patrick.net

This guy has a transparent and simplistic thesis.

The only option, if you're going to have an increasingly prosperous society without increasing variation in income, seems to be (c), that people will create a lot of wealth without being paid for it. That Jobs and Wozniak, for example, will cheerfully work 20-hour days to produce the Apple computer for a society that allows them, after taxes, to keep just enough of their income to match what they would have made working 9 to 5 at a big company.

This is such a silly argument. Who is proposing that Steve Jobs or Bill gates should only be making a regular corporate salary for what they did. An interesting question might be, would they have done it if they only could have gotten 1/4th as rich doing it (compared to how rich they did get)?

A better question still is why should the wealth of those who inherit all their wealth increase exponentially at the rate that it does ? If you inherit hundreds of millions, or billions, your cost of living is insignificant relative to your wealth, and your wealth just grows exponentially, to be inherited again. The resulting aristocracy that comes in to existence, having increasing power over the government, is what our founding fathers wished to escape and prevent.

If you suppress variations in income, whether by stealing private fortunes, as feudal rulers used to do, or by taxing them away, as some modern governments have done, the result always seems to be the same. Society as a whole ends up poorer.

What about when you do something in between as we did in the US in 1956 - 1980. That was a great time for infrastructure, education, and the public good, while the middle class grew like crazy. Meanwhile the wealth gap was closing.

cloud15 says

If Paul Grahm is right we in SV are creating more and more wealth by giving society what it needs. Your uber experience is a recent example

"In fact, wealth is not money. Money is just a convenient way of trading one form of wealth for another. Wealth is the underlying stuff—the goods and services we buy. When you travel to a rich or poor country, you don't have to look at people's bank accounts to tell which kind you're in. You can see wealth—in buildings and streets, in the clothes and the health of the people.

Where does wealth come from? People make it. This was easier to grasp when most people lived on farms, and made many of the things they wanted with their own hands. Then you could see in the house, the herds, and the granary the wealth that each family created. It was obvious then too that the wealth of the world was not a fixed quantity that had to be shared out, like slices of a pie. If you wanted more wealth, you could make it.

This is just as true today, though few of us create wealth directly for ourselves (except for a few vestigial domestic tasks). Mostly we create wealth for other people in exchange for money, which we then trade for the forms of wealth we want. [1]"

This is utter bullshit. The difference today is that there are a handful of "money" people who do nothing for the benefit of society who create their own wealth with inflated salaries and by playing games on Wall Street while exploiting the working class.

The cause of the Great Depression was overproductivity, low wages for the working class, speculation, easy credit and income inequality.

Robert Sproul says

This obscenity is uniquely American.

I don't have a major problem with high CEO pay in theory. A company like Apple with 30,000 employees and 1 CEO, if the CEO makes $20M instead of $2M, the difference is $50/month per employee. Big deal.

And a CEO's job is keeping the company moving in the right direction. People knock how much Steve Jobs got paid for his 1996 - ~2010 time at Apple, but without him at the helm I really doubt Apple would have a tenth of the market cap it does now, maybe not even 1%, which would be ~$5B.

Capitalism as currently constructed is a three-way fight between the shareholders, the management they theoretically appoint, and the workers this management brings on to get the work done. Four-way if you count government taking its slice of profits and its own extra-market regulatory burdens that it demands.

With corporate profits approaching $2T, I wonder where this money is going, and where can it go if we had meaningful perestroika of our emerging corporatofascist state here.

http://research.stlouisfed.org/fred2/series/CP/

Diva24 says

This is utter bullshit.

wat. What you quoted is my general thesis.

Knowing what wealth really is is critical for identifying rent-seeking and parasitism.

Simply removing an actor from the equation and seeing if the wealth creation declines is the key check -- it catches specuvestors in SFHs very easily, for example.

"People who do nothing for the benefit of society who create their own wealth with inflated salaries and by playing games on Wall Street while exploiting the working class."

That's what he's saying, that we're confusing money -- salaries -- with wealth production, that if people make money they're making wealth.

This is the foundational catechism of laissez-faire supply-siders of the Reagan school and of course the currently far-right GOP.

"The cause of the Great Depression was overproductivity, low wages for the working class, speculation, easy credit and income inequality."

"Easy credit", most certainly. Crashing ag prices due to "over productivity", yes, that aligns with FDR's meddling with output and quotas

http://en.wikipedia.org/wiki/Wickard_v._Filburn

and his overall happiness in driving food prices back up in the 1930s.

A perfect economy is supposed to bring operating margins towards zero -- open, competitive markets and perfect information allows buyers to buy at the lowest price wealth creators are willing to part with their output.

The problem comes when this market price falls below what the wealth creators can actually afford due to their debt service, since our capitalist system requires wealth creators to take on debt to acquire the capital -- skills, tools, intermediate goods, real estate, etc -- necessary to be a market player in the first place.

Defaulting on debt takes out peoples' savings, since in the end, banks don't really lend out of nothing.

marcus says

Who is proposing that Steve Jobs or Bill gates should only be making a regular corporate salary for what they did.

bringing in true capitalists like Wozniak, Jobs, Musk, etc. is intentionally muddying the debate.

Gates is a bit different since Microsoft's rise in the 1990s was partially due to rather dodgy rent-seeking in the nascent PC business; they profited a lot from not a lot of bona-fide wealth creation (MS-DOS was more an infliction of harm on tech than an actual advance in the 1980s and 90s).

But that too is a divergence. The key thing is to fix real estate, health care, education, transportation, financial services, and energy.

These are big rent-seeking sectors, and without fixing (i.e. reducing the economic rents being extracted from working class) them we're just chasing our tails.

Even if we killed all the CEOs and raised everyone's pay $100/mo, housing rents would just rise $100/mo sooner or later.

Nobody gets this.

Bellingham Bill says

And a CEO's job is keeping the company moving in the right direction.

According to a new study:
"Across the board, the more CEOs get paid, the worse their companies do over the next three years, according to extensive new research. This is true whether they’re CEOs at the highest end of the pay spectrum or the lowest. “The more CEOs are paid, the worse the firm does over the next three years, as far as stock performance and even accounting performance,” says one of the authors of the study, Michael Cooper of the University of Utah’s David Eccles School of Business."
http://www.forbes.com/sites/susanadams/2014/06/16/the-highest-paid-ceos-are-the-worst-performers-new-study-says/
The gross overpayment of American CEO's has nothing to do with performance it is lack of governance by weak, captured, boot-licking Boards of Directors.

If the employees spent $50/month forming a union they'd get guaranteed better deal than if they spent $50/month contributing to a CEO who is planning to downsize the company and ship every possible job to Asia.
CEOs aren't worth their pay. Period. The most productive European economy (Germany) only pays 20:1 ratio to their CEOs and somehow they manage to get good leadership. We pay a hundred times that and manage to attract hordes or psychopaths who kill our economy and middle class.