I have enormous respect for Andreessen when he's talking on topics of his expertise, as in the first half of the article. And it's not just his talk, either; A16Z is a deeply impressive operation. But so far I find his take on Piketty shallow and unpersuasive; it strikes me more as the view that is convenient for him to have, rather than one of deep study and experience. I'd rather he stuck to what he knows.
I follow Andreessen and a few of the other a16z folks on twitter, and every day they are tweetstorming what appear to be very insightful opinions and predictions on a whole slew of industries. And then I wonder if these guys are actually orders of magnitudes more intelligent than me and others, and have truly valid and well thought-out opinions, or if a good amount of what they say is nothing more than speculative bullshit that's hardly contested due to their reputation and success.
I've got enormous respect for them, too, but I'm beginning to think that the breadth and depth of expertise and foresight they display shouldn't be taken too seriously.
That's pretty much the case for any sort of punditry, particularly on the Internet. It doesn't matter what you say or how good your information is, as long as you say it with confidence. Because everybody else's information is just as bad, anyway, and people remember your predictions that come true, not the ones that don't. Particularly if your predictions are bold and unlikely.
In my experience, people who have done actual, rigorous firsthand research usually keep quiet about it unless they are trying to alter the general public opinion, in which case they'll throw out the minimum amount of information necessary to give credence to their unfounded and self-serving speculation. Why? Because solid, accurate information is very valuable in business, and why give it to your competitors for free?
no doubt andreessen is smarter, both in raw intelligence and financial wisdom, than you or i or the next guy, but the billions of dollars at his command to assist in manifesting his will helps quite a bit.
and so does being at the nexus of the tech industry and seeing the entire ecosystem from the inside-out, "behind the curtain" so to speak. they have a lot of insider information, not the least of which is basically every single pitch that comes across every other VC's desk in town, and the actual financial health of funded companies operating in the marketplace. they all share information, that's why they don't sign NDAs.
I always wonder, assuming a person had all the benefits, the perfect genetics, the perfect upbringing, the perfect luck in industry, how much smarter or better informed, or capable could they be than the average person?
We have the meme that a great programmer is 10x better than a lacking peer. I think that is the absolute maximum upper bound on how much better someone can be, and that is in a limited, specific pursuit.
When it comes to predicting the future shape of society, we're talking about the average of many, many disciplines- not a discrete thing like programming ability. So I really think at best it'd be like a 2x-3x factor of improvement.
And with something as difficult as understanding the future, 2-3x isn't much, because you're multiplying a standard ability of near 0.
I try not to buy too much into what he says. What he says is usually too philosophical, so the reader is making their own sense of what he says and gives him credit. He is almost a dictator the power people give him.
He actually went as far as to tell investors beware of investors not from the valley. So people don't steal in the valley as they do anywhere else?
Regarding the last bit, it's not terrible advice. One of the big differences between Silicon Valley and elsewhere is that there's a much bigger focus on positive-sum activities here. (That's in contrast with Wall Street, which has a zero-sum focus, or places like Florida, where it shades negative-sum.) It's a useful attitude when you're trying to create monster new businesses from scratch, because it's much easier to disrupt an industry or create a new one if you're creating massive value.
Google's a great example of that. They have made the world enormously better, and profited greatly thereby. Their profit is a small fraction of the value they've created. And that's why they won. Their competitors got greedy, and wanted a much bigger share of the total value created.
> so far I find his take on Piketty shallow and unpersuasive
I feel like he alluded to critiques that have been handled with far more depth by economists, but he was talking in a medium that doesn't really permit much more than a shallow, abbreviated treatment.
> it strikes me more as the view that is convenient for him to have
Some of the economists pushing the second critique Marc uses, that recent data doesn't line up with Piketty's model, aren't just complaining out of convenience or self-interest.
Peter H. Lindert writes in the NBER review "Making the Most of Capital in the 21st Century,"[1]
"Oddly, however, for the twentieth century trends that he and his collaborators have documented so well, the relevance of the wealth/income and capital/income ratios for the income distribution is less compelling. Across countries, the levels and movements of this ratio do not correlate well with those in income inequality."
Before dismissing Lindert as a right-wing partisan, check out some of Lindert's other work, where he argues that social programs don't have as large an impact on GDP as most people claim,[2] or his arguments in favor of progressive taxation.[3] [4]
Matt Rognline also has strong critiques of Piketty's reasoning and data,[5] even while emphasizing that he believes inequality is still a hugely important concern.
It's possible to worry about Piketty regardless of what's in your wallet.
Regardless, even if Andreessen's motivations were suspect, it doesn't actually tell you anything about the truth or falsity of his claims. "Bad faith" isn't sufficient to make an argument invalid, anymore than good intentions can make something true. Andreessen and these economists' reasoning might be poor, or Piketty might be able to salvage his model by convincing everyone that recent trends really are an aberration. More analysis will be useful to be sure. But questions about motivations or who is arguing in good faith or out of self-interest won't really have any impact on the outcome of those discussions.
> It's possible to worry about Piketty regardless of what's in your wallet.
Sure. I think professors duking it out in their field of expertise is a big part of how human knowledge advances. And I love it when people with deep experience give their take on things within that realm. Andreessen on Piketty is neither.
> Regardless, even if Andreessen's motivations were suspect, it doesn't actually tell you anything about the truth or falsity of his claims.
