowed some luxury products to be commodized and available to everyone. I doubt multi-billionairs build their own OS-es, cell phone towers, hardware, batteries, support from scratch. They buy an iPhone. Someone on food stamps could concievable save money and still get an iPhone. They both have a luxury product so to speak. But this is a cool anomaly. It doesn't happen with cars, housing, job opportunities, healthcare, clothes, safety, free time, food, etc.
So I think looking what kind of tech products are avaiable to everyone doesn't work as an argument regarding inequality. What about inflation adjusted salary, isn't that a better metric to look at? Or say the cost of healthcare or housing as percentage of wages... defintely not the type of computer and printers people can get.
http://www.census.gov/prod/2008pubs/h150-07.pdf
Of course, this is tangential to curun1r's claim, which is that somehow an inability for consumers to purchase new technologies would hinder innovation.
The figures are as follows (all in thousands):
14,157 units below the poverty line (12.7% of all units)
5,566 of those Owner occupied (39.3%)
3,191 of those owned "free and clear" (22%)
So his 45% claim isn't even true to start with. It falls to 22% when you consider full ownership.
Seeing yummyfajitas make factually incorrect claims is disappointing but not surprising.
If so, do you also consider the Census (whose terminology I used) to be making "factually incorrect claims"?
First of all, owning "free and clear" is hardly the expected meaning of ownership in the context of cars or especially houses in the US. I have a mortgage and I still say I own my house. When I told friends I was buying my house, I expect >90% of them assumed I was getting a mortgage. The government reported "homeownership rate" certainly does not exclude households with mortgages.
Second of all, ignoring semantics, the original context was a conversation about whether a significant number of households being unable to afford technology like a $5K computer would stifle innovation. Innovation probably doesn't care whether customers are in debt or not, so this is still perfectly decent evidence to cite about the spending capacity of poor households.
"Disappointing but not surprising". Sigh.
Citing any sort of statistics like that without at least breaking it down by age band is pretty pointless, in my experience.
And on that, as on so much else, he's more than a little wrong.
Apple and Microsoft simply couldn't have happened without the mega-corps - not least HP, but also IBM, and Fairchild and its spin-offs - which only existed because of post-war military and civilian "socialist" state support for technology.
By the mid-70s that support had been influencing economic policy for more than forty years.
Apple was a product of that system, not a cause of it. Companies like Apple do not happen in a pure deregulated neoliberal market paradise because markets don't have the kind of strategic intelligence that can fund projects like Whirlwind, TX-0, and the original Arpanet - all of which are essential steps on the road to making an Apple or a Google.
>Absent a healthy middle class, which was created by the era of conformity and relative income equality, would there have been enough consumers to create a market for a $5k computer? As we see income inequality rise, are we not also going to see the opportunity for wealth creation diminish as capital congregates in the hands of a class that largely conserves it?
And this is why they can't happen. You can't build your economy by impoverishing your customers with hand-wavey idealism about "market rates." If you try that, at best you run out of customers, and at worst you get a violent revolution.
The smart way to understand the economy isn't as a number of acquisitive centres for a vague thing called "money", but as a way of amplifying collective intelligence and distributing the gains as widely as possible. Status games for their own sake - which include most purely speculative and acquisitive activity - are the opposite of collective intelligence because they concentrate acquisition instead of distributing it.
You can get localised negentropic blips in a speculative economy, but the overall trend will still decrease collective opportunity over the medium/long term rather than increasing it.
Companies like Apple do not happen in a pure deregulated neoliberal market paradise because markets don't have the kind of strategic intelligence that can fund projects like Whirlwind, TX-0, and the original Arpanet - all of which are essential steps on the road to making an Apple or a Google.
Going even further, corporations themselves do not happen in the absence of regulation, and I think that the granddaddy of entitlements -- liability limitation -- is necessary in order to gather enough capital to form great ventures like chip manufacturing.
While I can agree that private entities/markets lacked the capability to fund transformative projects during most of the 20th century, I'm hard-pressed to reasonably apply that to the modern context.
It seems that the most forward thinking, transformative ideas are indeed coming from the private sector markets (e.g. SpaceX), and with the enhanced abilities that our technological age affords to solo individuals, it seems that even small teams may be able to create the next transformative, paradigm-shifting project.
Because technology enables small teams to make big changes that were once only within reach for large entities like the government, the idea that markets don't have the strategic intelligence to do big, long-term thinking, just seems bunk to me. Also, look at the AI lab announced by Altman and Musk, or look at YC's new long-term research lab project. These could conceivably produce the next Arpanet, don't you think?
40-50% of funding from NASA contracts. Yes, this isn't necessarily the same as a direct subsidy, but, in fitting with the article:
"Many of the mid-century oligopolies had been anointed by the federal government with policies (and in wartime, large orders) that kept out competitors."
The book Doing Capitalism in the Innovation Economy [1] really hammers in this point. I highly recommend it to people who have an interest in this. I wrote a review that captures a lot of my reflections on the book itself and the subject matter [2].
[1] http://www.amazon.com/Doing-Capitalism-Innovation-Economy-Sp...
[2] http://www.amazon.com/review/R2SCHS5SXNDF30/ref=cm_cr_dp_tit...
Can you elaborate please on what kind of force at work? Market forces?
Also, do you have any idea why he's bringing up the subject of "social cohesion" repeatedly throughout the piece? Is social cohesion a hot button issue in the US now that warrants more attention from the general public?
Because I believe that as long as the country is not at war with or in a national state of emergency or in other words, citizens are facing any kind of existential threat, the talk about social cohesion is meaningless and could be divisive as the term is tainted with not so favorable concepts from nationalism, nativism and the likes.
> unless taxes are high enough to discourage people from creating wealth
I don't want to discourage rich folks from creating wealth. I just want them for now to pay their fair share of taxes and close all the loopholes that fuel this income inequality gap and distribute more resources to the least privileged and most disfranchised groups in the society to alleviate their situation.
As for technology has an inequality bias to it, I have to disagree with this assertion and point out that the availability of capital or lack thereof is the main catalyst in this equation not technology.
You mean if you can't afford a computer and an AWS account you can't get started? Sure, maybe not, but it's a far cry from the capital you needed in the 1960s to get started. I bet a lot of the readers of this forum know people personally that have made a million dollars or more with their laptop (to a first order approximation).
The point you're making about tech startup costs is true, of course, although it looks like statistically speaking the chances of hitting it big are only slightly better than 'will become a famous singer' or 'will play for the NBA.'
But even if we assume that an average human with a laptop and AWS can now make it big, it seems like in the meantime so much of the other things that working-class people had going for them in the 1960s -- being able to support a family on construction wages, for example -- are gone.
> That's how we envision the solution to fix this problem of "fragmentation" as he put when it exactly is more like a "segregation" problem but not based on racial or cultural factors but on economic one into two completely separate societies between the haves and have-nots, between the 1% and the 99% of the population and it's getting worse and uglier by the day.
This kinda reads like word salad to me -- I have absolutely no idea what concrete policy changes it's meant to imply.
To start, SS taxes apply to all income levels. Next, you can't avoid capital gains by donating appiceated assets. Further, capital gains is taxed at the same rate as all other income.
And my personal favorite, there are zero corporate tax breaks of any kind.
U.S. politics has gotten strange, people complained about welfare mothers not working when that's shat the system was designed to do. IMO, hand out a small fixed amount every month, then flat tax everything last that point and get the government out of micromanaging the economy. Upside, no tax breaks makes everyone's taxes easy, downside would never get implemented.
> Other evidence points indirectly to a strong role of market power. At this point, for example, there is an extensive empirical literature on the effects of changes in the minimum wage. Conventional supply-and-demand analysis says that raising the minimum wage should reduce employment, but as Reich notes, we now have a number of what amount to controlled experiments, in which employment in counties whose states have hiked the minimum wage can be compared with employment in neighboring counties across the state line. And there is no hint in the data of the supposed negative employment effect.
> Why not? One leading hypothesis is that firms employing low-wage workers—such as fast-food chains—have significant monopsony power in the labor market; that is, they are the principal purchasers of low-wage labor in a particular job market. And a monopsonist facing a price floor doesn’t necessarily buy less, just as a monopolist facing a price ceiling doesn’t necessarily sell less and may sell more.
http://www.nybooks.com/articles/2015/12/17/robert-reich-chal...
There's also something similar to your subsidy idea today called the Earned Income Tax Credit [https://en.wikipedia.org/wiki/Earned_income_tax_credit]. Guaranteeing a minimum income does seem like a promising idea, but it will probably have to be tried elsewhere before the U.S. will adopt it (if ever).
The theory is that the buyers of labor in these cases will simply buy alternatives - specifically low-labor alternatives, like automation. Think of automated checkout stands at retail stores, but applied to fast food.
Time was, fuel filling stations all had attendants. Drivers didn't get out of their cars when they purchased gas. They drove up and were greeted by an attendant who operated the pump and took payment. We don't do that anymore - now that attendant job doesn't exist. There's nothing stopping that same kind of transition for many other service jobs.
Both states are considering legislation allowing self serve pumps.
https://en.m.wikipedia.org/wiki/Tipped_wage_in_the_United_St...
This is not correct. If you read "Capital in the Twenty-First Century", the book most lefties are pushing nowadays, you'll see there is a chapter with recommended solutions.
The recommended solutions are things like government control of CEO salaries, confiscatory taxes on the rich (e.g. not taxes to pay for something, taxes to specifically change their status from rich to middle class, something the author even says wouldn't even bring in useful income for the government because there are so few rich to confiscate from), etc.. So their are central planning policies being recommended indeed.
My guess: Relax, what you want is well on the way. The biggies now, in Silicon Valley and Wall Street, are on the way to a land of commodity products, fungible work, high competition, and low profit margins.
Why? Because really powerful innovation they will need but don't much have.
The opportunity? For now, more in innovation.
The opportunity? Be the only guy who knows how to bake really good bread in a land of suddenly huge quantities of just dirt cheap wheat. Or, computer cycles, data storage bytes, data communications data rates per dollar are through the roof, and operating system, infrastructure, and OSS are all just dirt cheap. So, the challenge and the opportunity is to be innovative and make use of this dirt cheap wheat.
Or, 15 years ago, a Web server might have been on one or several single core processors with clock speed of 90 MHz. Now, for much less money can get an 8 core processor with a clock speed of 4.0 GHz. Let's take that ratio in performance:
8 * 4000 / 90 = 356
Find something really good for the new computers to do, guys!
To the extent they aren't being argued for (I won't comment on whether they are "longed for" except to say that you don't seem to have read many leftist writings), that's because they are now the norm, so the burden of argument is now on those who want to change them.
For example, it is now considered the norm that the government will mess with the money supply and the banking and financial system whenever it feels like it, in order to implement centralized control of the economy. Nobody has to argue for it; the burden of argument is on those who aren't sure things like the Fed printing money are a good idea (and most of the time their arguments aren't even heard, they're dismissed as crackpots, even though the worst depression in history occurred after the Fed took control of the money supply).
Also, it is now considered the norm that larger and more centralized government is better; the US Federal government, the EU, etc. People talk about a single world government as though it were a natural next step. Nobody has to argue for any of these things. The burden of argument is on those who think centralization of power has done more harm than good (and again, most of the time their arguments aren't even heard, they're dismissed as crackpots).
> What we're looking for is just more equality in economic opportunities and esp capital and that distribution of capital to be more fair across all the classes and not to be a privilege only for rich and highly connected people.
And Graham's point is that, even in a perfect world where economic opportunity and access to capital was perfectly equal, there would still be huge variations in wealth, simply because there will be huge variations in how well people take advantage of economic opportunity and access to capital in order to create wealth. And the more technology advances, the larger the variations will be, because technology amplifies the differences in productivity between people.
So by all means, fight for a fairer world in which there is equality of opportunity. But don't measure your success by equality of outcome. Unfortunately, equality of outcome is exactly how "success" is measured by basically everyone. And we have "lefties" to thank for that.
I almost feel you may change the entire field of economics with committing the naturalistic fallacy under your reasoning ...
It's exactly the opposite, and even acknowledged in the article: on an international scale, the world is getting more equal, not less.
If you live in San Francisco (or are visiting) you can visit the USS Pampanito - a retired WWII submarine.[1]
One thing I think you will notice is the manufacturers plaques attached to every little piece of equipment in the submarine ... every one of them the plaque of some tiny little supplier that you have never heard of. Some little Detroit Turbine Supply Company or American Radio Corporation of Maryland ...
Seriously - every single component has a label on it from a firm you have never, ever heard of.
I guess I don't have a deep knowledge of military procurement and supply circa 1942 (or whenever) but it sure looks like startups to me ...
This concept of small manufacturers that excel in their niche has been the oldest business model in history.
Especially in Japan and Germany many companies have existed for over a millenium like that, and even today half of the made profits are by small, (50 people or less) companies that are hidden champions.
You probably never heard of http://www.walterwerk.com/en/, but they’re the world’s leader in machines that produce ice cream cones.
As you said, it’s not just since computers that these companies existed – they’ve existed for centuries.
But what is different this time is that for the first time investors are trying to invest in these small businesses, and try to make a huge profit out of them.
" People did start their own businesses of course, but educated people rarely did, because in those days there was practically zero concept of starting what we now call a startup: a business that starts small and grows big. That was much harder to do in the mid 20th century. Starting one's own business meant starting a business that would start small and stay small."
[0] https://www.washingtonpost.com/blogs/on-small-business/post/...
And what's wrong with that?
Besides it being false of course.
If anything it's more sustainable and more productive (as these business MAKE something, don't just eat VC dollars or at best sell ads) than today's "startups" model, which is based mostly on a speculative bubble + ad money.
All the thousands of major companies, from IBM to Bell and from HP to Apple, Boeing, McDonalds and Kodak, and countless others in all lines of business started as small and grew from there.
It's a perversion (and counters the rest of PGs rhetoric) to narrow startups to "companies funded with VC money for a few years to get enough users/eyeballs in the hope that they can be sold for a few billions" which is more or less the modern kind.
I think pg would likely answer "Nothing". Whenever he brings up that sort of entrepreneurship, it's generally to showcase the rarity and timescale with which these small businesses (IBM, Boeing, GE) got huge in a time before the internet.
I'd agree that the Internet hasn't made big businesses get any more substantive, but it has allowed them to get bigger faster.
I guess a difference would be that now you don't need employees.
https://en.wikipedia.org/wiki/United_States_Military_Standar...
Nonsense. Plenty of companies start out as small companies and suddenly find themselves on the upwards slope of a hockey stick, others start out as aiming for that hockey stick and end up being 'just' sustainable businesses.
This whole start-up naming thing denies 125 years of objective reality. You can't start a scalable company deliberately any more than you can reliable write an evergreen book. Time will tell what you've got, not your label of it.
It's odd to me that people assume that just because you've got a small business you won't jump at a market opportunity that could lead to something bigger...even Apple at one point was just a few folks selling stuffed PCBs and doing drugs.
But startups are qualitatively different - they are usually started with the express (and usually only) purpose of growing very large, very fast.
