What I’m referring to is what I see in the media and a lot of business thinking where the goal is to find the next Amazon or hire the next Steve Jobs that will provide a thousand-fold ROI. And I see a few problems with this sort of reasoning:
It can lead to mismanagement and outright fraud - Enron, Bernie Madoff, Theranos, WeWork, FTX and plenty other examples of companies where part of the problem was that investors were so enamored by their reported growth and “superstar” leadership that they failed to do their due diligence.
It becomes self-perpetuating - How many of the CEOs and companies I listed above were heralded on the cover of Fortune and Forbes as the “next big thing” before they collapsed? Once you achieve a certain level of success, you can afford to start the big PR machine to continue hyping up your success.
It neglects that high performing companies are the result of effective complex systems and processes, not just some charismatic leader and some abstract “vision”. Even Oppenheimer had like 2000 people helping him build that bomb.
It tends to create a myopic view of the world. For example, the benchmark of a successful economy isn’t just about how many billionaires and hecta-millionares it creates. It’s also about the other 99% of the population who teach in schools, build roads, and do other stuff that society needs to function but doesn’t produce seven figure incomes or 1000x ROIs.
Well, I’ve worked in the intersection of tech and finance for over 20 years and sometimes they do seem very cartoonish to me.
I know they aren’t “randomly” throwing money at stuff (dot.com and AI bubbles not withstanding). But as others have pointed out, Wall Street and by extension Silicon Valley often seem to exist in some weird self-contained alternate reality that has little to do with Main Street people’s day to day lives (until it does).
In other words, a bit of a closed self-perpetuating ecosystem.
Yes, I know the company thinks that because that’s what they did. The question is does it make sense?
Another example - in another thread, a poster brought up the demotivating effects of the Mckinsey/Jack Welch “A/B/C players” performance policies where the top performers received all the bonuses and raises, the middle were presumably encouraged to work harder or leave, and the bottom were fired. Again, it presumes the only value is in being “superstar”, which is highly subjective anyway and that there is no value in being a solid performer who grinds away getting their job done.
Tying it all back to the OP’s question - IMHO a big reason the 1% (really the 0.1%) is growing faster than the rest of the economy is the “rockstar unicorn” mentality instead taking a more boring but more sustainable view.
IF that were true, then this would mean that the rockstar mentality is objectively true and effective, and it wouldn’t be a bad thing to pursue it (although we’d need to come up with some kind of way to equalize the proceeds from the gains from that increased productivity, because immense inequality has a negative impact on social cohesion).
But I don’t think it IS true. I think you are correct when you say:
Yeah, that’s how the media reports on the economy and the business world. The president has a real and lasting impact on the country’s economy, a few movers and shakers and famous names change industries in a flash with their genius. It makes for very exciting reporting. But it isn’t true.
Most of the mega wealthy don’t get there by inventing “the next Amazon”, they do it by managing diverse arrays of investments that outperform the market.
And even Amazon isn’t exactly “the next Amazon”, in the sense that it wasn’t some startup that exploded out of nowhere; it grew slowly, over many years, from an online book business to the giant it is today.
The .1% isn’t growing faster because of speculative investments on unicorn startups, it’s growing faster because it already owns all the biggest moneymakers and is in place to capitalize on any new opportunity.
So Musk and Bezos are each worth just under a quarter trillion. Rockefeller and Carnegie were each worth over a third of a trillion in 2024 dollars. The dollar didn’t free-float back then, it had to be backed by gold. Can we compare what empires Musk and Bezos have brought forth to oil and steel, in terms of expanding a society? I couldn’t say.
We can, however, look at comparison societies where the capital was controlled from the outset by a few big shots, vs. a wave of small-timers:
The US and Russia (either run by Tsar or commissar) had similarities geographically and demographically. But the autocratic Russians saw the US as a mad scramble that always resulted in boondoggle and collapse. Their Chinese Communist counterparts coined the phrase “running dogs” by our resemblance to a pack of them always chasing the next rabbit to appear.
In some enterprises the Russians and the US ran even: their respective transcontinental railroads, the oil in Baku or Oklahoma. But in other examples, economies driven from above are far worse. As bad as the collapse of America’s bread basket was in the Dust Bowl, its chaos was nothing compared to the deliberate misery of the Holodomor. The Alaska Gold Rush was a mess, and failed to lift the US out of the depression that was occurring at the same time, but in cost of human misery, the autocratic method of enriching the economy with gold, as it was done across the Bering Sea in Kolyma, was a Hell on Earth.