That's both wrong and irrelevant. Statistically, what people will find convenient or profitable to believe tells me a fair bit about what they actually believe. And therefore, the average correctness of their claims in those areas.
It's irrelevant because although that's a good rule to apply in debate or in formal analysis of an argument, that's not what's going on here for me. Full analysis of an argument as complex as this is a lot of work, and that work has to be earned by the speaker. Andreessen, of course, understands this: A16Z throws away pitches every day without granting them the work of formally analyzing their arguments. They don't have the time for that, so they employ heuristics like, "not an expert in the domain."
Section 6-7 of the paper are most relevant. Section 6 analyzes the question of whether SOX is causing a decrease in IPO's using estimations of SOX compliance costs. It concludes that: "[w]e find the effect of paying the compliance cost on the profitability for small firms to be limited." They also look at whether SOX compliance is driving U.S. companies to other countries that don't have such a regulatory regime: "[i]f SOX is an important reason for why companies, especially small companies, are not listing in the U.S., we might observe many U.S. companies going public abroad." They do not find that effect to exist.
They present the alternative hypothesis: that there is an increasing benefit to being part of a large firm (being acquired via M&A) than there is to being a small, independent public firm (doing an IPO). They analyze this hypothesis in section 7, by looking at the post-IPO behavior of companies. They hypothesize that if the burden of regulation is the driving force, we might see many companies go private after IPO-ing. Alternative, if it's the increased advantages of scale, we will see companies be acquired post-IPO. They find evidence of an increasing number of companies being acquired within three years of an IPO.
They conclude: "We posit that there has been a fundamental change in many sectors of the economy whereby the importance of bringing products to market quickly has increased. This hypothesized change has resulted in lower profits for independent small companies relative to the potential profits generated as part of a larger organization that can realize economies of scope and rapidly expand production. If this explanation is correct, fewer firms are going public and staying independent because value is being created in a sale to a strategic buyer in the same or related industry."
This is why so many networking companies sell to Cisco, and why Cisco's business strategy depends so much on M&A: Cisco's great asset isn't IOS, but instead that it runs one of the world's most powerful enterprise sales operations. If you sell network equipment, the basic concept of comparative advantage almost guarantees that Cisco can do a better job extracting value from it than you can.
"If you sell network equipment, the basic concept of comparative advantage almost guarantees that Cisco can do a better job extracting value from it than you can."
Doesn't take into account branding, sales, and marketing of a new organization which are always able to drive business purchases. Even in face of a formidable competitor.
Of course if you want to look at things at a point in time you could also be correct. But roll back to when Cisco started and see if there were companies that also had "one of the world's most powerful enterprise sales operations" that lost out to someone else. Like Cisco.
So while you could be correct it's also possible that "many networking companies sell to Cisco," because it's a "pay window".
After all wouldn't that be one of the reasons that you sold your company?
Marc Andreessen is being true to form when he attacks regulations, attacks Piketty and suggests that IPOs will flourish if we remove (what he describes as) "burdensome" regulations, "Regulation Fair Disclosure" etc.
However, he seems to be totally glossing over the fact that IPO regulations have already been weakened in recent years. This has resulted in less transparency and increased secrecy and that is exactly what people like Andreessen have been asking for.
It is questionable whether this increased secrecy actually benefits the economy or the average investor (of course, it is clear that the lack of transparency does benefit powerful interests in the country and that is why a bipartisan majority in our dysfunctional congress was able to miraculously come together and pass a bill to reduce regulations and cut down on IPO transparency).
http://takingnote.blogs.nytimes.com/2013/09/13/the-twitter-i... touched on this topic in the context of Twitter's IPO.
"""
It's technically illegal to manipulate the market. But there are hardly ever any cases [enforcing these laws]. Basically the hedge funds run absolutely wild and do whatever they want."""
There's your problem right there. There is a great TED podcast from one of the regulators on savings and loans ("how to rob a bank from the inside") that said basically "we failed to stop either crash but we jailed 9,000 people the last time - this time not one got prosecuted."
I think we have lost our willingness to prosecute big business. I mean Madoff was prosecuted because he was just nakedly fraudulent, but an entire industry pretended liars loans was just a phrase.
So, want a better stock market, want smaller IPOs, want stronger financial system. Hire cops and let them do their work. We don't prevent murder or robbery - we prosecute it. Same here.
Pathetically, a large part of this is partisan. The Republican party was never, in recent decades, happy to prosecute big business for this kind of crime. It's the Democratic party which ever in recent memory had any willingness to prosecute big business, and largely lost that, because it hurts in elections. Democrats automatically lose independents without some message of non-partisanship (perverse that white-collar criminals have a party). So we get these weak moves which are then further blunted by the Republican party, so the Democrats can symbolically do something and the Republicans can symbolically label them as Communist Nazis without doing anything. The Tea Party and mainstream, Ron Paul Libertarian Party are focused on eliminating Democrats (i.e., Communist Nazis) and starting an armed revolution to ensure permanent right-wing rule any day now, but maybe not just yet until they get a few more votes - no declarations of non-partisanship required for these - but even if you could get them down to it, they wouldn't be willing to prosecute big business either. And many of the rest, including a lot of people involved in startups, are temporarily embarrassed millionaires voting reflexively against words like regulation and taxes even though that kind of policy is unlikely to ever benefit them.
