

Why we need the rich ("on wealth creation by a wealth creator") - grellas
http://blackhawkpartners.com/Blog.aspx?id=42

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ju2tin
I'm a greedy, conservative capitalist and I still thought this essay was
garbage.

First, it totally failed to address the question of wealth received through
means other than entrepreneurship: What about athletes, movie stars, heirs and
heiresses, etc?

Second, it posits that owner-CEO's will always grow the value of their
companies, ignoring that many CEO's with significant shareholdings in their
companies have nevertheless plundered their companies for their own benefit.

Third, it claims that the rich got that way by doing work other people don't
want to do, by which logic the average garbage man should be rich since he is
doing work no one wants to do either.

Fourth, it lumps short sellers in with various other parasites trying to feast
on the wealthy. But if good entrepreneurs will always (always!) grow the value
of their companies, why should they fear short sellers? If the company goes up
in value, the shorts will get taken to the cleaners. It sounds like the author
resents the fact that short sellers perform a valuable function in exposing
the overvaluation of companies that aren't doing as good a job as other people
might think.

Simply put, this is a poorly-reasoned essay with little to add to the debate
about taxing the rich.

~~~
Nwallins
> _it totally failed to address the question of wealth received through means
> other than entrepreneurship_

These people _receive_ wealth. They do not necessarily generate it. Athletes
and movie stars are certainly talented, but entertainment is a place to push
excess wealth and not necessarily a source of it.

> _it claims that the rich got that way by doing work other people don't want
> to do, by which logic the average garbage man should be rich since he is
> doing work no one wants to do either._

No, doing disdainful work is not sufficient for being wealthy. Nor is it
necessary. He is saying that it is common, though.

> _Fourth, it lumps short sellers in with various other parasites trying to
> feast on the wealthy. But if good entrepreneurs will always (always!) grow
> the value of their companies, why should they fear short sellers?_

Hm, I missed this part in the essay. Most businessmen recognize the value of
short sellers in the marketplace, even if it makes their job harder. It's kind
of like competition in that way.

~~~
ju2tin
> _These people receive wealth. They do not necessarily generate it. Athletes
> and movie stars are certainly talented, but entertainment is a place to push
> excess wealth and not necessarily a source of it._

That is my point.

~~~
Nwallins
Given that the story is a defense of people who generate wealth, I am not
surprised that he did not focus on people who do not generate wealth. I am not
sure it is a failing, either.

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muhfuhkuh
Wow, a super-shady, leveraged buyout and commodities markets manipulation firm
with a founder who was associated with the scummiest of junk bond firms
_during_ their most criminal of activities, is telling us not to hate pizza
restaurant owners and electricians.

The thing is, we weren't disliking them, nor do we. We hate 30:1 longshot bet
"investors", market manipulators and corporate raiders. That won't change no
matter how flashy your flash splashscreen is.

~~~
yummyfajitas
30:1 longshot bet "investors", you mean like VC's and angels? And corporate
raiders? You mean the people who buy and improve the value of existing
companies [1]?

I'm really not sure what your criticism of Blackhawk Partners is. Could you
elaborate?

[1] Or occasionally shut them down and sell their assets to more productive
companies.

~~~
muhfuhkuh
>you mean like VC's and angels

Since when do VCs bet 30:1 on anything? If anything it's 1:1, because they
can't borrow more money against their fund. That's the whole point behind
venture capital - people put money in where tradtional banks {d,w}on't.

I was referring to CDOs and default swaps, you know, the stuff that almost
crashed the American economy a couple years back.

>I'm really not sure what your criticism of Blackhawk Partners is. Could you
elaborate?

Sure. He's using pizza shops and construction contractors and other working
class small businesses as a cover to justify his job of moving rich people's
money from one place to another and calling it productivity. In other words,
he takes the example of people who, you know, actually provide a product or
service to the bulk of Americans as an emotional crutch to justify his firm's
greed by pretending that it's largess for Main Street businesses.

And, there's a reason they're called raiders. They don't usually "improve"
anything except for their wallet.

~~~
ryanwaggoner
_And, there's a reason they're called raiders. They don't usually "improve"
anything except for their wallet._

Yes, because populist journalists and working folks who lose their jobs
because a poorly-performing company gets shut down and sold off piecemeal are
great, unbiased sources of truth in such matters.

Sometimes the best thing that can happen to a company is for it to die. If
we'd had the balls to let some of our airlines and auto companies and banks
die the painful death they deserve, we probably wouldn't have to face the
prospect of repeatedly bailing out underperforming companies in those (now
heavily-regulated) industries.

~~~
btilly
I don't particularly mind having poorly performing companies which are worth
less than their book value be broken up and sold off for a profit. What I have
a lot more trouble with is a stable company being bought in a transaction
designed to load it with debt for the tax benefit, deliberately run into the
ground, and then flipped around for profit.

To name a random example, Sealy and Serta used to make good mattresses before
they got bought and destroyed by private equity. And a lot of people's local
community hospitals used to be decent and are now crap because private equity
saw a profit opportunity.

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dasil003
I actually found it to be an inspiring read about why higher taxes on the rich
_may_ be a bad idea (ie. it's not likely that the government would do a better
job spending the money).

However a glaring omission (one of many I suppose) is the chilling effect that
wealth-holders can have on innovation by wielding legal and political power. I
don't have a problem with lowering taxes on the rich, but first lets see what
we can do about insulating the political process from monied interests.