Call them startups or not, but we definitely need a term for the kind of company that behave in this "go big or go home" fashion, and startup is the generally recognized term for it.
So unless you're willing to apply the start-up label only after the fact to the successful companies you're going to have to be a bit more inclusive than to just use it to describe Facebook, dropbox, google, Uber and AirBnB.
> But startups are qualitatively different - they are usually started with the express (and usually only) purpose of growing very large, very fast.
No, that's the exception. The rule is that start-ups were started to be companies like any other. At some point during their life span they found a groove that supported the property of very fast growth (almost always these are companies with some kind of network effect) and then retrospectively applying your criteria you can call those companies start-ups.
Anyway, no need to believe me, you can simply prove me wrong by deliberately starting a start-up that will scale. I'll bet you 1:50 that you won't make it.
The hard part then is this: your company has a fairly good chance (10% or so) to become just another company. Now supposing this is the case, will you then follow through on your 'go big or go home' slogan and go home and kill that company? Or will you do what everybody else does in that situation and just run it and milk the cow?
And even pizza places or grocery stores can end up scaling way beyond the original aim of the founders. McDonalds is a nice example.
If you want a single word that identifies companies that are growing very large, very fast I'd suggest this one: lucky.
It's possible to form other successful businesses of course. But I like the way this definition calls out the scalability as an important factor. It doesn't make you point about betting against it working any less valid though.
Contrast that with what we call startups today - companies that deliberately attempt to be that "evergreen book", trying out every trick in the book to force themselves onto growth path. They live within an ecosystem, a big part of which is a mutual adoration society, with additional large layers of parasitic actors trying to suck out some money and status by just hanging around. And surely a good strategy was found - hence contemporary standard business plan of bullshiting customers with half-made shell of a product to quickly reach the point of getting acquired. It seems to work better than "just" starting a company, at least for the founders. Not necessarily for the world at large.
In a way, I think that early Apple and Google had more in common with a pizza place than with a contemporary Instagram clone.
You wrote: "[...] a start-up is more of a determination after the fact than something you decide to build."
I totally agree with your point about companies normally not being able to "grow fast", and I agree with you that luck is a major factor. However, I think you're wrong in saying that people don't try to deliberately build "grow-big" companies.
Believe me, I'm a proponent of building small-growth "bootstrapped" companies, and I've had many conversations with founders about going that route. The vast majority, who had it in their heads that they wanted to be a startup, were deliberate in pursuing "grow-big" strategies. As one easy example, almost every company that raises VC money is either implicitly or, often, explicitly, chasing a grow-big strategy.
I completely agree that the vast majority of companies end up not being able to grow big, and have to decide between becoming a small company and "milking the cow" as you put it, or closing the company. This doesn't mean that they didn't set out, in the first place, to build a "grow big" company! In fact, you can see that this is true in the way that so many of these companies choose not to continue the small business, which could be profitable, but instead choose to fold the company instead.
In fact, reading the writings of YC, or talking with most honest VCs, will easily prove my point - they constantly tell you they are aiming to fund companies striving for $1b+ valuations, and they're fine with 99% of the startups they fund not getting there as long as 1% succeed. They are quite explicitly optimizing for "grow big" strategies.
Btw, I'd like to point out nl's comment below about Steve Blank's definition of a startup, which I always thought was the absolute best definition. A startup is an organization in search of a business model. When someone opens a pizzeria or a software consultancy, say, they're not searching for a business model - they're just executing one. But VC-backed "grow big" startups are very explicitly trying something new.
EDIT: Just to make sure we're not arguing over definitions - I'm claiming two things:
1. That what people, especially on HN, mean when they startup is a company pursuing a "grow big" strategy, and deliberately so vs. a non "grow big" strategy.
2. Regardless of 1, I also think that the majority of modern-day companies (let's say founded in the last 20 years?) that have grown big were deliberately started with the intention of growing big, ala Amazon, as opposed to say FB or Google, which wouldn't fall into this category. I'm less sure about this point, but it is a factual question that we should probably be able to answer.
Usually a startup is understood to be any venture in search of a sustainable businessmodel.
To grow very large, very fast requires only lots of capital. A lot of companies have confused a large capital investment with a sustainable businessmodel and gone bust soon.
pg's 2012 essay http://paulgraham.com/growth.html suggested using the term "startup" for hypergrowth-oriented company, and the term "small business" for slow-and-steady approach.
Both types exist, deserve to exist, and are nown to end up at a different place than the original goal they had in mind. But using suggested terminology saves us from the replay of the same argument over and over.
I think the willful blinkering of business interests toward only the .001 percent business that's exploding RIGHT NOW is a greater contributor to the fragmentation of business today than the fading priorities of WWII ever was. The idolization of the Gambler on Wall Street (or in SV) has misdirected our priorities away from respecting those who seek to build a sustainable business where normal people want to make a sustainable living. Now the prevalence of jobs at yet another ephemeral startup or large corporation awaiting it's next merger/buyout has greatly destabilized the workplace, much less made the job of corporate leader/ visionary/ innovator next to impossible. Instead of creative invention, corporate CEOs now focus instead on cost cutting destruction, and Wall Street applauds.
I wouldn't call that fragmentation so much as disintegration.
There used to be many thousands of such manufacturing-based small businesses in America. They tended to stay focused on their competency or branch out tentatively into related products, flexibly grow and shrink to meet demand, or sometimes get acquired. But I don't think many of them planned to become the next General Electric.
It would seem this definition paints a startup as a proto-bigcorp. If the prevalence of big corporations is not a cycle we want to repeat, would we not favor businesses that do not intend to become big corporations?
You might be right about the customer side, that non-"startups" are more likely to be around in 5-10 years, which makes a difference when investing in a new, mission-critical area of your business (e.g. replacing email server)
Most new businesses are replicating an existing business model. E.g., if you open a new corner store, it's probably going to end up being like every other corner store. If you're starting a games company, you're probably going to end up like a bunch of other games companies.
Startups, on the other hand, are tackling something deeply innovative. That means early on you have to optimize for learning: understanding customers, iterating on product, seeking product-market fit. It's a very different set of behaviors for the entrepreneurs than the normal new business.
I think you're thinking of venture-backed startups, which require a large enough amount of high-risk capital that nobody will fund them unless they expect to be worth $100m+. But there are plenty of smaller startups that are self-funded or bootstrapped. They can be perfectly stable at small scale, although many of them do choose to grow substantially.
You're describing what I would call a "VC backed startup", where you'll either get big or wither away.
The other end of the spectrum (for people here) would be something like a Bootstrapped Technical Startup. Where you're trying to build a cashflow positive business leveraging technology in some way.
[0] - http://www.paulgraham.com/growth.html
[1] - https://www.quora.com/What-is-the-proper-definition-of-a-sta...
I started rsync.net with the intention of staying stable at small scale.
It's worked out so far.
"Startups" in this context exist to get VC's an acceptable exit.
"Obviously the spread of computing power was a precondition for the rise of startups."
seems closely related to the concept behind the book "Design Rules" (2000, isbn 978-0262024662). Here's a summary from the book flap:
"[The computing industry] has experienced previously unimaginable levels of innovation and growth because it embraced the concept of _modularity_, building complex products from smaller subsystems that can be designed independently yet function together as a whole. Modularity freed designers to experiment with different approaches, as long as they obeyed the established _design rules_. Drawing on the literatures of industrial organization, real options, and computer architecture, the authors provide insight into the forces of change that drive today's economy."
https://scholar.google.com/scholar?q=related:L9DylaW-KYkJ:sc...
http://econweb.umd.edu/~haltiwan/dhjm_jep_5_17_2013.pdf
http://www.brookings.edu/~/media/research/files/papers/2014/...
Here is the abstract of that last study:
"Business dynamism is the process by which firms continually are born, fail, expand, and contract, as some jobs are created, others are destroyed, and others still are turned over. Research has firmly established that this dynamic process is vital to productivity and sustained economic growth. Entrepreneurs play a critical role in this process, and in net job creation. But recent research shows that dynamism is slowing down. Business churning and new firm formations have been on a persistent decline during the last few decades, and the pace of net job creation has been subdued. This decline has been documented across a broad range of sectors in the U.S. economy, even in high-tech."
And here is the start of the first:
"The pace of business dynamism in the U.S. has declined over recent decades. The decline in business dynamism is evident in a pronounced declining trend in the pace of both gross job creation and gross job destruction. An important component of these declining trends has been the decline in the firm startup rate. The decline in the startup rate has yielded a significant decline in the share of employment accounted for by young firms – this share has declined by almost 30 percent over the last 30 years. "
And please, please, please note that a country can have an incredibly dynamic, innovative industry, but that nation can still be in long-term decline. See here for details:
http://www.smashcompany.com/business/if-the-usa-is-the-most-...
What's happened, historically, is that as a technology diffuses into new ways of doing things, old industries simply die out, and then the new industry differentiates into replacements for it. Specialized production in the middle ages was divided into guilds (many of which are family names now): you had smiths, cobblers, bakers, butchers, weavers, etc. When the industrial revolution happened, there was simply "industry"; it was only later that this differentiated into the steel industry to replace smiths, the meatpacking industry to replace butchers, the textile industry to replace weavers, etc.
Similarly, when software got started in the 50s, there was only the "software industry". Now, 60 years later, it's differentiating into search, social, messaging, e-commerce, developer tools, homesharing, adtech, fintech, ridesharing, delivery, etc. And it's likely there's more to come: if I had to locate us in the history of the industrial revolution, I'd say we're around 1890 or 1900. At that point, the great industries of the mechanical age (mass-produced automobiles, airlines, plastics, radio, television, recorded music) had yet to be invented.
And that amounted to a large number of jobs which are no longer available to US workers.
The irony of regularly lecturing the rest of the country and world about what the future holds from the position as a final bastion on unassailable US hegemony of last century (2nd only to Hollywood?) perplexes me.
I am not at all certain, but I have to wonder if something magically keeps SV software innovators glued to SV. This is something I've never understood. But there must be SOME reason why software innovation/work didn't completely disperse from SV ten years ago.
(I'm also not sure if Google or Facebook are either, but at least in those cases it's obvious what you mean)
If you need skilled workers and the varying skill of a worker produces magnitudes of difference in wealth created of course you need to both be huge enough to afford them and centralized enough to take advantage of them.
The article itself seems like a blinders on interpretation of the US tech industry. Corporate consolidation is at all time highs in areas like food processing, farming, finance, raw materials, and industry. Mom and pop shops the world over are bellying up for Walmart and Starbucks. Startups and creative culture in the tech bubble are against the general grain. Its why money in politics is being considered such a larger problem now than twenty years ago - as dozens of economic effects interact, from people having less spending money to companies consolidating and having guaranteed revenues to regulatory meddling in their favor.
Fundamentally I think that newer generations growing up on the Internet are turning out much more hive minded than their grandparents, because there are just more of them as a fraction of the population. The perfect white nuclear family of 1970 still only accounted for a stark minority of the American public - it is just strange that a disproportionate number of people on HN ended up coming from that class. There was still extreme social unrest throughout the century - prison camps for the Japanese, the KKK, segregation, and the banning of many chemicals due to being "foreign" like opium and marijuana. Just because one microcosm of the American economy that produced most of us was homogenistic doesn't mean the era was exclusively defined by it.
https://www.quora.com/Why-do-software-engineers-make-so-much...
This seems to be the ontological point of his essay, which reads as a loosey historical narrative manufactured to defend his belief that the fight against "economic inequality" will undermine innovation by disincentivizing the next Zuckerberg.
But it misses the underlying point of wealth creation: if more people create more wealth, then naturally, there should be less poverty. Adding value to the world makes the pie bigger. The real issue is distribution. Our current economic model distributes wealth as a factor of capital, which is hoarded at the top and systematically protected. It would be silly to say that the top 1% of the population, which owns more than the rest of the 99% combined, creates more wealth or is more productive than everyone else on the planet. They just have a monopoly on capital.
https://en.wikipedia.org/wiki/Seisachtheia
"the relief of burdens"
"The seisachtheia laws immediately cancelled all outstanding debts, retroactively emancipated all previously enslaved debtors, reinstated all confiscated serf property to the hektemoroi, and forbade the use of personal freedom as collateral in all future debts. The laws instituted a ceiling to maximum property size - regardless of the legality of its acquisition (i.e. by marriage), meant to prevent excessive accumulation of land by powerful families."
Well put.
The argument that general taxation disincentives innovation has never made any sense to me: no matter how high the tax rate, your post-tax income still scales linearly with your gross income. If your object is to make increasing amounts of money, how does a tax give you less incentive to do so?
(In reality, only totally naive people believe that any billionaire cares at all about making more money for the sake of the money. It's actually about power and about irrational desire to be higher in the rankings compared to other billionaires… unless they have other motivations that aren't related to their profit, of course)
Its important to distinguish enabling upward mobility through entrepreneurship and incentivizing that with reasonable taxes and stopping billionaire bank tycoons from buying houses of legislature with overseas bank accounts and ownership stake in half the multinational corporations in town.
It also contributes to why that wealth concentration is a problem, because it snowballs - in an unbiased economy with modest inflation the rich must reinvest somewhere to maintain their relative wealth or lose it. When you have enough to use force of law to distort the market so you don't have to take the same degree of risk in those investments, or even make them at all, you break the system.
So while wealth inequality is a symptom of globalized economic forces, that wealth inequality perpetuates itself in how it will be used to stymie innovation and promote selective growth for those first to get there.
Citation needed? As PG points out, most startup founders are not poor. They take the risk of innovating not because they are desperate, but because they see a large upside. Reducing that upside will certainly reduce the motivation to innovate at the margins. The only question is how much does it reduce motivation, and do the benefits outweigh the costs?
Even if you were right, the point remains that limiting the upside of risk-taking also reduces the incentives for middle-class people to innovate.
No, it doesn't: relative to middle-class net worth, hitting it big makes you orders of magnitude richer. Even if you taxed that level of wealth at 95%, it would still be absurdly rich compared to the mean.
First, Google and Apple have nothing to do with personal wealth, they are corporations. The fact that have lots of corporate wealth means they have resources to put into innovation. They can do that completely independently of whether they pay absurd salaries or stock-dividends. Corporations can profit off their activities and put the profits back into innovation, and when that happens they are business expenses that aren't even taxed!!
So the entire issue about taxation of wealthy incomes is only about wealth that people take home as personal profit and do not reinvest in business.
Now, let's accept the questionable premise that these people with high incomes produce the greatest innovation. That simply means that innovation correlates with high income. It does not tell us anything about cause. Maybe these are people who would be innovative no matter what and our system happens to reward that with riches. If that hypothesis holds, then higher taxes would have zero impact on their innovation. There's tons of evidence that innovative people are motivated in other ways besides getting richer, i.e. that the promise of further riches isn't the cause of their innovative work.
When Steve Jobs returned to Apple, he made it far more productive, and he was personally paid to do so. If his personal wealth was capped he may not have found it worthwhile to do this work that he was clearly exceptionally qualified for.
> Maybe these are people who would be innovative no matter what and our system happens to reward that with riches.