But even if anyone was willing to be seen "punishing wealth creators" and "discouraging business" and "killing jobs" in this partisan climate, nobody of any party will want to face the political blowback for expanding bureaucracy and spending more money. There is a strong, non-partisan general allergy of the voting public to regulation, enforcement, and government in general.
Here's a "class struggle" example: name one Wall Street type
who went to jail post 2008, everyone picks Bernie Madoff. Now
name one person you know who was harmed by Bernie Madoff.
That's weird.
Note he didn't cause the crash, his criminal
empire was a "victim" of the crash. What got him jailed was
stealing from the wrong people-- that the media coded as either
"celebrities" or "pension funds".
I know a few people (not celebrities, but very wealthy) that lost money by investing with Madoff, and one person that got out early and actually made money.
Madoff was jailed because he was clearly responsible for what was precedent had determined to was fraud.
It is true that Madoff did not cause the 2008 crash but don't tell me that the public at large do not know one or some of the hundreds of thousands of VICTIMS from the fallout of the 2008 crash, which Bernie Madoff, Allen Stanford and other fraudulent financial institutions and bankers were party to.
As usual the media looks after itself scandalising the truth to sell copy.
As a Madoff class action lead plaintiff these past 5 years who has followed most aspects of Madoff related litigation together with cause and effect, I know that it is a misrepresentation to promote the idea that only celebrities or pension funds were defrauded. Indeed pension funds were attracted to Madoff and Madoff related investment schemes as their track record was in fact conservative, showing a consistent modest profit over a long period of time. To wrongly believe that individuals where not harmed is because the silent majority do not have the money to hire lawyers to fight their case. Many of the INDIRECT VICTIMS were pensioners like myself, having worked hard all their lives in order to provide for themselves and their families and then duped by bankers and unscrupulous financial institutions who had jumped on the Madoff money making merry-go-round.
The US Justice Department has received over 51,700 Claims from 119 countries for more than $40 Billion US dollars. When you understand that Irvin Picard the Trustee for the liquidation of Bernard L. Madoff Investment Securities LLC (BLMIS)has distributed nearly $10 Billions to Madoff Direct Victims and taken nearly $1 Billion in expenses and legal fees and that there are still claims for over $40 Billions from INDIRECT VICTIMS outstanding, gives one an understanding of the enormity of the crime and the complicity and involvement of the 'Established Financial Institutions'
For verification check the Madoff related web sites.
http://www.madofftrustee.comhttp://www.madoffvictimfund.com
Sincerely NevilleSeymourDavis
NevilleDavis@me.com
Correction:
The figure quoted for distribution from the Madoff trustee.
It should have read that the Madoff trustee has recovered
nearly $10 Billions and distributed over $5 Billions.
NevilleDavis@me.com
In "Fragile By Design", Charles Calomiris and S.H. Haber basically compare/contrast Canada and the US and it seems that in Canada, "social spending" is an explicit government function where in the U.S., it's swept under the rug using finance to try to preserve certain myths.
It's probably not the whole story, but it's compelling.
I'd love to ask Andreessen, (or anyone here, really) a question informed by a book on pg's reading list:
I, too, am dubious about Pikkety's thesis. But I'd like to call out a distinction between the concentration of wealth, and the static nature of the oligarchy. One will continue to happen, the other Pikkety could be dead wrong about.
Andreessen says (paraphrasing) in the interview, 'Pikkety says wealth and oligarchies will happen, but look at the Forbes 400 and you see lots of churn, where is this supposed stability that will happen with rich people cementing their gains'.
It's true that Pikkety presents a view of social mobility becoming increasingly static, and reverting to a supposed historical norm.
But one lovely book I have pg to thank for reading, "The World We Have Lost", talks about how things were in England according to an analysis of actual data (county records etc). One chapter, 'The One-Class Society' ('gentlemen' were the class, the only class that mattered), speaks of how there actually was a large amount of 'churn' in the gentleman class -- even outside of cities and the merchant classes, it was possible for a father to become a substantial yoeman, and his heir to become a gentleman. Families went up, families went down.
But despite a certain amount of mobility being possible, all effective wealth and power that mattered was still very concentrated, as it has been for much of recorded human history, for many reasons.
This was momentarily interrupted by the usefulness of humans as wet robots that were briefly able to exert the political and economic leverage necessary to drive hard collective bargains about their compensation.
That was temporary. (Offshore wet robots, and eventually dry robots, taking the place of the less-needed troublemakers).
Wealth, even if mobile, will inevitably become more concentrated due simply to better technology and efficiency -- how can this not be so? It seems self-evident.
So, I guess the question is:
If technology magnifies individual differences in productivity, and if we accept as a given that attempting to tax away the resulting fruits of that productivity is on the whole economically injurious to an economy, how can wealth not become more concentrated over time?
(Yes, of course, there will be churn and disruption, and wealth will change hands. Even as it did among the gentleman class in England in the 1500s; families came up and families went down. But because of technological magnification of productivity it should tend to go to fewer people. This just seems like a natural law.)
We might consider what we mean by wealth and concentration. If we mean money, perhaps. If we mean economic benefit, perhaps not.
In a previous HN thread, we considered the possibility of medicine becoming automated, imagining that (say) 80% of doctors’ labor is replaced by machines.
