Billionaires, making the world a better place (for them)

[SeanF]

44 minutes ago, OldGimletEye said:

I'm personally not a socialist in the sense that I think that all capital should be publicly owned. Of course, I might be a socialist under other definitions. Here in the United States certain sorts of people have a real bad habit of changing the meaning of that word as it suits them. They like to play calvin ball with that word.

I don’t think it’s a secret that I'm more influenced by JM Keynes than Karl Marx. 

I like markets and think they can do a lot of good. I'd just point out though that being pro market and being pro business aren't always the same thing.

But, here in the United States in particular, likely followed by the rest of the Anglo speaking world there is a there is a very strong ideology of free market fundamentalism, often pushed by people that have a financial interest in doing so. An excellent work on this topic is James Kwak's Economism. I'd recommend reading it.

The basic upshot of it is that certain sorts of people want to apply the purely competitive partial equilibrium model where it doesn't apply. It's like people learn about that model, which is sometimes appropriate as a model, and then forget about everything else they learned in an economics course. Fact is there are plenty of standard economic justifications for government interference in the economy. Just for example: Here in the United States many of our drugs are covered by patents. Hence there are there are a lot of monopolies in the US drug market. Basic economics teaches that if the government can set prices in such a situation, it can increase welfare. Yet, you'd never hear that acknowledged from the free market fundamentalist crowd though.

The usual source of conservative mistakes are always assuming:
1) Perfect competition
Well, this doesn't always apply. Particularly where there are informational problems about prices and so forth.
2) Using a Partial Equilibrium Model where  it doesn't apply.
Partial equilibrium models are a handy analytical too. But, they are an approximation of reality. In order to get a completely realistic model you'd have to put not only every price on every market into the model, you would also have to put the expected price in the future of every market into the model too. In some cases, this extra realism just isn't worth it. But when the market gets big enough, then using a partial equilibrium model isn't appropriated. Where this has practical application as far as public policy is concerned is the debate over minimum wages. Fact is that people that want to argue that raising minimum wages will cause job losses are using the competitive partial equilibrium model and are making a mistake.

During the Great Recession you had all sorts of people arguing basically the "market would correct itself". But where in the hell were people getting this from?  Well evidently it was based on the Arrow-Debreu model of general equilibrium. For a primer on this topic, you can read here:

https://www.amazon.com/Microeconomic-Theory-Andreu-Mas-Colell/dp/0195073401

But the fact is that the Arrow-Debreu model makes a lot of strong assumptions that just doesn't apply in the real world. Once those assumptions are removed, then a multitude of equilibrium are possible, some of them likely more desirable than others. The upshot of this is that it creates a role for government intervention into the economy.

Of course I’d just note that some of the people that were arguing that the “market would correct itself” back in the day have now changed their tune, now that a guy they didn’t like as President is gone. Evidently, they didn’t believe in their own free market fundamentalist rhetoric, but it was only meant to be used cynically as a political weapon.

To my mind, the problem is not so much market fundamentalism, as the belief that your profits are yours, and your losses belong to taxpayers generally.

[Bennis of the Brown Shield]

2 hours ago, Jo498 said:

I think there is almost no empirical evidence for the "incentives" argument. Very few inventors become filthy rich. Nowadays, most innovations and inventions are team work done by people who work in R&D or even at statesponsored institutes and universities and are usually well paid but not even close to earning enough to become multi-millionaires. And just recall which institutions developed e.g. the www and mp3.

There was probably a time in the late 19th and early 20th century when more inventors and innovators could serve as examples of the ridiculous "John Galt" idea, i.e. there was a closer connection between a single person having a brilliant idea and reaping the rewards. But most inventors were not rich back then either and could someone just remind us what did Rockefeller, Vanderbilt and most of the barons of the last gilded age etc. invent?

The only "evidence" is that a caricature of a socialist system stifles entrepreneurship and invention. But if this shows anything at all then only that some monetary (or other) incentive is needed. Not the opportunity to make millions or billions.

But there are innovations and innovations. 

You have to differentiate between basic research and the various groundbreaking technological inventions that take place in R&D labs or Universities, and the innovations that make said technologies actually diffuse in society. Entrepreneurship is often more about the latter. 

If you take Elon Musk for example he did not invent electric cars, the technology for those had existed for decades. But they were still very rare. The incumbent firms did not think there was a way to make them viable to the mass market, and were in any case not ready to spend a great amount of capital and time in order to find out. 