You can only believe this if you believe that people (or just "innovative people") are not even slightly motivated by money, which is clearly absurd. I certainly believe that people are motivated by many things besides money, however at the end of the day money is what gets you many of the things you want. I know that I personally am much happier to work hard when I know I will be amply rewarded.
It's a question of liquidity.
http://www.levyinstitute.org/pubs/wp_589.pdf
This study that I found (after just 3 minutes of googling, btw) says that top 1% own only 34.6%. Do you have a source for your figures?
https://publications.credit-suisse.com/tasks/render/file/?fi...
Turns out, the world in general has a lot more poor people (both absolute, and as a fraction of the population) than the US does, so globally more wealth is concentrated in a smaller population fraction.
I agree that for the world at large the wealth distribution is clearly not good. The good news is that it's been getting a lot better in the last few decades, largely due to India and especially China moving people out of poverty by the hundreds of millions.
For the US specifically, things are less clear.
There is tremendously less poverty in the world now than 50 or 100 years ago: https://www.washingtonpost.com/news/worldviews/wp/2015/10/05.... There's only more poverty if it's defined in a purely relative sense, but the relative definition of poverty is only relevant to ideological arguments and pandering to peoples' envy, not to describing peoples' actual material quality of living.
PG seems to argue that the fragmentation of society is a question of efficiency. A natural effect of this is that the world will become more cut-throat. Efficient systems turn hyper-competitive, as seen in university admissions, startups, financial markets. It seems to me that too much "liquidity" mostly causes burnout, depression, dumb risk-taking, and a few really successful winners. Tech is really guilty of this phenomenon by tending to produce one winner for every thousand losers.
In many ways the 20th century was an anomaly -- the wars were more violent, the rate of growth was faster, the cultural shifts were huge and multifaceted -- but we still use tend to see it as a normal state of things. A hundred years into the future we'll be looking at an entirely different world and consider it normal.
I agree that the economic dynamics of 20th century America won't repeat. But I'm not sure most countries will enjoy a stable predictable trajectory this century. Asia and China are far from being mature ecosystems (economically or politically), and the likely loss of jobs due to further globalization and automation, just as the promise of US-style consumerism is arising portends a bumpy ride, especially for totalitarian-ish societies like China, Saudi Arabia, and even Turkey.
The New Left in the 1960s mostly just failed outright. Any change then was due to judicial or executive action.
Slavery, for example, worked wonderfully for the slavers. When we abolished slavery but kept former slaves from full participation in society, they mostly ended up as underpaid servants and laborers. Women restricted from earning a living on their own still had to survive somehow. Which in the 50s often meant attaching themselves to men and providing them with a lot of unpaid support.
The "excluders" in the antebellum South lived under a rather delusional post-hoc rationalization of slavery. John C. Clahoun wrote of this belief system at length. This was minimally modified in the Reconstruction South and after.
My maternal grandmother raised 9 kids during the Depression without the assistance of any men after divorcing her husband. She worked very hard; so did the kids.
In a broad, idealistic sense, yes, I would like each person in the economy producing at maximum. (Assuming we could agree on an ideal value metric, which I'm not sure we can.) There we agree.
But if I am narrowly self-interested (which many humans are), and if I value positional success over absolute wealth (which many do), then I am better off participating in a system of oppression where the value of other people's production is diverted into my pockets. Which is why the great bulk of human history takes place in those sorts of conditions.
> My maternal grandmother raised 9 kids during the Depression without the assistance of any men after divorcing her husband. She worked very hard; so did the kids.
Good for her, and I mean that sincerely. But it's not proof of anything. The question to ask isn't, "Can you name an outlier?" Instead try asking, "What was the average condition of women during the Depression." Or, "Would your family have been better off if women's labor hadn't been systematically devalued for centuries?"
*the present-day use of the word seems incoherent at best - so let's stick to easier-to-see versions for now.
Narrow self-interest appears to be completely at odds with enlightened self-interest. This isn't some ascetic protestation of moral superiority; it's a purely practical mechanism for personally having things that work.
I'm not sure how an average is better (or worse) than an outlier; I meant simply to show what was possible. She was able to use institutions other than marriage for support.
Some of this is hedonic in nature; if you watch "Fargo" second season, you see in pretty good detail how people lived 35 years ago. I'm pretty sure this would be considered something much more like poverty now. Of course, I'd be ignoring any inflation in price of the homes shown, by design.
Real revelation for this Michigan boy was that at both Tesla and SpaceX Musk had failures trying to use existing supplier networks. By doing a lot of manufacturing in house Musk not only realized cost and time savings but gained an agility and nimbleness that blew away his competitors. Granted Musk didn't need to manufacture his own raw materials. But in doing his own manufacturing he was able to gain a further competitive edge by making his products better. For example the Big 3's supplier networks add to their sloth and look-alike products.
¹ Here I expect at least some people to bring up something like Henry Ford and his horse & carriage replacement offering as a counter-example in favor to Elon Musk's enterprise. The car vs. existing livestock-based transport and the electric car vs. existing fossil fuel car are not really comparable.
> [Technology] means the variation in the amount of wealth people can create has not only been increasing, but accelerating.
The problem with this is that success = ability * motivation * opportunity. There's no question that technology is increasing ability. But it's less clear what's happening with opportunity.
Networks tend to be winner-take-all, which means that technology actually depletes opportunity at the same time as it increase ability. Which I think means that we're actually going toward integration, not fragmentation. Only this time we don't need another WWII to integrate society because it's already happening, it's just less visible.
E.g. the vast majority of the traditional media is controlled by the same six corporations. And to quote Fred Wilson's 2015 wrap up, "10 of the top 12 mobile apps are owned by Apple, Facebook, and Google."
There's no question that individuals are way more free than they were in 1950 or whatever. But I think it's more analogous to free-as-in-beer, as opposed to free-as-in-speech.
When I was a lad I got my hand on a great prize: a copy of Delphi 3 (already obsolete by then), which got me started coding. Today anybody can download much better tools (Visual studio, IntelliJ, etc for free). Any question you have can be searched on the internet, etc. Opportunity has increased _massively_ the last 20 years.
> Opportunity has increased _massively_ the last 20 years.
The only problem is that it's increased for everyone else, too. Used to be you were a king if you had a board with a nail in it. Now everyone's packing Uzis.
My argument is that everyone has the same 15 or 20 basic human needs, and increasingly each of those needs is being met by two or three global corporations, as opposed to two or three local or national companies. Which means that even if you as the individual are more talented or whatever, there is actually less opportunity to use those talents to fulfill human needs at scale in a profitable way. That's why such a large percentage of employees today work low wage jobs in the service industry, as opposed to physical/digital manufacturing.
And network effects are only one way in which technology has decreased opportunity. Another is environmental degradation. E.g. 300 years ago anyone in manhattan could feed themselves just being sticking their arm in the Hudson river. But now all 100% of those (edible) fish are gone, and all the profits that were made from dumping industrial chemicals into the river have been privatized by the wealthy.
A third way is legal regulation. Every time a new technology comes onto the market the government has to regulate, which often shuts out everyone except the super wealthy from competing. (Want to start a cell phone company? Good luck with that.)
There are more one-in-a-million lottery ticket opportunities than ever before. But for the average person, there is actually much less opportunity for them to be successful. And not just less wealthy relative to the rich because the rich can gather sticks faster or whatever, but less wealthy on an absolute scale because there are no sticks left to gather.
It's nice to talk about making furniture and fixing up cars or whatever, but I think the number of fortunes that have actually been created by making wealth without externalizing massive costs onto the poor and middle class are probably few and far between.
success = (ability * motivation * opportunity)^hugeDoseOfLuck
There is no guaranteed formula for success, it is heavily luck dependent. Those who think otherwise are suffering from survivor-ship bias and/or the just world fallacy.
see... this (and the implication that people working at large companies get less than market rate) doesn't ring true for me. The real "free markets" of labor, like craigslist and the rent-a-coder marketplaces pay about 20% of what you get if you go through a recruiter who has "a relationship" with a large company... for doing essentially the same thing, and from what I've seen, contractor pay (after the middleman takes his cut) is about the same as base pay (for the same work) at a large company.
Now, when I started contracting in the early aughts, base pay was basically the same as total comp, and so I subtracted the payroll taxes and health insurance and could pretty much directly compare contract vs salary wages. In the early aughts, it was pretty unusual for individual contributors to get big bonuses or even stock refreshes (or that was my perception; I was considerably less senor at the time.)
But, from what I've seen, if you are full-time at a big company here, you get a pretty significant bump now, in terms of bonuses and stock.
My point here is just that my experience has been that when I'm selling my labor, the further I move away from "the free market for labor" and the closer I get to a system of rank and privilege as pg describes 20th century corporations, the more I get paid.
My point is just that as a full timer at a big company, you are at the top end of "market rate" for programmers.
If you start your own company, you are on the 'business person' payscale, which is a rather different thing.
You develop a software and are the PM / product lead. You get paid 8 months, while your client makes $8,000 per month during the next 5 years. This is the market rate.
The market PG refers to is not the labour market but the consumer market where the metric used is not time but value.
I mean, I use scare quotes to convey my scorn, but the point here is that agree with it or not, the market doesn't value technical skills very highly.
Sure, as a modern business person, you need to have some technical skills; but technical skills alone? technical skills alone gets you one of those rent-a-coder jobs.
Most of this "value" is... well, if I understood business well enough to tell you why a couple of jabber servers was worth Billions of dollars, I'd be making a lot more money than I am.
but my point is just that a lot of that "value" to the end customer is something that happens between a business person and the customer; it's something that the technical people are not very involved in.
My advice is keep doing your stuff, but aggressively start building your product-based business on the side.
I encourage you to bookmark my blog and read the categories : "Startups", and "Software Engineering" (coming very soon) for free and valuable information. In 2016, there'll be new essays almost daily.
I've been trying to do that for the last decade. I apparently have what it takes to do rather better than rent-a-coder, but my business skills aren't nearly enough to be "opportunity cost profitable" - I can make rent, but I'm not paying myself nearly what one of the local big companies would. Hell, right now I'm contracting to one of the big companies, and spending the money getting my own company back up to snuff. (and again, it's an education. Contractors, if you do the math, make about what 'base salary' would be for the position as an employee. A decade ago, this was also true... the difference being that a decade ago, base salary was pretty much total comp. These days, bonuses and regular stock grants are the norm and make up a large part of compensation. And if you are a contractor? you don't see that money... either it goes to the middleman or contractor bill rates haven't risen with full time compensation. Either way, it's another example of how technical people get paid worse the closer they are to a "free market")
From my observations? (and always consider "you shall know him by his fruits" when listening for advice; People who aren't successful, obviously, don't know how to become successful. So look at successful people, and look at what they did not what they say) From my observations, a lot of business is like getting a $BIGCO job. A whole lot of it is who you know, not what you can do.
My next project, actually, is to get myself into an elite college. Now I don't know if I can pull it off, I'm not saying it's going to be easy... but if I want to get rich, as far as I can tell, the contacts one acquires at an elite college are far more valuable than any amount of actual skill or effort I put into an actual product-based business.
edit: re-reading, I sound kinda bitter, and I'm not, or I shouldn't be. I have a comfortable place in this economic system; I'm certainly not at the top, but I'm pretty far from the bottom. I'd probably be doing worse in almost any system that most people would consider "fair"
Further, if I really was great? or, for that matter, if I hadn't made two or three of the mistakes that I made, I would very likely have become rich off of my own product business. You can succeed that way; I was close enough to see the possibility. But the point is that I did not. I wasn't good enough, while I am good enough to get a pretty cushy $BIGCO job.
I wouldn't go back to college, I actually dropped out from a top tier college 4 months before completing my MSc. To me there's only one good reason an informed entrepreneur would go to college : buy the alumni directory in order to have leads - not a job.
You become good at things by doing them often, do more business. Work on your business 2 to 5 hours every day and hold yourself accountable. I don't believe in MVPs but I believe in flexible revenue models, initially iterate this model as fast as you can.
http://read.reddy.today/read/4/flexible-revenue-model-vs-mvp...
I'll quote Donald J. Trump "Most entrepreneurs fail because they fail to see their business as their business school".
My experience is that getting to that level of revenue is pretty easy. Anyone can sell something if it's actually a good deal. Getting to the point where you can actually pay yourself that much? pretty difficult. My observation is that most people who got to that level as entrepreneurs got there more through the contacts they had than through their technical skills they had. Of course, not all; I can certainly come up with counterexamples to that rule.
Working at a big company, on the other hand? in my experience? it's really pretty easy.
most of the value of college, yes, is the contacts. But having a list of names is to contacts what one of those scammer emails promising to wire you money is to having a bunch of money actually in your bank accounts.
It follows then that if I'm right that it's mostly about contacts and the assumptions people make about you, you would have gotten nearly all the value you could have gotten from your college experience if you quit four months early.
The answer is no ; as for today. But I believe that the difference between an entrepreneur and an employee is the number of hours an entrepreneur is willing to work for free. That being said, I also expect to start cashing in and make 5 figures a month by the end of this month.
I agree that contacts are key but I also feel you don't have the right perspective here. Business is all about contacts. Even employees have contacts. The key thing is what you do with these contacts and how you seek them.
Reading your comment, I have a sense that you believe a bit too much in perception, luck, and in general passive opportunity. Being an entrepreneur is about influencing people and choosing your destiny, that's why most people do it. If you think like you think, even with the right contacts you probably won't make it as an entrepreneur.
Sorry if there was a communication issue, I don't think the only thing to take from college are contacts. I learned many stuff there. I actually left when I decided I learnt everything I was seeking there and it was no longer worth paying money for it.
What I was saying was that when you are a real entrepreneur, college credentials don't really matter for you.
Well, my impression is that what you really want is security and a constant flow of high income. However what I want is to make the impact I decided to make on the world and become rich by doing so. I'd 100 times prefer to have 50$ left after paying my bills by developing my ventures, than 6000$ left by having a 50 hours a week corporate job.
It's not only about money for me, it's also about how I make it. I want my wealth to be the result of my entrepreneurial success, it's in my DNA, I am driven by that. I refused several CTO positions, and resigned days after being promoted to certain roles that you seem to be aiming for.
As far as my career is concerned, I don't do it for the money, I do it for the success and I hold myself accountable to reach this success. This success is achieving wealth by delivering the unique value I can deliver to the market, using my unique insights and my unique worldview.
I don't know where you're getting a need for security... I'll almost always take what I perceive to be the higher total expected return option, modulo emotional attachments and ethical baggage. My point is just that if you have the skills to get a big corporate programming job, that's probably going to be your highest total expected return option, even if you don't value security.
when I started going into business for myself ten years ago? I could have been you, only, you know, less slick. (And "slick" is interesting, because rhetoric that plays well with one group plays poorly with another. I would have used "plain language" and I wouldn't have quoted an entertainer, but even if the words we used had different connotations, the denotations would be similar) I spent many of those years living as you suggest (having $50 left over after paying my bills... I exaggerate some... but not that much.) Sure, it was pretty exciting, but... it's also exhausting after a few years. I mean, I'm not saying you shouldn't try it for yourself, it's just that you shouldn't fool yourself into the idea that it makes any kind of financial sense at all.