In this case, the monetary earnings of many doctors will go away, and those earnings will instead go to a small number of technology companies who make the products that obviated them. That feels like concentration.
If this happens, it also happens that medicine will have become dramatically cheaper, and therefore more available to a greater number of people. Thousands of doctors lose while millions of humans win. This feels like egalitarian distribution.
So perhaps we’d call these technology companies ‘oligarchs’, yet economic (not monetary) gains have gone to a much broader set of people than before – anyone who consumes medical service.
If there are several such technology companies, they will compete, reduce prices and increase the widely-distributed consumer surplus. This can happen simultaneously with their CEOs (oligarchs) getting inordinately wealthy.
This is spot on, but will require changes in how our economy is set up. In our current system, when those doctors have no money and no way to obtain it, they can't take advantage of the newly reduced prices on medical care, because they can't pay any price. As technology continues to eat jobs, millions of people will be out of work and have no way to obtain money. They can't buy anything, and eventually even the companies that put them out of work in the first place go out of business because they are the only ones with any money.
With smart planning, all of this should be OK. After all, the economy will be producing more than ever. But we have to embrace the idea that large-scale human unemployment will happen going forward, and adjust for that. Supply of human labor already dramatically exceeds demand for it, and that delta is rising fast.
I'm not sure what the answer is. I'm not an advocate of higher taxes or welfare programs, but there are going to have to be ways to obtain money other than traditional jobs if we are going to keep using it as a means of exchange. Smart economists need to be working on a solution - now.
In the history of the world, economists and government planners have never been able to manage an economy better than the capitalisic model of individuals in pursuit of their own goals. I don't see any reason to expect that they'll suddenly become successful at it. Technology has been replacing human labor since the dawn of civilization. Why will things not continue on pretty much as they have? That is: when technology replaces a need for human labor, those humans are free to pursue something else.
> In the history of the world, economists and government planners have never been able to manage an economy better than the capitalisic model of individuals in pursuit of their own goals.
What is an example of a successful state that has chosen between these two models? The successful economies are all mixed economies, with a strong role for both government planning and private competition. Germany is perhaps the canonical example of following this mixed-economy model as an explicit theory (vs. just stumbling into it). Other successful countries mostly deviate a little to one side or the other: the Nordic countries traditionally have more planning than Germany does (especially around infrastructure, urban planning, and major industrial initiatives), while the U.S. traditionally has less. But we're talking about modest variations: the U.S. public sector is ~35-40% of GDP, Germany's is ~40-45% of GDP, and the Nordic countries are at ~50-55% of GDP. Nobody is running a successful economy with a public sector at ~5-10% of GDP.
I suspect the Chinese mixed model is also going to prove quite dominant in the 21st century. Compared to the European social market economies, it's less social, but more centrally planned, which may or may not be an advantage.
And, I'm not sure the very common line "market forces manage the economy better than planners" is actually universally true. I think without governmental controls and regulation we might have severe economic events starving a third of the world to death every 20 years or so. So, there is a balance, even for market economies.
In addition, lets look at your final statements... Technology replaces the need for human labor. What if technology did the planning? Some really good algorithms refined over time by really smart people. Do you still think simple human greed would produce better outcomes for humanity? I don't.
And one more point... a debt based economy where money is expanded might be the actual reason for the success of "capitalist" countries. Oh, and some conquest. And, the economic punishment of countries not falling in line with "market economy". Maybe "capitalism" itself has less to do with the actual outcome than is often claimed by capitalists.
And what happens when there is nothing else to pursue? When I say "human labor" I don't just mean construction etc. Lawyers, doctors, mid-level managers etc....any field that doesn't specifically require human creativity can either be replaced or have the number of people working in it greatly reduced by technology.
I agree with you but would go even further in saying that the idea that "human creativity" is somehow exempt is another layer of hubris.
The comics will probably be the last to lose their jobs (long after we have no need for the very many people currently involved in transportation, for example) but a virtual infinite number of monkeys typing very fast on an infinite number of keyboards with a really clever machine learning filter eventually beats them, I'd bet.
In this case, the ‘millions of humans’ essentially received the doctors’ foregone salary. They got a raise, in the sense that their healthcare got cheaper.
We can give them $1000 cash, or we can charge them $1000 less for the healthcare they buy. Same thing.
So, in a sense, money became less important in the acquisition of healthcare. Purchasing power increased.
This is why I make the distinction between money and economic value. The latter is the real goal.
I think the problem is who gets to decide what, how and who gets what benefit. Really only the wealthy decide on what things to invest in. Anyone with low income only has enough to survive.
> In a previous HN thread, we considered the possibility of medicine becoming automated, imagining that (say) 80% of doctors’ labor is replaced by machines.
>and if we accept as a given that attempting to tax away the resulting fruits of that productivity is on the whole economically injurious to an economy
I wouldn't accept that.
Obviously 100% confiscatory tax rates would remove personal motivation. But there is a great deal of room below 100%, that would both allow for redistribution of wealth and for plentiful motivation for the overachievers.
Consider a scheme where typical capitalist is 100 richer than typical worker - still plenty of room for motivation, don't you think?
Besides that, inheritance tax does a lot to redistribute wealth, without necessarily destroying the motivation.
Another thing I can imagine is that wealthy individual will have to spend the money he made, or have it taxed heavily. All the lavish consumption is still a good motivator for working hard and getting rich, but without as much long term inequality.