However, Tesla actually managed to make it work through a large amount of smaller innovations, clever marketing, and business management skills. I do not think many would dispute that the company have made electric cars vastly more widespread in society as a result. 

At the end of the day you can have the greatest idea in the world, but if all it does is remain in some lab or scientific journal it is not going to be worth that much compared to if you manage to implement it in society. 

Regarding the "single brilliant person/John Galt" thing that may be true, but in any case many startups these days are founded by teams rather than individuals. Early employees are also often offered equity stakes in the company, and a significant number of outside investors may be brought in along the way. So it is not like the wealth created out of a successful business venture just tends to get funneled to a single individual. 

 

[SeanF]

Just now, felice said:

.

Oh yes, it's all down to capitalism, nothing to do with the incredible advances in technology we've made in recent centuries.

The two go hand in hand.  The Industrial Revolution would never have got started if people were not profiting from it.

[OldGimletEye]

25 minutes ago, SeanF said:

To my mind, the problem is not so much market fundamentalism, as the belief that your profits are yours,

I've been around the block, at least a couple of times. And I know that when these topics usually get debated in the US, it's usually phrased in terms of increasing economic well being or efficiency, and not on the idea of just desserts.

Now a lot of wealthy people might feel it's immoral to tax them because they deserve what they earn. But, usually the "think tanks" they fund and the politicians they give money to don't make that argument, probably because they think it won't fly with the public. Now I can't read minds, so I have to contend with the arguments that people actually make in public, not what they secretly believe. And, again, the argument is usually presented in terms of increasing economic efficiency or welfare, not a theory of just desserts.

As far as a theory of just desserts goes, yeah, that one is questionable too. Sure, people's wealth might be in part due to their own hard work and talents. But, a good portion of it is luck too. I gave an example of this already and demonstrated why Nozick type arguments aren't very persuasive. If you came into this world a literary mastermind, then you are lucky if you were born into the USA or the UK during the 20th Century, rather than 1000 AD or born into Bangladesh.

Also, the ideology of free market fundamentalism does play a prominent part in the debates in the US. I don't think that can be denied by anyone that has been a serious observer of US politics or policy debates.

[maarsen]

However immoral it is to tax the 'creators' of such wealth, is it just as immoral to tax their descendants who have done nothing to create anything? Make your money, play with in but once you die, tax the snot out of the estate. 

[OldGimletEye]

47 minutes ago, SeanF said:

The two go hand in hand.  The Industrial Revolution would never have got started if people were not profiting from it.

I don't have a problem with the general observation that we are all motivated, to some extent, by selfish interest.
But, often, when it gets to the brass tacks of making policy, that general observation isn't particularly helpful. Take something like corporate taxation. What should it be set at?
Well if you believe in the Chamely-Judd model then your answer is that it should be set exactly at 0%.
But, if you don't believe that the assumptions that go into that model are realistic, like it's perfect foresight assumption, or it's assumption of perfectly competitive markets that continually clear, etc. then you might very well conclude something else.
And then of course the people that always remind us how essential the profit motive is for economic growth, often seemingly forget that it can lead people to do stuff that is economically harmful, like rent seeking, or engaging in anti competitive behavior, or the CEO who is looking to line his own pockets at the expense of his share holders and his workers ( a pretty classic principal agent problem).

[Jo498]

57 minutes ago, SeanF said:

But Rowling only keeps a fairly small fraction of the wealth that she generates, and that fraction is taxed.  Her royalties are perhaps 10% of her sales, and that 10% faces tax at 40%.  So, in purely material terms, a great many people are indeed benefitting from what she creates. 

I didn't use Rowling mainly as an example against the status quo where here income/wealth is actually taxed. The point was against the libertarian case that someone like Rowling should not be taxed at all because she was entitled to the money people gave her voluntarily through buying her books (i.e. she did not exploit any workers like the Scrooge-like capitalist).

And the royalties percentage is also not the point. Of course one can debate how much the author should get compared to publishers, booksellers etc. all of which help generate that wealth.

 

[Liffguard]

On the topic of incentives for innovation and entrepreneurship, I have to ask, what possible incentive is provided by the prospect of billions of pounds (dollars, euros, whatever) that isn’t equally provided by, say, ten million? I know that sounds facetious, obviously a billion is a bigger number than ten million. But actually, what does a billion pounds provide you with that ten million doesn’t? A multi-millionaire already has a really nice place to live, a really nice car, maybe a boat, the best food, the nicest clothes, the fanciest gadgets, international travel to beautiful destinations. Any personal luxury that money can buy, a multi-millionaire already has access to.