If there was a larger market for unskilled labor, the competition for workers would tend to drive up wages and lower inequality.
Does another job necessarily arise to replace each lost job? That's a question that only a religious person would answer.
We are pushing very hard for computer vision, which is the real barrier to practical robotics that could replace your electrician, plumber, nurse, miner, driver, etc. There is no sacred cow of labor besides what is mandated by the molasses slow state (because I would absolutely argue that learning systems like Khan's Academy, the availability of resources online, and the technological organizational potential of software solve all the criteria to substitute teachers with a security guard watching the kids while they listen to robo-instructor, solve the problems themselves, and ask the neural-net for help when they run into problems - and the kids are of course not all in the same room in an expensive upkeep building called a school). That kind of change though must also be culturally accepted since a lot of effort goes into separating public education from market forces.
Point is, the jobs that we could not send overseas have tremendous pressure on them as a result to be absolved entirely by AI, robotics, and software. It is why the pencil pusher desk job of 1980 - rows of typists at typewriters transcribing documents - went the way of the Dodo and did generate a ton of unemployment that we still have not seamlessly solved.
http://www.businessinsider.com/bill-gates-bots-are-taking-aw...
http://www.nydailynews.com/news/national/smart-machines-job-...
Most relevantly to this direct topic:
http://fortune.com/2015/02/25/5-jobs-that-robots-already-are...
Like I said, there are demonstrable mechanisms, and in-lab and even in-market examples of how these technologies are going to replace almost all these jobs. This is not science fiction. This is market adoption at this point. And we are not at the start of the process, we are in the middle of it.
If you really don't think you cannot replace the human arm with a machine, you haven't been paying attention for two centuries. How is that even a question? We could replace all unskilled work today, if all you are doing is removing mechanical components of labor.
Remember, unskilled labor is "work to be done without training or certification". Driving a truck requires a Class C license, which is a certification. Working at Mcdonalds takes no certification. You need to have state certifications to work as a carpenter, plumber, or electrician. Your janitor doesn't need anything. So when you ask "is there any evidence unskilled labor can be completely replaced" then I would ask what unskilled job is not being replaced right now, from self checkout to vending machines to roombas to combine harvesters.
Thought experiment: let's say a trend starts for everyone earning 6 figures in Silicon Valley to hire a butler and a cook. How many jobs would be created? How many have recently been destroyed? How long before robots are as good a substitute for human butlers as the robot in The Jetsons?
This word implies creation of new jobs, but all examples that you discussed in the rest of your comment seem to be about the jobs that already exist, not new ones.
I think people in technologist circles tend overstate the effects of automation and understate the effects of global labor arbitrage (aided by telecommunications).
PG's post is self-justifying and self-interested.
Here's an alternative explanation of fragmentation: It is the sign of a new industry. It'll consolidate once it matures. Look at semiconductor & hardware consolidation. Google, Amazon, Apple, MSFT, Intel, Oracle etc. absorb a lot of software biz over time. There used to be hundreds of car companies, dozens of aircraft manufacturers.
Plus I don't think your judgments on PG are true.
PG talks about his yearning for something outside the mainstream bubble. For decades the major source for that was the various mostly youth oriented subcultures that made up what we called the counterculture. Hippies, punks, goths, 80s rockers, hip hop, ravers, geek fandom, and a dozen smaller variants provided something that... well... wasn't "red delicious."
Those things still exist but today they feel more like just another culture in the marketplace. They no longer seem to have such potency or power. Maybe I'm just old but I get the strong sense this is true for young people too. Today young people might visit these little subcultures as tourists, but when I grew up they were a much bigger deal. They became your identity. They were almost religious, like modern mystery cults.
Rave was probably the last great youth counterculture. I haven't noticed another one unless you count the "hipster" artisan living thing and that seems more like a lifestyle brand than a true counterculture of the postwar music+fashion+drugs+ideas mold.
In retrospect those subcultures were more like alternative conformity molds. They didn't really alter the underlying zeitgeist of conformity but just provided another channel on the cultural TV dial. Still I do mourn them a bit. Their greatest legacy was as artistic and musical crucibles and nothing has really replaced them. I don't think it's a coincidence that there has been no major musical innovation since the 90s. There has been good music but it all follows stylistic currents set down before 2000. Rave gave us techno and all its various sub-forms and... that's apparently the end of history music-wise.
Edit: would be curious to hear a counterpoint on the last item. Show me a musical style that is as much of a step change today as hip hop and electro in the 80s or drum and bass in the 90s or acid rock in the 60s.
A more equal society is a better society. Always. This was borne out in the work of Wilkinson and Pickett for their book The Spirit Level.
You may have less technology. You may have less innovation. Tough. Creating more of what Earl Dunovant called "cute and useful monkey tricks with energy and matter" at the expense of your fellow man and the planet does not put you ahead, and societies should not seek to optimize for monkey tricks over the betterment of their fellow man.
Inequality (along with the environment) may be the defining issue of the twenty-first century, and once recognition of inequality and its consequences goes mainstream, laissez-faire capitalism will join royalism in the dustbin of discredited political philosophies.
Was tried, more or less successfully, in the Soviet Union. People were not happy with the results in terms of access to consumer goods and living conditions. Been there, done that, don't want to do it again.
If you can read Russian and aren't familiar with the concept of уравниловка, I suggest looking it up. My search on the English transliteration (uravnilovka) doesn't turn up good descriptions offhand.
If you can't read Russian, I'll summarize. It's basically the argument you're making: that everyone should be equal, and that the most expedient way to accomplish this is to drag down the people who stick up. Which is true: that _is_ the most expedient way to accomplish equality. Historically it also leads to everyone living in communal apartments and a stagnating economy that eventually causes your country to have a revolution because people get so fed up with it. It just takes several decades for the pernicious effects of stifling economic growth and innovation to show up.
Now maybe you didn't really mean "always" when you said "always", of course. Maybe you meant "keeping all sorts of things equal, more equality is preferable". I may be able to buy that, but then you need to convincingly argue that those things can be kept equal.
(We could also have an argument about the data cherrypicking and other shenanigans in the book you mention, but I don't think it's really all that germane here, since you're making a blanket argument which has simple historical counterexamples.)
1. Globalization. A lot of manual labour was tied to USA, not so ago to local labour. In last 20-30 years a lot of things get imported from China or outsourced to India.
2. Software (briefly mentioned in original article). Previous technology advancement can give someone leverage, but software got probably the largest leverage in humankind history. Single program can automate what used to do an army of employees. Natural monopolies are common thanks to network effect, economy of scale or technological advances.
Winner takes all market (e.g. Apple has almost all profits in smartphone market, Android got some market share, alternatives are niches).
[1] I get my impression of economists from EconTalk by Russ Roberts.
Now imagine an economy made of millions of people who all have different needs, desires, abilities, environments, intelligence, etc. How accurately can you predict how a single policy decision will shape the trajectory of such a collection of people? Now the State pushes thousands of policy changes per year into the system without ever really monitoring the response to a single change.
> many economists throw up their hand and say macro economics is too tough and we just can't predict how it will work
The smart ones do, but the mainstream Keynesian school have the hubris to think they can predict the responses of millions. Most Western leaders have been advised by Keynesian economists for much of the 20th century, and the decisions of those leaders have caused vast displacement, pain, and suffering in the form of economic turmoil and war.
Remember, the State is also an economic actor, and it derives its income by coercive force. Progressive taxes simply point a bigger gun at the heads of those who perform better in the economy.
I'm all for reducing the size and complexity of govt, including the frequency of policy changes. A progressive tax can be a small-govt solution.
> ... Progressive taxes simply point a bigger gun at the heads of those who perform better in the economy.
A progressive tax certainly takes more from those who have performed better in the past. I'm concerned about creating jobs and encouraging situations where people can succeed in the future. The people who will create the jobs of tomorrow are not the ones who created past jobs. It's small companies who create jobs, so don't tax them as much; it's the struggling entrepreneur who will create jobs, so don't tax them as much. Instead, tax those who have already succeeded and who are not creating as much relative economic output.
On chaos, you seem to be arguing that a few select simple systems are chaotic, therefore a much larger system must also be chaotic. This doesn't make any sense, complexity != chaos. Think of something like an ant colony, millions of ants in an incredibly complex system, but the system as a whole tends toward very consistent behavior. Killing some of the ants or cutting off on supply of food makes no difference.
It's also incredibly vague to talk about this when there are billions or more inputs to a system like the US economy. Some variables might exhibit chaotic behavior, but that doesn't mean anything you do to the system has a completely unpredictable outcome.
> Now the State pushes thousands of policy changes per year into the system without ever really monitoring the response to a single change.
What? They monitor changes all the time. For instance, the white house is happy to tell you exactly how many more people have health insurance now thanks to obamacare. Many (maybe most?) of the policy changes are close to independent and effect only a small subset of people. And it is usually possible to statistically account for other factors that might be interfering with what you're trying to measure.
> have caused vast displacement, pain, and suffering in the form of economic turmoil and war.
Yet somehow we're living in the safest time in human history [1]
[1] https://www.ted.com/talks/steven_pinker_on_the_myth_of_viole...
The two party political system is more unnatural than the few-big-companies system. Libertarians and Evangelicals agree on very little yet they've been voting for the same party for years. Proponents of extreme reform on the other side don't want to vote for a moderate candidate. A Trump vs Clinton election is going to leave too many people without a candidate and force the beginning of the end of the two party system.
- Political entities get large not to achieve economies of scale (i.e. increased efficiency and effectiveness, which may or may not materialize in business... thereby sowing the seeds of future fragmentation when they don't), but rather to achieve scale itself: more votes.
- There's been no de-regulation akin to what occurred in business in the 70s and 80s, mostly because the big parties literally write the rules.
- Elections are pretty much a zero-sum game.
Two-party system is awful in representing people's opinions, but it's much better at another task, that might be even more important — reaching minimal acceptable compromise. Also, you might be overlooking another danger of multi-party system: political force that significantly over-powers all competition. Once something like this appears and gets the power over government, it gets the positive feedback effect and very often becomes a beginning of authoritarian and un-democratic regime. US and UK two-party systems server as a natural safeguard against such a thing happening.
Really, selecting the best possible leader and making best possible decisions are not necessarily the main tasks of a democracy.
You don't have more than two parties in a stable first past the post system. But that is what the US has always had. It takes a pretty big constitutional amendment to adopt an alternate or transferable vote system. But how do you fix a system where those deciding if they want to fix it are only put into power due to the nature of the system as it exists today?
Huh? Libertarians are liberals (small 'l') and what you call evangelicals are (for the most part) social Burkeans. The U.S. happens to have been founded, for the most part, as a liberal state, so the conservative position and the liberal position have historically been on the same side of most issues: welfare, parental rights, religious freedom, education, economic issues, and so on.
There are a few social issues that there isn't general agreement on, but those only seem to affect how libertarian voters feel for an election or two. After some statist behavior actually happens (healthcare reform, the Kelo decision, government surveillance, etc.), libertarians start to realize that conservatives align much better with their goals. At least, they're the lesser of two evils.
I think the problem here is that most people don't actually listen to other opinions on things. Since there is a lack of diversity in mainstream opinion shows, certain positions (libertarian, evangelical, etc.) tend to be only described in caricature. When evangelicals and libertarians start to talk about politics, there's actually a lot of agreement on big issues. Even when they disagree on the ends, they generally agree on the means (big changes should happen with a Constitutional amendment).
E.g. he argues that the greatest receiver of welfare in the US is the wal-Mart family, because they get even richer paying their workers so little that the workers have to live on welfare. (In other words the welfare is "paying" the workers so that Wal-Mart don't have to.) He proposes to rise the minimum wage.
My understanding on Sanders' statement is that it could be paraphrased: "If walmart employes didn't get state welfare, waltons wouldn't be as rich, because they would have to pay more (employees who can't afford food and shelter can't work for you) ... ergo, walmart employees are, at the moment, practically, a conduit of welfare from the state to the waltons".
(That is how I understand his statement -- I don't agree or disagree, I don't know the details well enough to do either)
That is in effect wealth distribution, which again closes the big income inequality. (That's the intended effect anyway.)
But the argument has merit if the wage is not livable. The two issues the make this an issue (or a nonissue) is what is a minimum livable wage, and whether or not it is the governments role to enforce that or not. (No idea about the first, I think Yes about the second)
With regards to enforcement of a minimum wage I would say that if we, as a society, want to enforce minimum living standards that is a burden that should fall on all of us and not just companies that employ low skilled labor.
This would simply shift the cost from the state/government (read taxpayer) to end consumers (read taxpayer).
This doesn't make any sense (though you have paraphrased Sanders accurately). While technically true for some definition of "conduit of welfare", the same is true of almost everybody in society. Welfare recipients are integrated into the economy enough that "if X didn't get welfare, person Y wouldn't be as rich" is true for many, many, many values of Y (neighborhood stores in poor areas, people benefiting from reduced crime ("stealing bread to feed your family" used to be more than a trope), etc). To give an example in microcosm: if you buy a used car on Craigslist from someone, the fact that the seller is a welfare recipient doesn't mean that you're a beneficiary of welfare because you're not paying him enough to live off of.
To the extent that society is responsible for helping the poor (FTR, I personally believe in this responsibility), it makes absolutely no sense to claim that employers (as opposed to the welfare system) are responsible for filling the gap between "market value of a person's labor" and "how much income he needs to reasonably survive".
This particular claim of Sanders is absolutely idiotic: people are blindly pattern-matching it to support for the poor when in reality he's arguing for shifting the burden of subsidies from all of society to arbitrary consumers/business owners/employees affected by artificial wage floors.
I think the difference here is that it's not a matter of a single transaction, it's an employment, so what the employer is basically paying for is the employees time (and time is finite). So a better example would be that you pay someone on craigslist for a service, e.g. paint your house. If the painter works full time painting houses and still needs welfare, then the taxpayers are basically subsidizing house painting ("conduit of welfare" as it was phrased). Why can't those that need their house painted pay what it actually costs to get the job done? Because if the full time painter needs welfare, they're in reality paying him too little.
I think the distinction you're making here is more than trivial, and considered mentioning it but decided that it's still not relevant. My point was that Sanders definition (esp as paraphrased by you) is silly to the point of being meaningless, since it consisted of "X isn't paying enough for Y to get off welfare, thus X is receiving welfare". This applies to my example writ small. Your painter example isn't much difficult from the Craigslist example: the person spends his time doing multiple things that add up to less than enough salary to live off of. That doesn't make any of the purchaser's of his services responsible for the shortfall. To the extent that anyone else is responsible, it's all of society.
> Why can't those that need their house painted pay what it actually costs to get the job done? Because if the full time painter needs welfare, they're in reality paying him too little.
You're defining "what it costs to get the job done" very bizarrely here. If the painter takes odd jobs but his wife is employed too such that the two of them are somewhat comfortable (at least above the poverty/welfare line), by your definition it would suddenly "cost less to get the job done" (since the shortfall to a reasonable income has now diminished/disappeared)? This is of course an absurdity.