Bottom line is that motivating best performers is not necessarily incompatible with redistribution.
> there is a great deal of room below 100%, that would both allow for redistribution of wealth and for plentiful motivation for the overachievers
Indeed. The lowest top marginal tax rate in the U.S. between 1940 and 1980 was 70%, and it went as high as 90%. That didn't exactly kill innovation or growth.
It always amuses me to reflect that the time that we were most afraid of communism was also the time that we were closest to accepting it, at least if the marginal tax rates are any indication.
Anyway I don't think I could support 90% or even 70%, but I could definitely get behind 50%.
I agree with the gist of these comments; all I meant by that bit put that bit was to make the argument about the inevitability of inequality's increase a more conservative one. It seems obvious (to me) that redistribution, maybe in the form of basic income, is an inevitable result of this 'natural law' of increasing inequality.
That said: people did not pay those rates in the 50s[1]:
The Internal Revenue Service reckoned that the effective rate of tax in
1954 for top earners was actually 70 percent.
Or lower. Marc Linder, a law professor at the University of Iowa, has
shown that a more comprehensive interpretation of income that
includes capital gains suggests the real effective tax rate for millionaires
was 49 percent in 1953. The effective rate dropped throughout the
decade, reaching 31 percent by 1960. That 31 percent is just slightly
higher than the 29 percent level a Congressional Budget Office report
figures the average effective tax for the top quintile will be in 2014.
Just to be clear, lisper and I were talking about marginal tax rates, not overal effective rates. Only for the very highest earners does the effective rate approach the top marginal rate.
I understand that Warren Buffet pays about 10% tax - less than his cleaner, so while there is room below 100% lets just concentrate on ensuring roughly the same rates of tax apply to all. That will radically change the game.
Wouldn't it only be rational then for overachievers to cease efforts once they've achieved twice what a typical worker would? That'd cut out a ton of productivity.
You're the first person to bring "no return" into this conversation. I specifically advocated smaller return, and called out that no-return is counterproductive.
Which is to say you are arguing against the point neither me nor lifeisstillgood were making, the point you made up yourself.
Your comment capped it at 2x the wealth of a typical worker - so then once someone has achieved 2x the wealth of a typical worker, wouldn't any additional work be for no return?
And it's "typical" not "maximum". If a typical capitalist is 100 times richer than the typical worker, and workers outnumber capitalists 1000:1, then 90% of the of all wealth (and thus economic power) is with the workers, yet capitalists still have their incentive to work their hardest - some of them will only be 10x, and some 200x of the baseline. The key is that in this scheme capitalists are all competing with each other for the same slice of the wealth pie, instead of competing against the workers, as they do today.
What about the concentration of wealth required to open a large enterprise?
I mean, imagine that you have some bright ideas about building spaceships or electric cars or microchips, etc. How would you start a Space X, or a Tesla Motors, or an Intel without first accumulating some resources, well beyond the "100x the typical worker" level?
Well, you could borrow it from several hundred other wealthy people — but they'd want nice quarter reports and obviously low risk.
>how can wealth not become more concentrated over time?
While in a laissez faire system wealth will tend to concentrate this can be countered by tax and similar measures regardless at to whether they are injurious to the economy or not. In the UK we've had technology undermining workers since the industrial revolution and people protesting it since at least the Luddites in 1811. In spite of things like the introduction of electrical equipment in the 1920s, inequality fell substantially between then and the 70s due to tax rates going as high as over 90%, free education, the NHS, council housing and similar pro equality policies. Then since the 80s with Regan / Thatcher things have swung the other way. Political policy can override much of the technological pressures on equality. Indeed both extremes, everyone owning everything equally or one king owning everything and everyone else owning nothing and being his serfs/servants can be approximately achieved by suitable political and military power.
One answer would be that russian communism and other communistic countries inspired by it are just one pretty bad type of collective society , and we really haven't enough variations to say collectivism has failed.
But you won't hear something like that from marc, even if there were decent evidence to support this view(the nordic countries might be one such evidence).
Except the former Soviet Union countries were not collective societies. There were rich, powerful people and there were poor, powerless people. Instead of dollars (as in the US), the currency was political power and influence which then led to a nicer car and a nicer apartment. Collectivism was just the narrative that kept the 99% from revolting - for awhile.
The problem with nordic countries is they may be "exceptions that prove the rule". You have to consider:
1. Natural resources
2. Massive advantage after WW2 (low damage, all other factories in Europe were destroyed)
3. Cultural context
In the end of 1940s GDP/person in Sweden was 2x comparing to Germany. Now they are closing the gap, Sweden got relatively high unemployment and the government is cutting the taxes to stimulate the growth.
You're right about germany(the war hurt it really bad) but if we choose say the UK, sweden and the UK show similar GDP/PPP numbers. But it seems that sweden has much greater income equality than the uk according to [2].
Even Germany has a fairly collectivist economy by American standards, the famous "social market economy". The idea is that the economy should be largely market-based, but tempered by a social aspect: a strong safety net, state-provided basic services (health, transit, university, housing, etc.), and a fairly high level of income redistribution.
West Germany also traditionally (though this is weakening post-reunification due to "internal outsourcing" to the East) had a corporatist industrial-relations system similar to the Nordic one, which is based on consensus-finding between multiple stakeholders (industry, unions, governments), so things like pay and working conditions are agreed upon jointly in sector negotiations.