So what does a billionaire have that a multi-millionaire doesn’t? A better house? Maybe they have more of them, and they’re ludicrously big instead of just pretty big, but you can only sleep in one room at a time. A fleet of Ferraris instead of just the one? A multi-millionaire eats the finest food, and so does a billionaire. A multi-millionaire lives in extravagant luxury, and so does a billionaire. Honestly I don’t really see how having more super-fancy things is going to make you measurably happier than having “only” a few.

So what does a billion or more buy you? Well, it buys you power over other people. Whether through political influence or control of businesses, it buys you control over other peoples’ lives. It means you can direct the actions of politicians, set the working conditions of thousands of people, use media and tech companies to influence the direction of society.

Is that really the sort of incentive we want to use in society? I can potentially get behind “invent something really useful or invest in a successful business and you’ll get to spend the rest of your life in luxury and never need to work again.” I’m not sure I can get behind “invent something really useful or invest in a successful business and you’ll get to be a new feudal lord.” I find it funny that libertarians are so utterly obsessed with protecting private property rights that they disregard what should be the core of their philosophy, namely that people should be free, and not under the thumb of concentrated power, which is exactly what billionaires are.

I’m not necessarily opposed to society having a system of incentives for the creation of real social value; be it through invention, entrepreneurship or whatever. If someone creates something of real value to society and as a result gets to live a really pleasant, luxurious, secure life, then that’s fine by me.

But for an individual to own a billion pounds or more of wealth, that’s just utterly disproportionate to any contribution any one individual could possibly make. It’s functionally infinite wealth.

In conclusion: nice house, nice car, nice food, fine. The ability to control the lives of thousands of people, not fine.

[OldGimletEye]

2 minutes ago, Liffguard said:

On the topic of incentives for innovation and entrepreneurship, I have to ask, what possible incentive is provided by the prospect of billions of pounds (dollars, euros, whatever) that isn’t equally provided by, say, ten million?

What you are asking here is closely associated with the idea of economic rents. Would ten million dollars induce most people to write the next great literary master piece. I think the answer is likely yes. Any thing over what it cost to induce you to do you useful stuff is a rent.

4 minutes ago, Liffguard said:

But actually, what does a billion pounds provide you with that ten million doesn’t?

Mostly likely bragging rights at the country club.

[Serious Callers Only]

Actual sociopathy. These people don't want the money for nothing, they want to 'shape' the society into their usually repugnant views.

 

Professions with the highest percentage of sociopaths (source: https://en.wikipedia.org/wiki/Psychopathy_in_the_workplace )

1. CEO
2. Lawyer
3. Media (TV/radio)
4. Salesperson
5. Surgeon
6. Journalist
7. Police officer
8. Clergy
9. Chef
10. Civil servant

You could literally randomly choose all representatives from the ten least (some kind of public service branch or public care that doesn't involve violence, like nurses, low-level teachers) and you'd get better results for 'moral leadership' than even the sanest CEO that spent 20 years in that toxic culture.

[Bennis of the Brown Shield]

33 minutes ago, OldGimletEye said:

What you are asking here is closely associated with the idea of economic rents. Would ten million dollars induce most people to write the next great literary master piece. I think the answer is likely yes. Any thing over what it cost to induce you to do you useful stuff is a rent.

Mostly likely bragging rights at the country club.

In reply to this and what Liffguard wrote I think it is good to point out that the great majority of entrepreneurs never see close to a billion dollars, if they manage to turn a profit at all. 

People like Zuckerberg, Musk etc. are a very tiny majority that you only hear so much about in the media because of survivorship bias. In reality only something like 10% of startups even become financially successful. The rest crash and burn along the way or return about their initial investment but not much more. 

Now if you take Jeff Bozo for example, prior to starting Amazon he was working at a hedge fund in New York. He likely earned a very good salary there and was on track to earn even more had he stayed on that path. It is hard to imagine that he would have abandoned that career in favor of slinging books out of his garage on the off chance that it might work out, unless the potential upside of that was really high. 

So if you limit the potential of entrepreneurship too much you risk creating a situation where really talented people stay in their formal careers at existing organizations, and the only people creating new companies are those who have no other options. That is probably not so good for future economic growth. 