(And I note that both San Francisco and Seattle were birthed by gold rushes, and thereby were ready to become centers of the digital revolution many years later)
Of course in democracies the non-government autocrats swoop in and gobble it all up eventually anyway. Rockefeller got all the oil, Hearst took over the Colorado silver. It sucks for the little guys, but they were going to create a dangerous bubble if left alone anyway. The only best hope is to have a representative democracy that safeguards and regulates. And boy, do Americans resent that; at least when they’re not starving.
I have this vision of tribesmen living at the hunter-gatherer level, while scattered here and there across the landscape are enigmatic black pyramids left over from “The Before Times”. Unknown to the tribesmen, the pyramids are actually computers running on solar energy carrying out stock transactions; peta-dollar fortunes are won and lost every day. The economy has never been stronger!
It’s both I think. Unless you inherit it, the main way people become billionaires or hecta-millionaires is to either be extraordinary at something like Taylor Swift or Stephen Curry or have a significant ownership stake in a company that grows a thousand fold in their lifetime. As they gain wealth, then of course they have the means to diversify into other revenue-producing streams like real estate or alcohol companies or whatever. As the old adage goes, the best way to make a million dollars is to start with $10 million.
You aren’t going to get “mega wealth” keeping your money diversified in some Vanguard index fund.
Warren Buffett is compound interest personified. He started investing at 10 years old, and did not get mega wealthy until much later in life. His massive wealth today was created in his teenage years. You can certainly get mega wealthy with disciplined boring investing - he didn’t flinch when others around him did.
Ronald Read grew a net worth of $8million strictly on a janitors salary. By being a boring investor and the magic of compound interest.
These are not atypical examples, that is what compound interest and boring investing will do.
I do get your point about the first step, though. I can tell I’m more defending boring investing than truly having an actual problem with your main point. Luck and risk are big factors. And the line between bold smart decision and extraordinarily stupid decision is tiny and only revealed in hindsight. I just would not limit who can get wealthy (Curry “lowers” what that means by a lot) to extremely talented people or people who are already wealthy or have big ownership stakes in a unicorn company. It’s not accurate.
This New York Times graphic attempts to compare wealth over time, based on how their fortune compares to the economy as a whole. Note that this article is from 2007, so it doesn’t seem to include Musk or Bezos. People like Astor and Rockefeller are on the top.
May I recommend Terry Carr’s excellent short story Ozymandias, which appeared in Harlan Ellison’s Again Dangerous Visions (1972) and a couple of other anthologies since.
It’ll give you a wonderful feeling of comeuppance for the 1%.
FWIW, I think you’re doing a fine job explaining. It’s self-evident stuff (to an economist, anyway). Econ 101 material.
I suspect some will never be convinced and will continue to see this as you advocating for trickle-down and lauding billionaires. You have more patience than I.
Thank you - makes me feel less like I am going crazy!
Quite literally (maybe econ 102, I think 101 was intro to microeconomics and 102 was macro.)
I was an Econ major and Stats minor in college, two fields that people often get very very wrong. So I get triggered a lot in these sorts of discussions.
There is an underlying assumption here (and generally pervasive in discussions about the market economy and wealth distribution) that increasing the amount of money (or more properly, valuation) in the economy is an intrinsic value onto itself, and growth of market value (in the form of GDP or other monetarily based metrixs) is the key parameter that assesses economic health. If you are playing Monopoly then this would be true, but in reality the economy doesn’t just exist to grow and create more zeros in bank accounts and real estate prices; it exists to ensure that society has the necessary means to produce and distribute actual goods and useful services; to provide capitalization for investment in businesses providing said goods and services, to fund education, innovation, and general welfare; to provide for common defense and protection against threats and hazards (natural and through human conflict); and to provide for useful employment, support for those who are not capable of employment, and to maximize the general stability of society such that there are segments who feel so underserved that they seek to undermine it. The narrow view that the only purpose of economic activity is to create more monetary value is a weird kind of tunnel vision that is understandable at the individual level but has come to be the guiding principle in governance and in justification for dismantling or just ignoring regulatory strictures intended to ensure a degree of fairness and transparency in business and financial activities and to prevent, insofar as it is possible to do so, rampant manipulation of markets and the sequestration of monetary resources into the hands of a few powerbrokers.