The problem again is that you're picking a way to place responsibility for subsidies that makes no sense from either an efficiency or an ethical standpoint. Assuming a need to take care of the poor, we all share that responsibility. The only reason we've "decided" that the burden should fall on arbitrary industries and their employees/customers/owners[1] is because that way we can pretend that we don't believe in taking care of the poor and the robust welfare system that it would entail. All we're doing is creating a shitty, roundabout version of welfare.
Note that I have a tendency to consider complete systems when it comes to policy. In the current political climate, it's no doubt more feasible to implementing higher minimum wages than, say, a basic income. So despite thinking that minimum wages are a terrible idea in a well-functioning system, I wouldn't necessarily vote against them in our less-than-optimal system. I just don't think there's any reason to delude ourselves into thinking that they're good policy per se.
[1] And in a weaker effect, that their effects should fall on arbitrary
Walmart is operating within the legal employment framework set up by the government, including the welfare state and the minimum wage. That will not change by raising the minimum wage. Rather, Walmart will simply add automation and reduce its employment.
Minimum wage is arguably the worst idea when it comes to improving the lot of the poor. If someone cannot command more than the minimum wage when it comes to productivity, intelligence, etc, then raising that wage means that person will be unemployable. That is, their skills are not worth the minimum amount an employer is allowed to pay, so they will not be able to find a job. Ever. That person will be a permanent liability of the State.
Yes they are, poor people are compelled by lack of opportunity to take whatever they can find even if it sucks. Pretending they have the option of just saying no to a low salary is a bit of willful misunderstanding of the reality of their situations.
> Minimum wage is arguably the worst idea when it comes to improving the lot of the poor.
No it isn't.
> If someone cannot command more than the minimum wage when it comes to productivity, intelligence, etc, then raising that wage means that person will be unemployable. That person will be a permanent liability of the State.
That is the point, a minimum wage allows people the opportunity to get into welfare because minimum wage is part of the welfare system, it sets the low bar. It's better to not have a job and qualify for benefits than it is to have a job that pays so little it's not worth having. The minimum wage forces society to deal with the problem of people who lack the skills to make a market wage, and that's a good thing.
> Walmart employees are not compelled to work for Walmart; the employment contract is agreed upon voluntarily by both parties. The employees know how much they will be paid and agree to accept the terms. Walmart is operating within the legal employment framework set up by the government, including the welfare state and the minimum wage.
Yes. And if you think everything is fine the way they are now, then don't change a thing.
> That will not change by raising the minimum wage. Rather, Walmart will simply add automation and reduce its employment.
Sounds great to me. You're basically arguing that not having minimum wage is actually holding back progress.
> That is, their skills are not worth the minimum amount an employer is allowed to pay, so they will not be able to find a job. Ever. That person will be a permanent liability of the State.
If an economy can produce the same amount of wealth with much less workforce/work hours than today, then why shouldn't it? Sounds great if you ask me. (And if that's not possible, just hire more people, it's apparently worth it, problem solved.)
"Minimum amount" is in this case "amount needed to reasonably survive", ie. not need extra welfare. If you can't produce enough value that you can't even justify being paid to "reasonably survive" then yes you need help.
Okay, so I'm no economist, but it sounds like you're arguing that not having minimum wage is in itself a socialist measure. In other words, paying people something, anything, is better for the poor than paying them nothing. The only reason to pay the employees anything at all is to "help the poor", because their work is not really needed anyway (their work is worth that little).
To follow that line of reasoning, from a capitalistic viewpoint, it would thus be wise to raise the minimum wage. If people are being paid to do work that's not actually worth it (ie. subsidized via welfare), then don't. I seriously don't understand why capitalistic Americans defend that point of view. Why should the state/government subsidize effectively worthless labor?
What I'm doing is "calling the bluff". People won't get hired? That's fine, the work they were doing is practically worthless anyway, and I'm certainly not for subsidizing that. However, I think people actually will be hired anyway. Because their work is not worthless. I think the only reason people are being paid so little is not because of the "worth" of the work they're doing, but because the market allows it.
I don't know how that happened, perhaps because the big cooperations have too much power, perhaps it's just inevitable in a free market. But I do not support subsidizing labor, and I don't buy the argument that you have to. The money is there, the value of their work is there, there's no problem paying people more, they just don't want to, and luckily for them they don't need to either. And as long as everyone plays along, that's how it's going to stay.
Sometime in the future I'm sure we'll be able to produce enormous amounts of wealth with minimum man power (re: automation). What will everyone do then? That's up for debate, but it looks like the best bet is putting everyone on universal basic income. And that's not a problem, because the wealth is there, the "problem" is that no one needs to do anything to produce it. I'm sure our future selves will find a fix. (If not, then that sounds like a base line for a revolution. Let's hope that's not needed.)
In the meantime, redistribute some of the wealth by raising the minimum wage. Wal-Mart don't need employees? Fantastic, the future is already here.
Thought experiment: Let's make the minimum wage $1000 per hour. I'd like you to think through the ramifications. What would happen?
> Sometime in the future I'm sure we'll be able to produce enormous amounts of wealth with minimum man power
We already do! The amount of productivity possible by a single worker today was completely unheard of 50 years ago, let alone 100 or 200.
> What will everyone do then?
What do we do now? We continue to work, even though we're far past satisfying all of our material needs. Why didn't everyone just stop working more hours than it takes to eat and stay warm?
Come up with answers to those few questions and you'll be well on your way to being an economist ;-)
I'm assuming prices through the roof, companies forced to sack their workers, unemployment rate through the roof, companies go bankrupt, economy collapses.
I believe Sanders is suggesting $10/hour (and that it's around $7 now). That's just a number, but I'm assuming it's the threshold between "needing welfare" and not. So my argument is that if you're paying an adult less than that then that's less than the cost of that person to "reasonably survive", thus artificially low. (In other words, companies are paying less for labor than the actual cost of labor.)
So now instead they're getting $7 from their employer, and in practice $3 in welfare. That's the difference with your example: People are already earning $10/hour, they're just not getting it from their employer. So raising the minimum wage is not raising the cost of labor, it's simply placing the entire burden on the employer instead of subsidizing it. There might even be room for a tax break there once people start number crunching. (Although in Sanders case I'm guessing he has other things to spend that money on, but I digress.)
If raising the minimum wage to the real cost of labor is a problem, then I just don't understand why. The money is there, it's just "stuck" at the top, and minimum wage is one way to help distribute some of the wealth (which really should benefit the economy as a whole, since the incredibly rich can't possibly spend all their money like millions of middle class families would).
> What do we do now? We continue to work, even though we're far past satisfying all of our material needs. Why didn't everyone just stop working more hours than it takes to eat and stay warm?
I guess it's partly because we live in a material world (where having a nice house, car, pretty clothes etc. is rewarding in its own right), and partly because money brings possibilities, and thus freedom: Freedom to travel, to not work, to do whatever one pleases. So money ultimately brings pleasure, and what else is life than seeking pleasure? ;-)
While technically true, you're ignoring a ton of other factors such as the lack of any other alternative employment or the lack of financial capability to move to an area where more employment exists.
When the only jobs available are McJobs, then that is what you are compelled to do, to support yourself and your family - regardless of your intelligence or qualifications because someone else is ready to take your place if you don't accept the job. You have no power to negotiate a higher salary regardless of whether or not you deserve it.
It is a very hard rut to pull yourself out of and stay free from. Companies like Walmart exploit this as much as they can, and have no reason to change their behaviour unless forced to do so.
I'd like to react to three of my picks. First of all PG conveys with its fragmentation model that long careers in the same company are a thing of the past. I explain an opposite view and support that new companies will have people work longer for them (10 to 20 years) by hiring them much earlier, for much cheaper. This challenges the dynamics presented by PG.
http://read.reddy.today/read/7/hire-high-school-graduates-in...
The second thing is that I found intriguing that PG write "Your prestige was the prestige of the institution you belonged to" talking about college graduates, as if it was a thing of the past and thus presenting himself as a hacker of this system while YC overly represents Stanford alumnis. But this is a paradox that I found with YC in general. They position themselves as a hacker of the system while they really are a cornerstone of this system in many regards.
Therefore - third thing - it wasn't a surprise for me to find in the last paragraph that PG envisages centralization as a better alternative and with a certain nostalgy thinks that the effects of this "defragmentation" need to be contained. Overall, PG thinks like a wealthy man who made his fortune in the late 90s and who has the graduate syndrom - about which I will write momentarily. His insight is certainly valuable but his proposition isn't disruptive.
But think about it. Would historical WWII be possible in today's United States? Introduce the draft and send current US population off to die in Europe? I think you'd see intense levels of political resistance, draft dodging and desertion in the field. Fragmentation means you probably can't unite the whole country to die for... whatever anymore.
However, after pearl harbor, the average citizen took a blow and was more than willing to fight. They wanted to protect their homes, and they felt if they didn't the Japanese would bring the fight to them.
Also recall that prior to WWII there were "intense levels of political resistance" but as soon as our territory was directly attacked that changed. (It took 4 days from Pearl Harbor to our declaration of war)
The use of militarism and nationalism does not require a full scale global war. Certainly it is being used right now in several nations under structural duress. The enemy may be real or imagined, and if you oppose or speak out against the changes you may be the enemy too.
The problem with this line of thinking is you assume that the enemy doesn't care if there's a world left for them to have greater power/influence/wealth/whatever in. Nobody really wins a nuclear war, some people just lose a little less.
..that's how the world works already. Nobody needs a second house or car or whatever as much as some other people need food, clothes, medicine and/or shelter. Does this make the world a shitty place? IMHO yes, and the people who "win" don't really win, not in my books, because they are damaged in wholly other ways I'm not jealous of at all. But here we are, and I think you're imputing pure rationality where there is a lot of narcissism, greed and other defects mixed in. And nuclear war already nearly happened by accident, right? Also, having full control of a small pie which then grows bigger is preferable than being a part of a big pie that's growing where there are competing actors, if you're serious about power. For organizations and their zealots, that can be enough.
Scenario A:
you have 10000 points, the others have 5000 points
Scenario B:
You have one point, the others have 0 points
But the other way to look at it is to say you have infinitely more points than anyone else, and are now God for eternity, for all practical purposes. That this seems silly or sick to you, that you would rather be a normal person in a decent world, than a ruler with an iron fist in a hellish world, doesn't make it less appealing for those who are already chin deep into things we would also find abhorrent. Never say "nobody" easily, unless it's about something that doesn't really matter.
Now if you have 1000 years of rations saved up sure you might win. You might be the only person left on earth. But is that winning? Maybe somebody thinks so, I guess.
It is true that there are a lot of rivalries, but nobody wants another world war. We are all fat, rich (relatively compared to 1939) and entertained, but more importantly there would be nothing to win and a lot to lose. The same goes for civil war - Scotland isn't going to war, nor is Catalonia. Northern Ireland is more peaceful than it has been in decades and no country is seriously oppressing any other country.
Even Putin isn't stupid enough to go into a NATO country, at least not the way he did in Ukraine.
Mind you, I'm not pessimistic, I think we'd largely survive such an ordeal, it will never be on the scale of WWII (at least, that is something you'd hope) but it might take more than just a skirmish before the lessons of old would be re-learned. One of the reasons the anti-war sentiment in Europe was so strong in the 1970's and early 1980's is that we were under no illusion what would be the battle field, today the fact that we have the illusion that the battlefield would be anywhere but here is what endangers us more than anything. Two days driving separates the Russian border from Amsterdam, add another one and you've gone from Amsterdam to Bulgaria. Conflicts could easily spill over from one region to another. The first world war arguably started with a single shot, the second followed from that first. I have no idea what Europe would feel important enough to go to war over but it could just as easily be something insignificant as something big.
The most important thing (apologies to Spain, Italy, Romania and Poland) would seem to me to be that Germany, the UK and France keep seeing eye-to-eye. If those ever find themselves on opposite sides of some kind of confrontation all bets are off.
"The Institute for Policy Studies published a report[10] analyzing what it called the "arm-twisting offensive" by the United States government to get nations to support it. Although President Bush described nations supporting him as the "coalition of the willing", the report concluded that it was more accurately described as a "coalition of the coerced." According to the report, most nations supporting Bush "were recruited through coercion, bullying, and bribery."" – https://en.wikipedia.org/wiki/United_Nations_Security_Counci...
The EU might seem fragile, but that is because the NATO and the EU expanded to fast. Remember some 20 years ago there was a wall through Berlin, now nearly everybody behind that wall has joined. Russia destabilized Ukraine to stop this movement.
Still the EU welcomed Croatia in 2013 and the Eurozone Estonia in 2011, so it is growing.
North-Western Europe already has a large coalition of countries that want and think the same things and have an excellent standard of living. The East will catch up economically and the South will get back on its feet. It will take some time, but I think they will join the group.
Some countries like the UK want their special treatment once in a while, but everybody knows, that London has to play along to some degree if it wants to stay the financial center of Europe.
... and quite a few folks in front of it, too, which is a significant aspect of the internal tensions that arose as the EU evolved out of the EEC.
Northern Ireland is more peaceful than it has been in decades
It is now, but why do you assume that that is a one-way street? Northern Ireland was also relatively peaceful from 1922 to 1968, when Catholics became more aggressive about their demands for civil rights and violent conflict broke out and then escalated rapidly.
Across Europe as a whole (and also the US and other places), look at the rise of populist/ideological politicians. A few decades ago they would have been too marginal to succeed in many elections, but the internet has proved a great organizing tool even for people who want to reduce the scope of civil liberties, just as weapon technology doesn't discriminate based on the morality of who is deploying it against whom. Hardcore ideological politicians are unmoved by or even hostile to arguments about the greater good.
Hitler assumed he would be able to get away with taking Poland, as he had gotten away with taking pretty much anything up to that point and the Germans were extremely pissed over the Versey treaty, so much so that they were willing to go along with it.
Today we know what happens if we go to war with each other, and if anybody in Germany doubts it, they can go see the huge hill outside Berlin (or inside it) were they dumped all the broken bricks that couldn't be reused when the war ended and they had to rebuild the city.
So yeah, that is why I don't believe there will be another war in Europe proper again at least for the next 100 years.
https://en.wikipedia.org/wiki/Project_for_the_New_American_C...
This should be framed somewhere.
The congressional voting turnout was 41.9% in 2014 (https://www.census.gov/newsroom/press-releases/2015/cb15-122...), which means that even if the politician who proposes this is polling at 100%, they could still be beaten.
As a European, who have the remains of a nazi bunker not half a mile from my apartment, I am extraordinarily happy that we can't unite a huge portion of a country to go die anymore.
Also even the military doesn't support a draft.
Of course it always ends in violence. Refragmentation == reemergence of extremism. People asserting stronger identities while technology shrinks the world and brings them into closer economic and information loops is a recipe for conflict.
In the old days you could have crazy ideas and no one on the other side of the world gave a hoot. Today you get <pick your favorite 'other'> storming Inland Regional Centers, Federal lands, or malls.
Yeah, we're moving past it now, but towards something that resembles the pre-war years of robber barons, crony capitalism, and maybe even share-cropping (in modern form) more than some glorious future.