Sweden has that sort of almost-confiscatory tax above certain level. This, of course, greatly helps Gini index, and provides plenty of free public services.
OTOH a few iconic Swedish companies, like IKEA [1] and Ericsson [2], largely withdrew from the Swedish tax system.
This may have something to do with motivation, e.g. the motivation to merely stay afloat.
You will indeed not hear from me that there is going to be some new and improved version of communism or collectivism that will solve all these problems :-).
EDIT: Here's the whole list, for completeness:
Clark, Civilisation
White, Medieval Technology and Social Change
McEvedy, Penguin Atlases of Ancient and Medieval History
Laslett, The World We Have Lost
Bernal, The Extension of Man
Franklin, Autobiography
Girouard, Life in the English Country House
Pirenne, Mohammed and Charlemagne
Runciman, The Fall of Constantinople
Cipolla, Guns, Sails and Empires
Hadas, A History of Rome
Oman, The Art of War in the Middle Ages
Vasari, Lives of the Artists
Bovill, The Golden Trade of the Moors
Caesar, Gallic Wars
Kuhn, The Copernican Revolution
mmorris answered this, but can I take this opportunity to add a couple of absolute gems, which I love, and which I have read and re-read so many times that I've gone through 3 copies each?
They are:
1. Dreadnought (by RKM)
2. Storm of Steel (by Earnst Junger)
3. (bonus) Josiah The Great: The True Story of The Man Who Would Be King
For my money, Dreadnought is the Best Overall History Book, and Storm of Steel is the best First-Person History Book.
They're topical, too -- SoS didn't have a quality English translation until 15 years ago, and Josiah The Great was based on the early-2000s discovery of a trove of documents that corroborated the amazing tales of the first American in Afghanistan, who became the inspiration for Kipling's short story (and John Houston's near-best-picture winner, and the movie Michael Caine says he wants to be remembered for), 'The Man Who Would Be King.'
look at the Forbes 500 and you see lots of churn,
where is this supposed stability that will happen
with rich people cementing their gains
> Forbes 500
> churn
> people
Uh, because a list of companies is actually a list of faceless bureaucratic entities that only exist on paper, and serve as an apparatus to obfuscate the accumulation of wealth?
So the entities on the list change, but these entities are shells that a public market of callous, nameless, ever-hungry, demanding strangers loans money to, with the aim of extracting a 10% profit (or more) from their share loans, but because the names of these arbitrary, ephemeral entities change with the shifting sands of the economy, this means no one is "cementing their gains"?
If I compile a list of social clubs, ranked by gallons of beer consumed, and those social clubs report how much beer is being imbibed on the weekends nation-wide, and any individual citizen can join any club they want (no discriminatory conditions for membership) at any time they want (a different club every weekend), providing they chip in for at least the beer they drink and more (if they're feeling generous), how can that list be used to determine who accumulated the most liver damage this year?
While what you say is very true, I do think the churn on the Forbes list is actually due to the fortune of companies. Most people on the Forbes list are not diversified. If the company the person founded plummets, so does their wealth.
I happened to attend high school with the children of Dennis Bakke, who graced the Forbes list for 3 straight years. Shares in AES, the company he started, peaked at ~$68/share in the Fall of 2000. By July of 2002, AES was at $3/share. He hasn't been on the list since the plummet.
That story is fairly common among the lower ranks of the Forbes list.
Ah, that would be a very different list. Still, it's an inadequate device to craft assumptions about the wealth of wealthy people. If someone falls off the hot list, are we to assume that they suffered an MC Hammer style bankruptcy, or did they just retain a static amount of wealth, and get edged out by ever-more fabulously wealthy upstarts?
Is it just a little disingenuous to suggest that the public is prevented from enjoying the benefit of company growth because they aren't allowed to invest in venture capital funds? They can't, of course. But they can invest in other vehicles that can.
Individual investors can't directly benefit from Facebook's appreciation the way they could Microsoft's. But their retirement fund sure can.
Meanwhile, there's probably a strong case to be made that in the large, individual investors shouldn't try to hit these kinds of home runs, because they're outgunned by institutional investors and they don't have the capacity to diversify as well as institutional investors can.
If you can find me, a regular worker, a way to buy into Founders Fund, Union Square Ventures, a16z, etc. I'd be quite happy to hear about it.
Also, I don't know where you work, but in Canada, tech workers usually aren't awarded a retirement fund, but rather, matching contributions to an RRSP, which is an retirement savings investment account that I control. So once again I'm out of the growth investment game. I'm assuming a 401(k) works on the same basis...
Let me clarify: I don't have a pension fund, and neither no most people in non-unionized jobs. My RRSP account is a personal investment account. My employer contributes to it, but I am the investment manager.
Are there many funds from Vanguard or Fidelity that are regular participants in Series D/E rounds of funding? Or do you mean that an entity like CALPERS can invest some amount in the various VC funds? In the latter case, I think its been shown that VC as an asset class (invested in that manner) significantly underperforms the public market.
Not only can pension funds like CalPERS invest in VC firms, but they do, often by design --- they have asset class requirements that militate for VC. Entities like CalPERS are actually one of the engines behind VC funds.