Note that what I have written here doesn't mean that I think that we shouldn't be taxing billionaires and large inheritances and things like that. 

[SeanF]

6 minutes ago, Serious Callers Only said:

Actual sociopathy. These people don't want the money for nothing, they want to 'shape' the society into their usually repugnant views.

 

Professions with the highest percentage of sociopaths (source: https://en.wikipedia.org/wiki/Psychopathy_in_the_workplace )

1. CEO
2. Lawyer
3. Media (TV/radio)
4. Salesperson
5. Surgeon
6. Journalist
7. Police officer
8. Clergy
9. Chef
10. Civil servant

You could literally randomly choose all representatives from the ten least (some kind of public service branch or public care that doesn't involve violence, like nurses, teachers) and you'd get better results for 'moral leadership' than even the sanest CEO that spent 20 years in that toxic culture.

Being a sociopath gives you the skill-set to get ahead in life.

[SeanF]

2 hours ago, OldGimletEye said:

I don't have a problem with the general observation that we are all motivated, to some extent, by selfish interest.
But, often, when it gets to the brass tacks of making policy, that general observation isn't particularly helpful. Take something like corporate taxation. What should it be set at?
Well if you believe in the Chamely-Judd model then your answer is that it should be set exactly at 0%.
But, if you don't believe that the assumptions that go into that model are realistic, like it's perfect foresight assumption, or it's assumption of perfectly competitive markets that continually clear, etc. then you might very well conclude something else.
And then of course the people that always remind us how essential the profit motive is for economic growth, often seemingly forget that it can lead people to do stuff that is economically harmful, like rent seeking, or engaging in anti competitive behavior, or the CEO who is looking to line his own pockets at the expense of his share holders and his workers ( a pretty classic principal agent problem).

Somehow, there need to be bigger penalties for failure at the top.

0% might well be the correct rate for corporate taxation, if one can work out a way of taxing the owners of companies more effectively.  Companies can be moved into tax havens easily enough, but people are far less mobile.

[TrueMetis]

7 hours ago, Spring Bass said:

And there weren't giant companies when the existing set of giant firms took off? Walmart started off in the hyper-competitive discount retail market. Facebook started when MySpace was already a company with a couple hundred million users in essentially the same type of business. Amazon was up against Barnes and Nobles and Borders, not to mention any other site starting up to sell anything on the web.  Google was wading into a crowded search engine field dominated by Yahoo.  

Not on this scale, no. Nobody had Walmart levels of share in the market since the fucking 30's. (Hey isn't that fucking ominous) MySpace peaked at 75.9 million unique visitors a month, Facebook has 2.32 billion monthly active users. Barnes and Noble and Borders had a little more than a thousand stores between them, and employed 50,000 people. Amazon currently employ's have a million people. Yahoo! collapsed during the dot-com bubble, was actually powered by the google search engine for a time (Yeah Yahoo! only got it's own actual search engine in 2003, made from other engines it acquired), and only dominated during the time before when the internet was ubiquitous. (Assuming it actually did dominate, finding stats for market share back then is difficult, and no one I new ever used Yahoo!).

Quote

And yet literally a ton of them do. Walmart doesn't even have a majority share in retail in the US or elsewhere, never mind a monopoly.

No they really don't. Nobody competes with Walmart if you think that other stores exist is "competition" than you're deluded. Walmart controls 26% percent of the market share. If you not in that range, you're not competition. So at one end there's a maximum of 3 other companies capable of competing with Walmart, and at the other there are a ton of other companies, but none of them are actually capable of competing with Walmart. Seriously who are these tons of companies competing with Walmart? I can think of Amazon, everything else doesn't even get close.

You don't need a majority to be able screw competitors and suppliers. Walmart breaches 30% of demand in some areas. Do you not realize what would happen to a company if suddenly they lost 30% of their revenue? Especially after Walmart has already fucked them by making them slash prices and make margins even thinner? Did you read the article I linked? A company had to give over the manufacturing of some of their products over to a rival because it could not keep up with Walmart's demand. Company's that work with Walmart see massive sales increases, but decreases in profit because of how much they are forced to cut prices.  And it's really fucked up when I'm sympathizes with corporations. But that's only because they used the same price dropping techniques on corporations as they do on themselves. Outsourcing to other countries, and paying their workers shit wages.