The amusing thing is that he writes this just as the era of fragmentation in the US is coming to a close. We have one winner in search - Google. We have one winner in social - Facebook. We're down to a few retail Internet providers, a few big banks, a few big airlines, a few telecom companies, and a few commercial real estate owners per city. There would be more concentration in those sectors without regulatory pushback.
Good thing PG is a realist: "we'd be better off thinking about how to mitigate its consequences."
But even that point of view is reactionary. What mitigation is good? The kind that preserves mass-market politics as practiced in America? The kind that can take us to war with some distant threat that is not even a blip in terms of national survival? The kind that tells us cops and doctors and uniformly good and competent? Surely not the kind that says "What's good for GM (or Disney, or Goldman Sachs) is good for America."
Skeptical, questioning, objective people with loyalty only to those we can personally qualify will be people less likely to be taken for a ride by the kinds of cynical mass-market charlatans it takes to harness national cohesion.
The weakest part of this article is about taxation and the wealth gap: If taxes rates are weakly related to wealth creation, the spectre of wealth-destroying taxation remains a boogie man, if a popular one these days.
However what is the general sentiment of the peoples there about where the German republic as a monolithic entity is headed, given the recent developments?
Are people generally optimistic or are there significant pockets of dissenting populaces who heavily disagree with the choices Chancellor Merkel has made, in recent times?
The US escaped being crippled by GWoT costs. no lessons learned. It may take President Trump to teach the lesson.
If this is true, does it invalidate pg's overall thesis? I'm not sure. Interesting to think about though.
There's actually a little allusion to this in footnote 21:
> [21] Globally the trend has been in the other direction. While the US is becoming more fragmented, the world as a whole is becoming less fragmented, and mostly in good ways.
He didn't elaborate, but I suppose the essay was already pretty hefty.
To restore balance to the ecology of our civilization, we need to make money a tool for humans. By requiring the use of money only for investment in real stuff, we will deflate the artificial valuations that dwarf the real value of human labor. We will necessarily find ways to restore value to human endeavors and new ways to measure the value of human efforts. More people will thus have value to our civilization on this planet. Otherwise, the refragmentation will continue until it reaches its logical conclusion - a scary picture for humanity.
Do you not think that use of financial instruments is vital for allocating resources in a world of imperfect information?
For me, their utility and necessity is obvious. If you think about it, making stuff that people want is actually rather complicated. The world is rife with hazards and risk; the intricate supply lines upon which production depends are all vulnerable to disasters both natural and human.
Naturally, those whose business it is to produce things and not to speculate on future events would like to be free of such risks. This is true the source of fundamental demand for financial instruments. All the derivatives markets, and zero-sum game apparatuses exist in order to transfer -- and in so doing compute a consensual value of -- these risks to those who believe they are better informed about reality.
While I understand not wanting to personally engage in this process, I claim that that the world is better that these contracts and exchange machinery exist!
In fact, now that there's so much automated trading of all manner of financial instruments, there should be no real need for any new tradable vehicles. In fact, if liquidity and accurate stock pricing are the only desiderata of non-equity traders, and these ends are met otherwise, it sounds like we could easily do away with the entire derivative / option markets altogether as being purposeless and overly dangerous, serving only the professional gambler banker and his vain pursuit of gigabucks.
Remember though that futures / currencies / even stock are just gambling at the end of the day. Its corrupt gambling where some players have much more information than others (and thus it is traditionally just a vacuum of wealth from the poor to the rich) but people are just betting on where profit will emerge with the intent to get some of it when it happens, and through their actions of investment are trying to cause that profit to happen.
In like fashion, the volume of currency trading has diverted massive amounts of a resource (money) simply into making more money. Those 'priests' managing this activity reward themselves with a trivial fraction (slice off the top) but the amounts are so gargantuan, that these few people become an unattainable anomaly that the 'rest of us' gawk at, and many 'have nots' envy with despair. This inequality is the side effect that people are looking at and writing about, but it is not the real failing of our system. The fundamental flaw is the colossal hoarding of resources (that could otherwise be put to 'good' use - investment in stuff that people need to make and use).
In addition, the measurement and observation of this hoard of money is distorting our perception. When we talk about productivity and GDP, our numbers look passable because we only talk about the dollar amounts. Increasingly, the production and measurement of value is reflecting the 'effort' and 'success' of money multiplying itself. Yet unemployment, average wage, and educational achievement for the 'average American' are falling dismally. How can it be that wages for teachers are so low? How can it be that tuitions are so high? Simple observations like these are the song of Nero heard while Rome burned.
Of course I grew up in the Rust Belt, where the average person used to be able to make a good living with a high school education in the steel or automotive industry, but now most of the factories are idle, rusting eye-sores, most of the ambitious, talented kids want to go somewhere else -- anywhere else -- and the closest thing to a growth industry is health care for the folks who earned a good retirement during the glory days and are starting to get old.
[1] https://news.ycombinator.com/item?id=9868017
Do you know of any concrete examples of this? or books about how US Steel lost?
Toyota, working in a Japan decimated by war, definitely came from behind when competing with Detroit's big 3. Toyota starts lower than the other 3, and all of them improve gradually together. But at some point US carmakers plateau. Toyota just keeps on climbing for decades more as the big 3 stagnate.
Eventually, US automakers try to copy the Toyota approach, and Toyota works hard to teach them. But they never quite get it, because US automakers basically miss the point, copying visible behaviors rather than the deeper structures that really make the difference.
Those curious but not wanting to read a whole book should start with the This American Life episode NUMMI:
http://www.thisamericanlife.org/radio-archives/episode/403/N...
It tells the story of a joint Toyota-GM plant in California. Basically Toyota takes one of GM's worst plants and makes it one of the best. But GM is never able to adopt the differences, or even to really understand them. The worker-level stories are particularly powerful.
Why did Toyota did that ?
I cant speak for Toyota, but they probably also would feel their own future would look bleak if their competitors died off - a good healthy level of competition is good for all players in the market, and it drives up innovation and drives costs down for consumers. In a very direct way, having able competitors ensures Toyota stays strong and doesnt stagnate.
See my comment above, but it is important to remember that Toyota did not have any production facilities in the USA at this time; they were not sure (purportedly lazy) American workers could or would conform to the Toyota Production System.
Also, at that time GM had more cash than Toyota's Market Cap. [citation needed] [1]
1. I wish I had better source for this, but Roger B Smith spent 80 billion on automation in the 80's, and Toyota's Market cap was 31-45 billion in 1992.
http://www.businessweek.com/bwdaily/dnflash/content/jan2009/...
http://www.wolframalpha.com/input/?i=toyota+historical+marke...
Additionally, and more relevant - American suppliers could not make parts to Toyota's quality specifications.
One of the craziest parts of this story is that GM simply did not believe the stories that were coming out of NUMMI - for instance, NUMMI could change press dies (for stamping sheet metal) in under a 30 minutes where other plants took several hours.
It is crazy to think about, but GM at that point in history had enough cash to simply buy Toyota; being the biggest dog in town leads to self-satisfaction and complacency.
GM and the big three at that time had an inspect and reject batch lot production system. Each stage of production would make a bunch of parts that would later be used downstream, possibly a few days or a week later. These parts would be inspected for defects before being used, but by then there may be a buffer of several thousand parts - that may all need to be scrapped. Toyota ran on a lean system, which meant that upstream production could cause severe downtime if those upstream suppliers or plant operations failed. This caused 2 things - emphasis on more robust operations and less waste due to scrap.
The whole time period is fascinating no matter what business you are in.
Disclosure / disclaimer - I work for GM, but did not during this time period - I've just read a lot about it.
He says:
> Incumbents faced new competitors as (a) markets went global and (b) technical innovation started to trump economies of scale, turning size from an asset into a liability
It's true that innovation trumps economy of scale, but that's because economy of scale doesn't really apply to software; all software is instantly scalable to 100% of humans at virtually 0 cost, more or less.
But the software giants have something up their sleeve that no startups have: economies of scope. Look at Shazam/SoundHound. Google has released Play SoundSearch which leverages all of their internal AI research + advanced computational and human resources that aren't available to the public. In effect, a megacorp can replace an entire company by saying "Let's throw 15 engineers on it for a year and see what happens." And if a startup pops up that seems promising? They buy it out, adding it to their trophy wall of innovations they can leverage. And megacorp employees can easily stand on the shoulders of giants; instead of stackoverflow, megacorp employees can search through massive archives of top-notch, fully-working code that was designed by some of the best engineers on Earth.
More and more, it takes something truly amazing for a startup to grow enough to compete with a megacorp. Not only does your technology have to be profound, but you need to withstand aggressive buyout deals from several megacorps.
The trouble is the proportion of those who have the highest technological leverage and are engaged in rent-seeking rather than wealth creation. The 1960s physicist was creating wealth they couldn't capture, while the 1990s physicist was capturing wealth they didn't create. If physicists (and other Ivey grads) all only chose wealth-creation, we'd see far less inequality (at least outside the Bay Area). The trouble is the pull of the largely zero-sum (or negative-sum) world of finance, which more than startups has increased the pressure to "make your fortune". Inequality begets more inequality, because when half my cohort is suddenly making 10x more than me, there are real consequences to my own social, personal, and civic life.
This is all on top of the relatively novel wealth imperative introduced by the progress of biotech. It used to be that, beyond a certain point, money only really conferred social status (and even then, only within a certain peer group): if I don't care about status within that particular group, then why should I care about making more than (say) $200k/year? Except now, with the rapid development of fancy unaffordable therapies and med-tech devices, having an extra 10 million $ lying around can have a much larger impact on quality of life than it did even a couple decades ago. And then there's the significant (if small) possibility that, if Kurzweil + co. end up being right, a bit more wealth might mean being able to "live long enough to live forever".
Current tax policy is heavily skewed in favor of the already wealthy, and wealth inequality is currently orders of magnitude worse than income inequality. So rather than just asking everyone to get comfortable with it, why not do something to actually address it? We need to make significant adjustments to (a) strongly discourage rent-seeking, (b) encourage those with the highest technological leverage to make the most of their talents, knowledge, and access, and (c) greatly increase everyone's ability to create, capture, and save wealth.
Choosing wealth-creation rather than rent-seeking has nothing to do with distribution of wealth as far as I see it. The hugely wealth-creating SF bay area is one of the most unequal places in the world.
I think redistribution of wealth is absolutely necessary to reduce poverty and increase average quality of life. Sadly, I don't have much faith in this happening due to the argument that selfishly motivated wealth-creators or rent-seekers will flock to wherever taxes them the least.
There are three assumptions behind the claim that wealth-seeking is better for income inequality:
1) rent-seeking is "easier money" than wealth creation (so if all physicists engaged in wealth creation instead of rent-seeking, as a group they'd end up having less money, hence less inequality for them v.s. non-physicists
2) wealth creation creates wealth, which in general is good for everyone, thereby reducing inequality by giving more people more stuff
3) wealth creating activities have a range of side benefits. E.g., unlike finance, it often requires recruiting, training, and leading teams to build things, which in turn creates jobs and better people, reducing inequality.
If one person is profiting... or in our world a person is profiting more than the others it is inequality in action.
Progressive tax rates are the simplest solution.
The thinking that one persons work is more important than another's is a dangerous and slippery slope.
Why would anyone risk harm and spend years training to be an expert welder when he/she will get the same results as some person that throws some seeds in the ground to grow food for 4 people?
The fact is that some people's work is more important than others. That's why society in general is willing to pay more. The kid that rips my ticket stubs at the theater doesn't deserve the same thing as a neurological surgeon that spent the first 30 years of life in training.
If people want food, and nobody is growing it, but you have a surplus of welders and nobody wanting steelwork done, of course the farmer is going to make more money. Farming is more valuable than welding, regardless of training.
The training itself is not a cost center. It is a barrier to entry to providing goods and services in the exact same way possession of seeds and land to plant them in is a barrier to farming. If there is not enough market demand for welders to make people train to be welders over farmers that is not a tragedy, it is an optimization of the economy.
The economy is the will of all the money in the system. Albeit its not the will of the people, but thats because people are not equal in wealth. But its a strong reflection of what is worth being done, because money would not trend towards something that is not beneficial.
And sane progressive taxes wouldn't be disicentivizing welding over farming - if people stopped training to weld because of reduced profit potential because of taxation, the demand for welders will go up to compensate. Not all of it, but your losses are counterbalanced by any sticky demand.
Additionally, almost anyone arguing for taxation today better be doing it as an equalizer of people. If you are being taxed as a welder it means you have a baseline to fall back on in case of a dramatic oversupply of your skills, so rather than being destitute and homeless you just have to downsize your standard of living. And anyone proposing progressive income taxes better not start advocating taxation until at least the happiness threshold of income, or I'd laugh them out of the discussion. A conversation about taxation should be about excess, not what constitutes a successful life.
Also, your suggestion of sane progressive taxation is a massive backpedal from the statement that I replied to, which implied that everyone should receive equal compensation. We already have progressive taxation in the US, so advocating for 'sane progressive taxation' is just a nebulous cop-out that doesn't provide anything concrete enough to be discussed or analyzed.
Capital gains is merged into one income tax bracket. All money earned in a year is one single income. Income from 0 to your providential happiness threshold according to heuristic analysis based off the methodology used in this study: https://www.princeton.edu/~deaton/downloads/deaton_kahneman_...
From that point to 100x the happiness threshold you curve progressive taxation from 0% to 90% quadratically, approximating the median around 25% at 50x. Your total tax burden is simply the area under the curve, so rather than having tax brackets you use actual math to make sense and tax progressively all income earned.
That means any money made over, if happiness is 75k, 7.5 million is 90% taxed forever. I'd even wager to make it 100% as a short term measure to help dramatically curb income inequality. Note this rate is actually 2% lower than the highest its ever been, but in practice capping capital gains would have a dramatically larger effect on economic planning.
Additionally, you need tariffs on exported wealth, on corporate holdings accounts, and on physical goods hoarded, on property all at progressive rates to avoid off-shore tax evasion, hiding your money in a business account, buying material goods to hide your wealth, and stop the current and tangential issue of land hoarding that would be an even bigger problem under a legitimate tax scheme.
Finally, you institute a 10 year wealth tax to try to reclaim some of the amassed ownership of the means of production the ultra-elite have racked up over the last decade and stop some of the rent seeking. It is not just about stopping them from acquiring even more of a share of ownership, its about getting some of it back. The rates here are not something I have researched much, but something of the sort may be required since so much of total wealth has moved to the top.
You would keep sales tax as a means to fund local and state government, because while regressive if you try to push progressive taxes locally you will just have regional wealth flight. I strongly disagree with the argument that if you tried realistically taxing the rich to pay for society that they would all flee internationally - because the tax burden is pretty close to this in almost all European countries. Where else are they going? Politically unstable and unsafe third world nations? China? Russia? You would absolutely want some global effort here to prevent there from being such an easy escape route, but its a problem of global scale after all, the asset controllers in the US also dominate international commerce and are as much a problem in their influence on every other nation as they are here.