I think just the opposite is the case. Individuals are better poised to diversify if they can drop investments across a large number of projects with tickets in the sub $1K range.
Imagine what would happen if you could really micro-invest, $10/day in 10 different projects. You'd even have kids actually learning to invest from age 10 that could beat the "pros" by the time they are in high school.
That might work if you had most of your portfolio dedicated to early-stage companies, but that in itself is a bad investment strategy. Consider: it's the strategy behind venture capital funds, and venture capital as an asset class tends to underperform --- if you're thinking about Microsoft and Facebook but not Murpli and Foozblap, you're a victim of survivorship bias.
There are a few genuinely odd statements about the stock market, including pretty much all the bits that involve the word "growth." I wonder if he knows about the Fama-French model and that value usually performs much better for investors. Maybe acknowledging that would mean acknowledging that for a while there, valuations were just nutty.
I never know what to make of that kind of complaining about shorts.
The "The returns degrade down to S&P 500 levels" statement about investment managers was strange. Often those guys don't match S&P 500 returns and so that level wouldn't be a degradation...
The whole thing has a feel that makes me wonder if he was misquoted or something.
He does make excellent points about the public market, it is in a tough spot and something does have to be done. SOX was a nightmare reaction in the wrong direction and we can see the effects a decade later. Crowdfunding might even be a side effect of this sideways investment market.
Maybe the stock market needs more risk tiers with differing levels of regulation, even a growth market where regulations are relaxed for smaller companies, essentially private investment open to public. One size fits all of the public market will regulate all the growth out, it is not even really an option for small-medium business to even try anymore like he says.
He blames the SOX act for decreasing the number of IPOs but they were already down from 100s/year in the 80s to 80 in 2001 (before sox) and this trend continued. He seems to be performing the slight-of-hand anti-regulatory BS that accompanies the right these days: "over here there is a problem - over there is some regulation; wink wink nudge nudge".
No, just two end points to draw a negative correlation between that keeps going today. It isnt hilly. So the introduction of SOX as an explanation for decreasing IPOs is BS.
Whether or not you agree with Marc, I'm always impressed at how persuasive he is and I come away with new data and new additions to my reading list.
He talks about the drop in the number of US public companies being caused by the lack of new IPO's. It's also fueled by private equity delisting public companies, Dell being a prime example in October of last year.
The benefits of staying private are not just due to the onerous regulatory requirements. Delisting has tax benefits. It also concentrates ownership and provides flexibility in executive compensation - and both of these resolve some conflicts of interest between public investors and the exec team.
Staying private or going private also provides you with defensibility against takeover - one less thing for the exec team to worry about so they can get on with the job.
There's also less transparency in the organization which can give you a competitive advantage.
Agreed. Not sure why more people don't question when someone says something will benefit the "middle class" are they just saying that out of their own self-interest?
These are some great points about the challenges of going public, but I wonder how much of it is just a deliberate logical decision to reap the most benefits. There's an incredible amount of capital flowing around (to the extent that in many cases it doesn't seem to be the limiting factor as in classical economic theory. And remember when YC decided to decrease the investment for practicality reasons?) so why would you IPO as Facebook at 1B when you get both more attractive private offers and also you can get enough new investment until the IPO value is at 100B.
Erm, he is claiming that companies don't go public due to unchecked market rigging and that somehow regulation rather than lack of it is to blame - the doublethink is strong in this one.
He is arguing that the force of that regulation falls unfairly on public companies, against whom it can be enforced effectively, and not on individuals starting rumors, who are numerous and hard to track down. That's not a silly claim.
The problem he is talking about is market manipulation. Let's be clear, disclosure is precisely to prevent market rigging by insider trading and indirection (as the notion of a free market depends on all participants having equal information). He's in fact advocating going back to an insider's club and trying to dress it up as the opposite. I don't know if he's just stupid or he thinks the readers are.
There were rises in real wages from 1980 until 2000 - but they weren't in all the places they were looked for. You had large populations of high-wage earners wiped out - steel, autos, that sort of thing.
In 1980, being an IT worker was basically a $10 an hour job.
Often what people quote is the median real wage, across the whole economy. There are other measures as well, but it's one fairly simple one that gives a trend for whether the middle portion of the workforce is seeing wage growth. Rather than looking at wage changes within sectors, shifts between sectors, etc., it just looks at the aggregate end result: do all these changes add up to the the 50th-percentile American wage earner getting more or less money?
I wished these articles concentrated more on the solution. It is easy to say what is not working. He mentions that public company is not going to grow as much, but then where should we put our retirement money in?
These regulations might be messy but they contain valuable information that has been learned from this arms race. They're patches to try to prevent the same thing from happening again. It's much like computer security, where OSes and network protocols are constantly patched or re-engineered to be resistant to newer attacks. "Attacks only get better."
It may however be possible to improve Sarbox by reducing its complexity, thereby reducing the complexity tax that harms smaller companies and discourages growth IPOs.
There's a big problem generalizing from Enron. Enron was more complex than that.
There were two basic defects with Enron:
1) The energy traders were rogue by virtue of poor governance. The problem was baked into the compensation scheme there and could not be undone.
2) Skilling was rogue, but his sort of SPE manipulation was actually quite common.
The rest of the company is believed to have been fundamentally sound.