Quote

You missed the point - why are Walmart's employees still working for Walmart (or Amazon's for them), when they could all quit and start up a cooperative that they own? They have the expertise and the knowledge of how to run the company, and capital is cheap. What is the Walton family gonna do if all their staff quits? They're not like feudal aristocrats - they can't send out the knights and men-at-arms to kill a bunch of them and force them to return to the metaphorical fields. They can't even send out the Pinkertons to beat people, like the robber barons of the Gilded Age.

Because the median pay for a Walmart employee is $19000. People on welfare don't exactly have a lot of investment income.

[OldGimletEye]

35 minutes ago, Khaleesi did nothing wrong said:

In reply to this and what Liffguard wrote I think it is good to point out that the great majority of entrepreneurs never see close to a billion dollars, if they manage to turn a profit at all. 

People like Zuckerberg, Musk etc. are a very tiny majority that you only hear so much about in the media because of survivorship bias. In reality only something like 10% of startups even become financially successful. The rest crash and burn along the way or return about their initial investment but not much more. 

Now if you take Jeff Bozo for example, prior to starting Amazon he was working at a hedge fund in New York. He likely earned a very good salary there and was on track to earn even more had he stayed on that path. It is hard to imagine that he would have abandoned that career in favor of slinging books out of his garage on the off chance that it might work out, unless the potential upside of that was really high. 

So if you limit the potential of entrepreneurship too much you risk creating a situation where really talented people stay in their formal careers at existing organizations, and the only people creating new companies are those who have no other options. That is probably not so good for future economic growth. 

Note that what I have written here doesn't mean that I think that we shouldn't be taxing billionaires and large inheritances and things like that. 

Using a standard von-neuman morgenstern utility function, I think the downside loss would have to rather large, that is not applicable in most these situations, in order for a billion dollars to be what is required to induce these people to take a risk.

[OldGimletEye]

19 minutes ago, SeanF said:

Somehow, there need to be bigger penalties for failure at the top.

0% might well be the correct rate for corporate taxation, if one can work out a way of taxing the owners of companies more effectively.  

Well I think the Chamely-Judd model makes some rather dubious assumptions. So I wouldn't conclude 0% is the correct level of capital taxation. It's pretty well known that monetary policy works primarily through inducing people to buy durable goods and not through getting corporations to invest more. And there is other evidence that expected sales growth is more important in getting companies to invest than the cost of capital.

And then to the extent there is monopoly power, taxing those profits are socially desirable. So, I don't think 0% is an appropriate level.

24 minutes ago, SeanF said:

 Companies can be moved into tax havens easily enough, but people are far less mobile.

Well I think wealthy elites are quite effective at getting international trade agreements when they want them. But, international tax compliance, I'm going to guess, isn't high on their agenda, though it should perhaps be on everyone else's.

[SeanF]

6 minutes ago, OldGimletEye said:

Well I think the Chamely-Judd model makes some rather dubious assumptions. So I wouldn't conclude 0% is the correct level of capital taxation. It's pretty well known that monetary policy works primarily through inducing people to buy durable goods and not through getting corporations to invest more. And there is other evidence that expected sales growth is more important in getting companies to invest than the cost of capital.

And then to the extent there is monopoly power, taxing those profits are socially desirable. So, I don't think 0% is an appropriate level.

Well I think wealthy elites are quite effective at getting international trade agreements when they want them. But, international tax compliance, I'm going to guess, isn't high on their agenda, though it should perhaps be on everyone else's.

Taxes on capital are fine.  It makes sense to tax capital more, and income less.  Perhaps with companies, it makes more sense to tax turnover than to tax profits.

[OldGimletEye]

1 minute ago, SeanF said:

 turnover than to tax profits.

Depends on what we mean by profits. If we mean the normal return to capital in order to induce some one to invest, then there is at least a theoretical case that those should be lightly taxed. But, anything over that, ie rents or economic profits, due to market power, beyond what is required to make the next marginal investment, then than those should likely be taxed quite heavily.

[Conflicting Thought]

7 hours ago, SeanF said:

I make no secret of the fact that I think that generally, capitalism is a good thing, which has given us a standard of living that past societies could only dream of.

I think that is such an oversimplification of history, and how capitalism and societies work, that i find difficult to take seriously. 

[Conflicting Thought]

1 hour ago, SeanF said:

Being a sociopath gives you the skill-set to get ahead in life.

Ok.