Because it's not the same results, it's progressive results.
The inefficient farmer gets 1 result * X tax rate The efficient welder gets (1 result * X tax rate) + (Y result * X+Z tax rate)
As long as the tax rate < 100%, the higher efficiency is not only part of the return, it's also encouraged to have a better ROI.
Just another article by a hypocrite capitalist talking about "socialism" without a clue.
It barely mentions women and doesn't mention the civil rights movement at all. A majority of Americans living at the time had no chance at being an executive at a large corporation.
There has never been a time when all workers were treated equally.
http://meaningness.com/meaningness-history
That's the intro for a series of posts listed at the bottom.
Here's a "gigantic chart that explains everything": http://meaningness.com/modes-chart
Here's "systems of meaning all in flames": http://meaningness.com/systems-crisis-breakdown
The subset of people complaining about inequality that I actually take seriously[1] are concerned with its effects (for example, on the health of the economy[2]), not what the cause of the rise was relative to the previous era.
Another factor in the (reasonable) complaints has to do with the perception that income inequality is driven by (and driving) inequality of _opportunity_. Basically, the rising inequality is seen as an unfortunate side effect of a positive thing (the aforementioned "fairness"), and the good (IMO) proposed solutions involve increasing said fairness, instead of just rolling back to what we had earlier (warts and all).
[1] i.e., excluding the people who dislike it without any understanding of what its potential causes or implications might be (IME these people exist for every single possible POV). Included in this are people who think that we can magically re-create the economic environment of the 50s (wherein half the world had blown itself to pieces and the other half was emerging from under the heel of colonialism or being smushed by the heel of Communism).
[2] http://uk.reuters.com/article/uk-imf-inequality-idUKBREA1P1P...
It's probably out of the scope of this essay, but we have in fact been at war for 14 years. It's not at the scale of WW2, but it's war none the less. I think it has not induced national unity due to precisely what Graham describes - fragmentation in society.
The US has been involved in foreign conflicts almost continually since the end of WWII, but none of them have been total war.
As Graham's piece concludes; if we don't do something, we'll get into trouble.
- « Terrific work causes us to think of additional questions. »
http://www.economist.com/blogs/economist-explains/2014/05/ec...
Low growth causes more income to come from capital, which causes more inequality due to inheritance and the rich getting richer. The solution is a global progressive tax on capital.
After reading the first paragraphs in pg's essay I immediately went CMD + F Piketty and was somehow disappointed that he didn't choose to cite him since that's the crux of C21C. But, glad to see that others on HN resonated with the same ideas.
Overall, I think a dimension perhaps lacking in PG's otherwise fantastic writeup is that this 'fragmentation' opens up a space of freedom. I mean, our society basically interpolates individuals (younger generations at least) as existential subjects - no set path on what we should do with our lives, no God, no religion, we have to make our own meaning. Painful and difficult, but a source of freedom either way. Today I can travel as a digital nomad, found a startup, work for a rocketship, work for a stable, high paying company, freelance, or switch careers altogether. I get to choose who I associate with and date and marry (and it's even acceptable to not marry), while choosing from a much larger, more open pool, and for the most part, I get to choose who I am. Not everyone has access to this freedom, but it's still the point in human history when the largest number of people have ever had access to this freedom.
Exactly! Completely agree.
You and I are rather fortunate. People who have this freedom should realize it and be advocates for others so they might have similar opportunities.
Whatever your reason, it is still difficult to deny (IMHO) that more than ever today we have the freedom to set our own path, in a way we never have before.
I'm not convinced 'fragmentation' is the best way to summarise these trends. Small businesses are in fact still losing ground and importance to larger businesses (see for example http://www.businessweek.com/smallbiz/running_small_business/...). What definitely is happening compared to the mid 20th C is that the economy is more complex and thus there are more diverse industries represented in government, and also the lifespan of large companies is reduced, particularly as technology advances faster now than ever before. Jobs are also becoming ever more centralised in cities due to their increased need for direct communication which hasn't been countered by technology yet (despite a minor trend for remote work). These are the major trends for me.
I'd also add that while networks of smaller companies may have some innovation advantage over large companies (depending on the industry and innovation), many are focussed on industries where they can reduce labour rights, safety standards, avoid tax and lower wages e.g. in construction industry subcontracting, clothing manufacturing, hardware manufacturing, etc.)
Whats also glossed over here is the advances to society made through mechanisms which aren't people trying to get rich, or seek a 'market price' for their 'wealth creation'. Lets not forget that most of the true computer pioneers were people in the corner of some university or military institution somewhere. Similarly in medicine and most sciences, research which is not profit-driven has been core to much of the 'wealth' of the 20th century across the world.
> than it used to be.
I really do not want to be jerk here but this is 'white guy point of view'. The US politics is more polarized than it used to be because black, latinos, women, gays, socialists, etc. have some voice in politics now. Before they had absolutely no voice or very little.
I think that this is misleading. Every global culture is fragmenting, but the biggest fragments within countries tend to get along much better then they used to. There is a "global culture" now that contains a bigger share of humanity then ever before, but inside each nation it still looks like fragmentation.
Sure, maybe there are more airlines, but are there more airplane-making companies or car companies now then in the '60s?
Or consider this:
> Kids who went to private schools or wished they did started to dress "preppy," and kids who wanted to seem rebellious made a conscious effort to look disreputable
How didn't this happen in the 50s too? "Greasers" are _the epitome_ of rebellious kids.
Or consider politics: I have no idea what politicians said in the US at the time, but back in western europe we had a political spectrum that went from "fascism is okaish" to "praise lenin". At least, didn't the US had basically everyone on the same side regarding abortion and divorce, compared to now?
Looks to me the essay suffers from sampling bias, even if most likely unintentional. Sure a few things are examples of increased "refragmentation" but I am unconvinced this is a general, uniform, and strong trend.
The topic is explains is expressed visually in these two maps, which shows county election results from 1976 to 2004. http://www.thebigsort.com/maps.php
One of the point is that due to economy, mobility and choice, Americans decide to settle where people are like them the most, and that this results in deeper political boundaries, especially in the context of our electoral system.
One takeaway is that individually we are not all different, and a single Democrat and Republican in a room would likely come up with compromises on differing issues. However when on Democrat/Republican is in a group of many like themselves, they tend to take the most extreme view, on average.
The other is that there used to be more friendly relationships between senior senators on both sides of the aisle. They would gather regularly to have a few cocktails even if they have strongly differing views. These bonds made it possible for them to work as a bi-partisan team to get legislation passed. These relationships no longer exist the way they used to, and many politicians are much more transient in the time they spend in DC.
At least this trend is one that individual programmers can choose to resist, assuming we don't have to move to Silicon Valley or Seattle to get good jobs. I, for one, don't have any desire to leave my home town of Wichita, Kansas.
For the last 40 years, we were promised a better living standard in exchange for lower taxes. It backfired. We forgot about the vice that has no bounds - greed. That's why we have to set limits. Paul alludes to the correct and only solution - make tax rates so high to discourage accumulating wealth beyond a certain point.
It's a wave, but the wave has crested. Tax rates will rise, the loopholes will be removed, and the existing tax laws will start to get enforced. Too bad, it could have been different.
Think about technology as outsourcing and you realize what the problem is because you are realizing the trend;
Technology will compete with higher and higher levels of abstraction and so you either have to be really skilled in an increasingly competitive space or you need to accept taking jobs at wages that are as low as they are because of the increased competition from technology.
And until economist stop treating technology as an externality they wont understand whats going on and we will keep debating this as if its a political problem. In my opinion its not.
And so because technology ends up favoring the one winner paradigm it pushes wealth into the hands of very few.
He's seems a little self-aware of his own wealth, and what exactly he's given society?
Sorry--I read this bloated, post holiday, thesis, and was not impressed. Why take so long to say a few thoughts? The're just thoughts?
Yes, we rebelled, or "fragmented".
Yes, unions are not perfect. (Good luck getting rid of certain unions, like any Union San Franciso. I have seen entire buildings go dim when the painter's Union went on strike.)
If I were a psychologist looking for a theme to his writing it would be basically two thing; He is one percenter--trying to rationalize his own wealth? He trying to look for flaws in society that makes it o.k. to be very wealthy?
Paul--take a basic writing class. You need to funnel your thoughts. You could take out 3/4 of your sentences, and your readers would have a better grasp of what you are trying to convey.
Paul--certain unions will never go away.
Paul--this is the downside to being very wealthy. You are living the "dream"?
I wasen't going to read that essay another time. I think we are about to see a lot of tech billionaries wondering if they ultimately ruined the party, or helped it?
Let's get real. In the U.S.--a lot of us didn't have to worry about missing out on the party. All we had to do was try. Now--it's not as easy.
Do I fear the future. Yes--I do. Do I think tech will make things better. No--I don't. That is unless we get serious about overpopulation.
I have a question to any developer here. We are constantly trying to make tech easier. We all know, and like DRY. What's going to happen in a few years when our skills are no longer needed? Even local politians are writing our obituaries. Willie Brown said, 'I'm wondering what we are going to do with all the future homeless tech people.' It's not an exact quote, but it was said in retort to a complaint about all the homeless we step over every day.
My hope is we don't turn into Mexico. A country where someone like Paul couldn't take a leisurely walk in the park?
My question is: significantly more wealth seems to be generated by big corporations by means of financial 'instruments' rather than by value creation; is that correct?
Also this lecture [1] says that scientific and technological breatkhroughs are much harder to achieve these days - because all the shallow fruit is already taken and it costs more to digg deep. Now doesn't that make value creation harder for the coming decades? (for example the PC revolution was based on breakthroughs in physics/semiconductors/electronics - these will be harder and harder to achieve)
So it is hard to tell which one will dominate for the near future: value extraction by means of financial trickery (my guess is that this makes society more hierarchical, and the top of the hierarchy will try to enforce equal standing for the lower ranks) or the possibility of real value creation (this one would create a chance for a wider audience) ?
[1] Collapse of Complex Societies by Dr. Joseph Tainter https://www.youtube.com/watch?v=G0R09YzyuCI
He even argues in earlier writing that most of the innovation comes from genuine passion for solving a problem, rather than profit motive.
People who have worked a lot to increase their wealth understandably don't want a portion of it taken away, even if it probably won't make them less happy, or motivate people less in the future.
Another interesting part was the analogy to Ford's vertical integration. The trend definitely went from fully integrated mega corps to fragmented networks of corporations. The car industry is a perfect example. It would be exciting to know if PG thought about Tesla/SpaceX and it's current move towards a higher level of integration (producing more and more parts by themselves) in order to control the quality of their products. It may be sign that we are on the edge or maximum of fragmentation and there are trends emerging which pull us back into consolidation (maybe in another form than it used to).
http://paulgraham.com/inequality.html (Inequality and Risk, 2005) - economic inequality goes hand-in-hand with risk. If you remove the payoff rewards of risky bets like founding companies, then you remove the incentive to do those things in the first place.
http://paulgraham.com/ineq.html (more on Economic Inequality)
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Huh? His memory must have stopped in 2000 at the peak of the dotcom bubble. Everything has become much more efficient (both in the stock market and in corporate america) and competitive, with droves of college graduates applying for jobs that can be completed by a high-school dropout.
Furthermore I think it's very important to differentiate between total wealth and wealth distribution. Some (probably rather right-wing politicians) advocate total wealth creation and others (rather left-wing politicians) promote (equal) wealth distribution. Economically speaking the former is clearly preferable, while for social cohesion the later is clearly preferable. Which way we go is (hopefully) up to the democratic electorate (ie. you). And should that not be the case, then at the very least we can all agree that fixing the democratic (legislative) process must be our very first priority - no matter if you seek more or less taxation.
PG's a techno-capitalist and he wants to say that somehow technology has created all this wealth, but it's simply false. Tech has only been able to "create wealth" because of the overheated financial forces behind ridiculous valuations, stock prices unhinged from any fiscal reality, etc. If we were to actually price tech on the money it makes it would pale in comparison to the giants of yesteryear.
There's an interesting, but now practically unknown, marxist economist named Paul Sweezy who correctly predicted in the early 70s that the monopoly capitalism of the time would fade into permanent stagnation -- closing factories etc -- with increasing financialization of the economy. Pretty much nailed it.
There are many people that bring real value, even if they would not be good founders (and maybe not even good as first 1-10 employees). That is just one specific set of skills (in addition to common skills), a person can bring a lot of value without being a good founder.
One thing I would like to discuss though is this line:
The creative class flocks to a handful of happy cities, abandoning the rest.
This suggests that there are entire cities, even states, lacking in creative people. Now I'm sure PG was consciously generalizing, or else referring to the extraordinarily creative entrepreneurs like Musk, Dorsey etc. (creative in the business sense), so I don't want to nitpick.
But what do people think about this? Everywhere I've gone in life I've found creative, dynamic people somewhere in my midst. I know a frequent complaint from the Left is the slightly galling idea that if the capitalists abandoned us, society wouldn't be able to fill the ranks of the managerial positions and keep things going. What do other people think? Have you lived in (developed world) cities which felt entirely stultified and lacking the human capital to make things better?
It just suggests a migration. Smart/educated/creative people often head to opportunity when they can. Go to any small town and many of the best/brightest have left. Go to Greece and you'll find the same thing. Certainly some folks stay out of necessity (family ties, poverty, and other reasons) or by choice (a love for the place).
The picture he paints here of postwar-America as a bland, uniform country dominated by a few mega-institutions reminds me of the USSR.
How ironic.
I think the use of the "market price" concept so heavily here might be taking away a little. It sort of assumes some objective (if unknowable) value to human contribution or achievement. I think in the labour market in general, and specifically the components that he's talking about in the lang term, are hard to describe well this way. Between the difficulty to evaluating labour quality, the variability in "quality" depending on specific circumstances, the bargaining/liquidity issues and other problems, I think we enter a (Ronald) Coase-esqu problem where markets do not play out efficiently enough to reveal an information rich market price.
I wonder if this essay would be much different without market price.
I find this curiously close to a description given by a late-soviet economist who was working on economic reforms in the 80s: he described soviet economy as a bunch of heavy hard rocks, incredibly powerful, but without any flexibility and connection to each other, and small new cooperative movement as a sand that should've taken all the space in between.
I wonder about the arrow of causation for conformity back in the 40's. This essay describes WWII as a spark of a generation of conformity (preceded by the New Deal for some). But it's really hard to imagine modern society signing on to a world war. What's to stop parents afraid of vaccinations from taking their draft-age children to New Zealand?
Was there something else that was already more conformist? Or was there another proximate cause, maybe even one as simple as a perceived global threat (communism, fascism) combined with a lack of individual physical mobility?
The essay is good and makes a strong point in and of itself, but I wonder if there's other variables it (and I) are missing.
If pg is reading, one piece of concrete feedback:
> the LBO wave?
LBO wasn't defined in the text previously and I had to google it (it's leveraged buy-out).
This reminds me of something a friend of mine told me over Christmas: Her 65-year-old uncle is not currently allowed to travel abroad from Ukraine because 25 years ago he was an Army officer and anyone with military experience is being held in reserve. So the answer to your question is simply "police at the borders".