Enron was the big hero until they basically put CALPERS at risk. Then the story changed. I watched as the California energy deregulation unfolded. It was apparent that it would fail exactly as it did.
There's a larger background of boom-bust globally but especially concentrated in the US for ( I think ) path-dependent reasons. See "Nation of Deadbeats" for a semi-historical treatise on the subject. This goes back to John Law and the Mississippi Bubble - but each is different.
I don't get the feeling the whole subject is clearly understood. The dominant "left-right" beliefs are not helpful. The left believes regulation can fix it; the right thinks ... something else will ( usually a bland nod towards competition).
Thinking about stability is quite new. It's not clear we know what we're doing.
> They're patches to try to prevent the same thing from happening again.
Prevention by regulation IMHO creates as many problems as it solves because it punishes everyone involved, not just the guilty. I'm more in favor of prosecution (for fraud or insider trading, for example) as a method of prevention (where you just get punished for breaking the law after the fact).
The problem is that there is little will to prosecute people when things go really wrong. In terms of domestic politics, Arthur Andersen-ing a company and putting thousands of people out of work is untenable. And in a globalized economy, you don't want to develop the reputation of being the country that puts rich people in jail.
> And in a globalized economy, you don't want to develop the reputation of being the country that puts rich people in jail.
If they've broken the law and are found guilty, that's exactly what you want (rule of law, equality before the law and all that). Otherwise, I agree with you.
The problem is that "[i]f they've broken the law" is not such a clear-cut question. Sometimes it is (WorldCom), sometimes it isn't (Qwest): http://www.cbsnews.com/news/top-10-ceos-in-prison-whyd-they-.... This is especially true with white collar crime, where the difference between legal and illegal activity often revolves around intent. There is definitely the potential for the government to use white collar laws to keep meddlesome rich people in line.
Sure, but a jury trial is in itself a pretty disruptive thing. And it's very easy to bias juries against rich people, for obvious reasons. Even if the person is acquitted, it can be an effective way of keeping people in line.
Consider the investigation of Mark Cuban for insider trading, which didn't even result in an indictment or prosecution. I don't think it was politically motivated, but the mere possibility of that made a lot of people nervous.
A prosecutor isn't supposed to toss cases at a jury to "see what happens." The prosecution is supposed to believe 1) that the person actually did the crime, and 2) that a jury can be convinced of it. You can debate the specific thresholds of doubt for each of those prongs, but "I dunno, let the jury sort it out" is a very bad system.
Maybe someone who's read piketty book can explain something to me ?
From what i've read, It claims that wealth growth is superior to economic growth, in the long term. But how can this be possible, since wealth growth is a part of economic growth ?
I mean, if a big family own a lot of real estates, and that real estate gains value, then doesn't this increase of value also makes the general economy grow as well ?
It can't be as trivial, so there's probably something i'm missing in the definitions. Anyone ?
Piketty discussed the return on capital versus earnings. He doesn't claim one is superior to the other, or even that in the long run one will certainly trump the other. He simply argues based on the evidence that it is likely that in the long run, because it appears that the long trend is negligible economic and demographic growth, there is no intrinsic law within capitalism that ensures capital returns will not become so important that inequality can reach massive levels.
I haven't read the book, but since the book is on inequality, it seems obvious to me that the problem is that the wealth growth is unevenly distributed, i.e. going mostly to the super-rich. So we have GINI-coefficients that grow rapidly around the world, especially in China and India, where globalization has also lifted tons of people out of poverty, and in the United States, which is still by a socialist government, if you listen to Republicans.
There is a good LSE podcast of a Pikkety lecture - hard to follow in his accent but interesting. Anyway, he mentions Europe has the greatest accumulation of wealth yet, but does not mention the massive tax windfall that will be inheritance tax after the baby boomer generation pass on - it may be that instead of using income tax to adjust inequality we simply uE inheritance tax to redistribute the wealth
"each generation should earn their own way" could be Pikkety new and less attractive call to arms
Today's late stages financing rounds eclipse IPOs of yesterday's. One reason is inflation - more than 2 times during the last 10 years. Another is that the game has moved one step upstream. In the first boom people inside were caching in at the IPO thus leaving IPO buyers to hold the bug. These buyers think that they have learned the lesson and now they are getting in at the late stages before IPO - thus letting the inside people to cache in and leave these buyers to hold the bug.
My favorite part (pure gold): This is so powerful in the conventional wisdom right now. I love the Daily Show like everyone else does. But literally [Jon Stewart's] answer to every issue is Congress should pass a law. [People think you can] solve any problem by passing enough laws.
I don't get your point. The relevant part of that quote is [People think you can] solve any problem by passing enough laws, not the Jon Stewart reference. You can be a member of both audiences.
Edit: I think this is an interesting discussion well worth having. From my experience talking to people, many believe that if government introduces exactly the right laws, we'll wind up with a utopia, which is IMHO very naive. Very few people consider the drawbacks and unintended consequences of each law.
It's been many years since Andreessen's day-to-day concerns have been tech-related, rather than finance-related. Not too surprising he would have opinions common among people in the finance sector, considering that's what he lives and breathes (this doesn't mean they're right or wrong, just that they are unsurprising for someone coming from finance culture).
It probably doesn't help that he's in business and daily contact with Ben Horowitz, who is even more sucked into the norms of that culture (check out the comments on https://news.ycombinator.com/item?id=7191642).