The mansions, superyachts, and other lavish expendatures of billionaires are aesthetically ostentatious and bring comparatively little value back into the economy beyond their employment for construction and maintenance, but—setting aside the grotesque individual environmental externalities of these possessions—they serve to signpost a more serious issue; that when some small proportion of people can afford these things while many other struggle at or below poverty, or go into insolvency because of a single medical crisis, or lose their retirement savings and can’t pay a mortgage because of an economic ‘bubble’ that many of these billionaires profitted upon, there is a fundamental inequality in not only the distribution of wealth but the the essential well-being and security of a large segment of society, which is ultimately untenible as it leads to civil strife, distrust in the institutions of governance, and eventually societal fracture and collapse. That billionaires, by dint of not only campaign financing via ‘dark money’ and superPACs, but also the influence they wield and jobs they can bring to a congressional district, have the kind of special access to legislators and powerful govenment executives (not to mention the outright quid pro quo of Supreme Court judges to make inconvenient decisions like Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. go away) undermines even the pretence of democratic governance.
That tech billionaires—which as a class have done the least to earn their billions, and give every appearnce of being insecure as fuck in stridently justifying why they should be allowed to do as they wish with their acquisition payouts and stock options and stop bothering them with tiresome demands of paying taces—are feverently building doomsday bunkers in New Zealand and trying to get multiple citizenships in various island nations tells the story of just what they think about any obligations they may have to the society that gave them the conditions and educated workers allowing them to achieve such vast wealth, and also how sophomoric their views are of ‘surviving’ a civil breakdown or global catastrophe. If they wanted to avoid years of hiding out in underground tunnels, eating MREs and hoping that the highly paid ex-Special Forces security don’t smarten up and turn on them, they’d actually willingly invest some significant portion of that wealth back into society to reduce inequality and improve security. And some, like Bill Gates, do, albeit seemingly as much to win approbation and leave a legacy to their name as out of an altruistic sense of duty and paying their success forward.
The answer to this isn’t to abolish billionaires or forcibly redistribute all wealth and property until everybody somehow gets an equal share of the pie, but it is to ensure transparency, reduce (or at least make apparent) the influence of money in elections and politics, and to not accept any bullshit rationales about “job creation” about why said billionaires should not be able to shield their wealth from being taxed at at least the same rate as the average salary-earning worker, at a minimum. Allowing billionaires to effectively hoard wealth and avoid contributing to the system that gives them the means and educated population to make their money is basically turning the rest of the population into an “externality” that has to justify their existence in terms of blood, sweat, and tears they can contribute to increasing the gross product while barely keeping apace themselves, or worse yet, taking on a burden of unpayable student debt and mortgages to overvalued homes just to be employable and marginally respectable.
Basic economics is so important to understanding virtually everything about not just the economy but jobs, wages, housing, investments, pensions, prices, and a thousand more nouns that swirl around one’s head daily. There’s another thread going on about sports gambling, which some people believe to be harmless fun rather than a destroyer of lives similar to alcohol. Somehow the purveyors of gambling getting wealthy off tens of millions of losers don’t inspire the hatred of other CEOs who made their money on marginally less harmful industries.
Wealth inequality is due to a perversion of capitalism. Every modern society practices capitalism to some degree, including the ones claiming to be communist. It is the worst economist system except for all the others (which is a common saying attributable to no one in particular). As with all the others, capitalism can be perverted by those seeking to maximize their own benefit without thought of society.
The New York Times graphic that @Dewey_Finn linked to bears a close look. See that big gap in the time line? Every person listed except three died before 1950. The half century from 1850-1900 has 24 names, representing the era of trusts and monopolies. Trusted were busted and the robber barons died off. Their family fortunes were dissipated among dozen of children and grandchildren.
In the almost 20 years since that 2007 graphic, monopolies returned and resulted in enormous wealth. More modern creations like hedge funds attached themselves like remoras (suckerfish) to suck up and bloat themselves on some of the excess wealth created for their own fortunes.
This is basic economic history. What it tells me is that the current economic world is not just unbalanced but is due for a huge backlash. Governments won the previous wars. Whether they can do so again is unknown.
My takeaway is the same as I’ve said above. Billionaires are not evil per se; they are a self-interested product of a system that has become unregulated and out of control. Billionaires or the equivalent (trillionaires, soon) will always be with us, but the immensity of wealth inequality doesn’t have to be.
Can you quote where I make that assumption? Because I certainly don’t assume this.
Value comes from real things that are done. Mineral resources pulled from the earth, crops grown and harvested, services provided… And even somewhat abstract things, like transporting resources from a place they are abundant to a place they are rare, or providing the administrative framework that allows otherwise disparate people to trade with one another.
Big numbers in and of themselves don’t mean anything. My buddy became a multi-billionaire in 2008 when he ordered a stack of Zimbabwean 1 Billion Dollar bills.
Money has worth in what it can accomplish. In buying you a house, or a factory, or a yacht, or a bank, or the labor of thousands of employees.
I snipped this out of your very long straw man because I certainly am not assuming this.