Military service used to be seen as an obligation and an honorable thing to do, and wars were seen as being a necessary part of defending one's country and way of life or eradicating great evil.
That fell apart after Korea and especially Vietnam, which were perhaps unnecessary and certainly bungled by politicians. This forever changed the trust and confidence of the public in politicians who send young people into battle.
> "The form of fragmentation people worry most about lately is economic inequality, and if you want to eliminate that you're up against a truly formidable headwind—one that has been in operation since the stone age: technology. Technology is a lever. It magnifies work. And the lever not only grows increasingly long, but the rate at which it grows is itself increasing."
Tackling inequality has nothing to do with technology. Let's put it like this, we have a minimum wage already, the balancing force with regards to economic inequality would be a maximum wage. There are no technological issues blocking a maximum wage, it's just a matter of political will.
The value that a business owner generates is, at a minimum, coordinating the diverse people and elements to make regular work at regular pay possible. And that's if there is NO management required, or technology, or special access, or or or. In fact the "technology and connections" which you dismiss, is an important part of the value that the owner brings to
Most of the profit in the old system accrues to the taxicab company + medallion holder. Uber does hurt these folks, by giving more of the pie to the driver, who can now drive without owning a medallion & is not hurt by this barrier-to-entry, and Uber provides the rest as a discount to the passenger, who receives a better overall service at the same time (you see where the car is + estimated time, ratings, GPS, etc.)
This is a primary result of the "fragmentation" caused by the corruption of the medallion and taxi corporations. If drivers had continued (in some cases) to be direct owners of the medallions or if Taxi corporations had not directed many of the profits to the top, then the answer of driver and consumer choice would be less known.
More drivers likely prefer Lyft if the market of riders exists (Lyft takes a lower cut and is less harsh), and that eventually lower cost (even free / open source) alternatives are taking over (Spain).
This can't not have an impact on the social order. Perhaps he implies or assumes that this is an effect rather than a cause but to leave it unmentioned seems like a big omission.
I wonder if the same is true of coordinating efforts in a centrally planned economy - would computers be the same kind of fundamental change there?
We're definitely in a winner-take-all economy, whether it's real estate, stocks, the dominance of companies like Google, amazon, and amazon, or web 2.0 valuations.
Should connect with the role of social media.
In particular, explains much of why the heck I, first, got a technical Ph.D. and then became an entrepreneur.
Did I mention very nicely done and full of good insight.
Gee, all that time people spent in courses in history, economics, political science, B-school, and STEM field education, and the really good stuff is right there in PG's essay!
In a power law driven world, players that make better long term decisions will ultimately rise to the top and dominate their markets. This is not something most multinationals are known for. (If so, then this process would likely play out over several decades.)
Another major economic factor he seems to have left out is government policies encouraging (sometimes actively) the US manufacturing base to leave to other countries. This utterly destroyed the formerly thriving US manufacturing-based small businesses, eliminating a huge percentage of semi-skilled jobs in the process.
This is perhaps not the best example, as a physicist in 1960 might've faced a choice between academia and Fairchild Semiconductor.
Ofcourse there are forces that stimulate this separation (like PG says) but in the end it's just us.
The solution it to listen to yourself. Am I feeling less than this person? Am I feeling more than this person? If so: stop that thought.
It's lovely that the 1% are paid what they are worth. It's not so lovely that 50% are now paid minimum wage or, worse, zero.
So investing in a start-up is not rent seeking.
When the world is a place where an ever-increasing amount of energy is available to drive an economy, the best way to exploit resources (energy, labor, materials) is by doing it "at scale" i.e. big corporations. And the best way for Hitler to create Lebensraum and accomplish all his other now-familiar goals is by using that selfsame large-scale industrial infrastructure. And the best way for the Allies to fight against it, was more of the same. It's all the same thing.
But economic activity grows and shrinks hand-in-hand with energy availability. And when your energy source goes through a growth phase, hits a peak and stops growing, the "large-scale" strategy slowly starts to become unviable. So a given corporation, suddenly finds itself resource-constrained, and has to find some way to reorganize itself and reconcile itself to the new paradigm, or face becoming less and less profitable.
PG correctly pegs the timing of when the "disintegration" and "fragmentation" starts to make itself evident in the US - the 1970s. By no coincidence that is also the time when America reached and passed its domestic petroeum-production peak. Then came all the economic stagnation, hyperinflation, factories closing (offshoring), etc. And on the social side there was pervasive unease... the "ennui" of the like-named Carter speech. Many subcultures came out of the woodwork then, because it becomes less desirable to fit into and conform to a system that seems to be faltering and becoming unstable, no longer gives you any upward mobility, and might even be rigged against you.
In fact, for the people against whom it truly is rigged, why not outwardly display symbols proudly showing just how thoroughly "outside the system" one is? Hence the baggy pants of the prison parolee (who upon release gets back the same pants he was arrested in, but finds he's lost 30 lbs eating prison food) that became the stylistic signature of gangsters. Hence all the tattoos, formerly the symbol of exotic and unseemly characters, now sort of the neutered and ubiquitous symbol of wannabe unseemly characters.
Anyway it took a great pretender to hide the obvious, and that guy's name was Reagan. Luckily for him, people were all-too-willing to get on-board and believe a pleasant lie, rather than face a bunch of hard work.
Computers were a great invention but it's no coincidence that anything that "gets done" and any wealth that gets created in the US today is by doing "more with less" in the digital realm, and not by doing "more with more" in the physical. All the physical stuff has been offshored to take advantage of labor arbitrage and, ironically enough, cheaper energy. (Because of course there are still countries that export energy.)
Anyone looking for why "we once were cohesive and now we're not" should be looking at this, as the transition is a crisis-level problem. But PG seems to have a persistent blind spot about it. The same blind spot is common among optimistic tech-minded people because they're used to thinking "anything is possible," and I imagine "startup people" all the more so.
I hope that can-do spirit is able to make renewables replace the orgy, the buffet, the glut of energy we use and deploy today. An honest look at the problem might be a prerequisite to tackling it though. Look at the numbers (something measured in joules or watts) and it may give you pause. And given that the initiative depends so heavily on the continued existence of the current interconnected and fossil-fuel-powered industrial infrastructure, I would say, better get a move on.
Tangent/epilogue: And obviously, fucking autonomous cars are not going to fix anything, nor is any kind of car. Who fantasizes about autonomous cars when ordinary passenger rail has so much room for improvement? Californians, that's who. Hyperloop is closer to the mark, but suffers from Musk's attention-whoring narcissism and is likely to be egregiously energy-inefficient. (Since speed, not efficiency, seems to be the main design criterion.) That's enough for you to think about, I know I'm not making any friends but that's not what challenging ideas (an endangered species) are for.
And winner-still-takes-all... some extremely large corporations were made in the last 15 years.
Sorry, don't see the difference between then and now.
I appreciate you attempting to identify the cause of our current crisis, but alas, I believe you may be too entrenched to find it.
The other problem with income inequality is simply interest rate related. If you look at all asset classes over the last 30 years, real estate gains have far outpaces every other asset class. Real estate prices are very sensitive to interest rates.
If the Fed keeps raising rates, the value of these real estate holdings will go down and well inequality will reverse itself somewhat. To do that significantly, I think we need Fed Funds at 5-6%. I don't see that happening for a long time, though.
Another longer term trend which may help wealth inequality reverse itself is global warming. The global elite own a disproportionate portion of coastal real estate. With rising ocean levels these assets will be wiped out.
I feel that this viewpoint is still common today. Success is often glamourised, far more than hard work.
Odd, though, that pg can write an entire essay about identity politics without naming it.
However, there are some counterpoints that don't receive adequate representation in this account, in my opinion:
One is the size and scale to which rent-seeking behaviour dominate the American economy. PG does acknowledge here and elsewhere that rent-seeking behaviour accounts for the wealth of many, but dismisses it relatively quickly as a seemingly self-evident byproduct of the expected variance in a society that permits economic opportunity. I think the situation is a lot worse than that; the amount of such parasitism, in the form of regulatory capture, lobbyist influence, outright Gilded Age-style purchase of legislation, revolving-door career paths, etc. account for an extremely significant percentage of US economic output and the unequal concentration of wealth. Consider for example how our healthcare system works (even post-ACA), Big Pharma, the military-industrial complex, intellectual property law and software patents, etc. A great deal of our government is for sale, and the sole purpose of a lot of our legislative projects is to route money into private hands, with the support of the government's monopoly on force, while socialising risks and losses onto the taxpayer. In my specialisation of telecom, I have seen this at work with the hundreds of billions in effective subsidies given to the AT&Ts and Verizons of the world, ostensibly to support the build-out of competitive next-generation broadband infrastructure but in fact to line their own pockets. All in all, the total dimensions of corruption at the top of the economic food chain are in the trillions of dollars, and I feel this insight is not given a fair shake with the same diligence as other aspects of corporate-industrial history of which PG treats.
The second issue relates to the optimal amount of economic inequality we can sustain while maintaining social order and an environment conducive to ongoing innovation. Many revolutions and upheaveals in modern history attest to the fact that when a sufficiently large class of poor and disefranchised people arises and is left to twist in the wind, at some point "radical discontinuities" will occur. Pervasive, festering social ills don't serve the self-interest of the wealthy and the middle class, either; they ultimately impact the security of their lives and their property, requiring them to resort to increasingly drastic measures to keep what's theirs. The market for mass-market and/or consumer products--on which a lot of startup business models depend--is inevitably limited or shrinks when large segments of society see eroding disposable incomes. Instability also negatively impacts the transaction of business by making the outer world less predictable and dependable; lopsided opportunity in savage inequality leads to lopsided and inconsistent educational outcomes and, ultimately, a more heterogenous and troublesome work force.
As other countries around the world periodically assert, there may be a formula for state economic involvement, taxation and social programmes that better maximises more desirable social outcomes, even if it comes at the expense of bridling notional economic opportunity and the smoothing out of some peaks. Is it not true, for example, that much of the significant innovation in computing and networking from which we benefit today came out of Bell Labs, a quasi-governmental institution whose decidedly mid-20th century model of economic existence created the right incentives for long-tail R&D?
The work done in such places, as in the pharmaceutical industry for example, is now fiercely subordinated to narrow, short-horizon commercialisation objectives, and while that may be a better way for some actors to get rich faster, is it really where we want to go? It seems to me one can raise the same kind of objection about the incentives set up by unicorn-seeking VC funding and California startup capitalism.
All this leads me to say that perhaps these issues need to be considered in a more global, integrated, and holistic way, rather than narrowly construed as problems of economics. If we want to evolve toward a better future, we may need to take up more thinking from the "normative" sphere, which economists hate.
Perhaps a ycombinator readership can appreciate a telling example of the problems is in Graham's account of IBM's decision not to exclusively license PC-DOS. Per Graham, this "must have seemed a safe move at the time. No other computer manufacturer had ever been able to outsell them. What difference did it make if other manufacturers could offer DOS too? The result of that miscalculation was an explosion of inexpensive PC clones. Microsoft now owned the PC standard, and the customer. And the microcomputer business ended up being Apple vs Microsoft."
OK, first, every indication is that IBM sought to deliberately create an explosion of inexpensive PC clones -- and that they were better off for it.
Briefly, IBM made a strategic decision that their position would be better if personal computers were a commodity with competitive suppliers rather than an artificial monopoly like Apple products. IBM achieved this aim. Competition meant that PC hardware margins were low, therefore IBM was ultimately better off letting other people make sell them. For years, this was a harsh blow to Apple which thrashed badly after the PC took off.
Second, it is misleading to say that "Microsoft now owned the PC standard, and the customer."
Microsoft has heavyweight influence but does not quite own "the PC standard". More to the point, figurative "ownership" of that standard is not a particularly valuable asset. The "standard" is the definition of a competitive commodity. Competition is hot. Therefore nobody "owns" the standard enough to exclude competing manufacturers in any significant way. Nobody "owns" the standard enough to extract significant rent on it.
Microsoft did gain a monopoly on DOS (then Windows) rents in the deal but (a) There does not seem to be any way IBM itself could have kept those rents while still making the PC a commodity; (b) Microsoft's rents on DOS and its control of what is in DOS have never once hurt IBM. (c) Microsoft's creation of a vast market of developers targeting DOS then Windows platforms has only helped IBM.
In short, Graham's snapshot of that bit of history is just plain counter-factual. I hope careful readers will look pretty skeptically on his accounts of "socialism", economic management during WWII (which was widely understood at the time to be fascist, not socialist), the typical experience of 20th century employment (not nearly as described), his armchair sociology....
You really thing IBM thought, "wow, we are making so much money with these PC things ... better turn them into a commodity so our profit margins will go away!"
I forget how much the original XT cost, something like $2K or so? The margins on that must have been incredible.
"the Duplo economy" "Duplo world"
Notice that Duplo bricks are twice as long, twice as wide, and twice as tall as ordinary Lego. I wrote "double size" but they are, in a sense, eight times the size of ordinary Lego. They appear hugely larger. Also one tends to have far fewer Duplo bricks than Lego bricks ( 1/8 ?), about the same total volume, limited by storage space in the toy cupboard.
This lets the figurative use of the word Duplo serve double duty, both suggesting that the parts are eight times the size, while also suggesting that the grand total is about the same, there are just one eight as many of the big ones.
It is literally a childish metaphor, but still an apt one.
Or I could just read The Atlantic.....
All apparently so I can see the 'sidebar' menu below the content?
When I follow a link to an article why should I have to press a button to read the article?
I'm getting so tired of this crap on so many sites. I'm really disappointed to see it here.
2nd big story in two days that I found unreadable due to poor web design on someone's relatively simple site (i.e. not crammed with junk like Bloomberg).
Typo.
[6] I wonder how much of the decline in families eating together was due to the decline in families watching TV together afterward
It is a communism motto, not socialism (from each according to his ability, to each according to his work).
And this shows how little PG knows about socialism.
1 the huge pension liabilities that have been accumulated by states
2 the excess credit/currency devaluation and excesses risk taking created by central banks.
"By no coincidence it was in the early 1980s that the term "yuppie" was coined."
... and then read the remaining 15 or so paragraphs - that gets you the whole gist.
Since the 1980s technological progress and also social factors brought an ever increasing re-fragmentation, which, if not properly addressed, might lead to problems soon.
Acknowledging these problems is remarkable -- I think it's the first time pg did that.
The conditions have disappeared, so the economic and social order is unraveling.
Let’s acknowledge the issue and let that acknowledgment guide our policy decisions. We want this golden age back(?).
"One advantage of being old is that you can see change happen in your lifetime. A lot of the change I've seen is fragmentation. US politics is much more polarized than it used to be. Culturally we have ever less common ground. The creative class flocks to a handful of happy cities, abandoning the rest. And increasing economic inequality means the spread between rich and poor is growing too. I'd like to propose a hypothesis: that all these trends are instances of the same phenomenon. And moreover, that the cause is not some force that's pulling us apart, but rather the erosion of forces that had been pushing us together."
In general he tries to look for a net positive outcome resulting from these changes, but is not confident there will be one.