The more serious issue is that the rich aren’t just buying yachts; they’re also buying up the means of production, the iron mines and the banana plantations and the oil fields and the microchip factories. They own the things that add value to the economy, and by doing so they can ensure that the profits of economic growth are concentrated back into their own hands, where they can use it to buy even more things that produce value. This is the self perpetuating cycle.
This is also true, and a social safety net would work to alleviate this problem, but not necessarily the one I described, of the concentration of wealth. One could easily imagine a society rich enough that the underclass is kept fed, housed, with medical access, and so on; and yet, where they are unable to exert any control over the direction which the economy or society takes, because control over the means of production is incredibly concentrated among a few trillionaires who employ the “bread and circuses” strategy to keep the population in check.
This has more to do with their control over the means of production than with their bank account balance, as you correctly point out.
Don’t say this passively. The consolidation of so many areas of the economy into a few companies was the deliberate result of ignoring and weakening of antitrust regulations. It wasn’t an accident.
The system is broken, though. Economic just so stories don’t mean much when there is no free market; it is being manipulated and coerced to benefit a few to the detriment of many.
Yes, this problem. You get it, but you keep arguing that “they’re not all bad” when I think their existence at all is a symptom of much deeper issues. And the symptom has the ability to defend themselves.
Antitrust was indeed deliberately dismantled, starting in the Reagan era. Lina Khan, the current Chair of the Federal Trade Commission, is trying to mantle it again. A Harris administration would certainly continue these efforts.
No, that IS Econ 101. The very first thing you learn, before you see a single supply and demand graph, is that there is a list of assumptions that must be true for any model to work. And none of these assumptions can possibly be true in reality. They are things like “all actors are rational and have access to perfect information”, or “the market has zero barriers to entry”. And you spend a whole lot of time talking about what these assumptions mean, and what the model looks like if they aren’t true. (Hint: it usually leads to a monopoly).
It is the government’s role to ensure that these assumptions are as close to true as possible. For example, if a company sets up unfair barriers to entry, the government should trust bust. The FDA demands honest disclosure of what goes into food. Etc.
So yes, both the way that markets function and the ways they can break down are Econ 101 (or 102, for Macro!).
My argument is much more nuanced than “they’re not all bad”, I certainly wouldn’t look at this issue with such simplistic terms.
To be clear, are you saying that your position is that billionaires are “all bad”?
What exactly is the cutoff between successful and “bad”? A million dollars? Ten million? One hundred million?
I think we completely agree on this. Usually I hear the Econ 101 thing as an appeal to authority defense of our current status quo—“everything is fine, you just don’t get how it works”.
At some point, yes. Like various -opolies, they’re a sign that something is going wrong. Because the money gives them lots of power, they can then be self perpetuating. In my (poorly-informed) opinion, I’d make the cutoff somewhere around $5 billion. Any more is swept by the government. No hiding things in wholly controlled “charitable” trusts, either. Even that may still be too much, as it is still essentially limitless amounts of money to be spent on lobbying and other political influences.
This anti-billionaire academic draws her line at about $2-4 million, which to me seems absurdly low. That’s “401k did great” levels of wealth, not robber baron levels.
The answer is some level of limiting the influence money can have on politics, but I certainly don’t know how to do that from a fantasy or practical level.
The Econ 101 thing was about the specific claim that a billionaire building a multimillion dollar mansion grows the economy. Obviously, it does.
That doesn’t mean that building mansions is good policy or the best option for building the economy. It means that all else being equal, if there are two identical economies and one built an extra mansion while one did not, the economy that did will be larger because of the extra resources harvested and processed, the extra labor used, etc; this is trivially true.
Note that this is a distinct argument from “Billionaires Good” or “trickle down economics and deregulation is the best way to grow the economy” or whatever else I’ve been accused of saying in this thread.
But consider the alternatives. If one billionaire spends a million dollars on a single painting, then one art gallery may employ two or three people. If ten thousand people each spend a hundred dollars in a thousand different small businesses, then dozens of people are employed. Either way it’s a million dollars being spend but one way produces a much broader economic benefit.
Society benefits more from a million middle class people than it does from one billionaire.
I’m not arguing that point. At all. I was arguing that you can’t say billionaire spending doesn’t stimulate the economy and provide jobs. It demonstrably does.
That point aside, do I think we ought to hang every mother-loving one of them from the lamp posts with piano wire? Sure do. Same same for every douchebag hedge fund, trust fund clown with more money than some countries. Eventually there will be a revolution against the Plutocracy, and when it happens, comrade…I will be smiling, wherever circle of Hell I’m residing in.