~~~
nickpinkston
Quite true - the problem we have is not capitalism; it's corporatism: the
alliance of corporate oligarchs and the state.

~~~
naradaellis
John Ralston Saul's book Unconscious Civilization (a kind of primer on his
theories I think, which one would read before they tackle Voltaire's Bastards)
does a wonderful job of elaborating this point, anyone interested in an
article such as this would do well to read the book,

Capitalism - real capitalism, not the cowardice we see masquarading as
capitalism a lot of the time - is fine, corporatism and the power we give
corps. by surrendring to them is what is dismantling democracy and individual
liberty. (And Ralston Saul posits that this is an age-old battle, whether it
be corps. in their modern form, or as in the Catholic Church).

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klochner
I found it telling that this "wealth creator" used entrepreneurs as his
example of wealth creators, rather than bankers and traders (he's from a
trading/PE/VC firm).

~~~
rbranson
Right. He makes many good points, but many of his assumptions are flawed. He
uses a few examples and anecdotes to paint a picture of the wealthy
exclusively as bootstrapping individuals that innovate for consumers and
create massive value. While this is certainly can be case, the reality is that
the majority are quite different. Look at the wealthiest individuals and most
profitable businesses, they are often not creators of value, but manipulators
of markets and mediators of commodities. Energy Companies, Corporate
Aggregators, and Financial Services. If we are too blind to see that these
companies funnel huge amounts of money away from more efficient uses,
perpetuate monopolies, and destroy true free market innovation, then we will
pay the price.

While his criticisms of Marxism were on the spot, they simply summarize how
Marxist ideas of capturing the "means of production" by force are outdated in
knowledge economies. Marx was right in the end though: look at the economic
success of countries that have converted to knowledge economies, as the
workers own their means of production, and often are in the position of being
able to demand excellent working conditions and payment in exchange for their
labor.

~~~
philwelch
Economic infrastructure and energy are essential services, though. Energy in
particular. You'd expect energy companies to be rich, because energy is a
necessary part of nearly all the wealth created in any economy (knowledge or
industrial).

~~~
rbranson
I am not saying these industries are not essential and don't deserve the
revenues they earn, but the concentration of PROFIT they generate is telling.
The margins of players in competitive industries in healthy markets run thin
because prices are low and anything left is re-invested into R&D. Just look at
the profits Microsoft enjoys -- purely because of their stranglehold on the
market, which we'd all agree is bad for the consumer. The concentration of
capital and resources that Microsoft retains and mis-manages is staggering. In
a true free market, a more efficient, well-managed competitor would have
undercut them long ago.

~~~
kiba
Firefox was killing Microsoft's browser monopoly, without any sort of
government intervention, and against enormous inertia.

Not all markets are efficient, but some are ripe for the taking by an
entrepreneur.

Think about all the firms that used windows. If they become less efficient due
to using windows, than they will eventually be out-competed by firms that use
Linux or MacOS over time, all else being equal.

~~~
rbranson
Firefox and Internet Explorer aren't products that sell on a market though.
There is zero cost to the consumer for using one or the other, so competition
is exclusively on features. Open source is sort of post-capitalist in a way.

Often markets that suffer from stagnation and seem ripe for the taking by an
entrepreneur are that way for a reason: monopoly, government policy favoring
large corporations, conditions created by the dominant players, etc.

These firms use Windows because of the tremendous cost associated with
switching, which is a key strategy of Microsoft. Software is one of the few
industries where products are designed specifically to create lock-in
scenarios, and it is accepted by the mainstream.

~~~
kiba
_These firms use Windows because of the tremendous cost associated with
switching_

It generally does not alway means that new firms will use them. If incumbent
are bureaucratic and slow enough to the point of negating the regulations in
place, than it might be easier for a linux using firm to enter the market.

If the regulations is skewed enough, than firms that used windows may in fact
not died at all. Even though I know that the regulations is very skewed, I
still like to think that the merit of other operating systems will win out in
the long run, even if that long run is a really long time.

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Groxx
[one of the comments on the blog, in its entirety]

 _“Oliver Stone, Carl Marx you insolent impertinent “putzes”, your character
Gordon Gekko is a putz! It’s not greed that drives this nation, or the
“doers”, or the titans of this great nation; it’s Ambition, incentive, and the
pursuit of The American Dream!!….. (Not the European Dream, the Soviet Dream,
….the Socialist Dream,……or the “Obama Dream” ….it is THE AMERICAN DREAM!).
….Work ethic, hard work and taking risks for the enjoyment of the fruits it
produces. …And it will be shared with whomever the producers are willing to
share it with. You don’t decide with whom I share my prosperity (success)…………I
DO! You have every right to pursue happiness and wealth. Be not ashamed of
doing so. Your founding Fathers penned it in permanent ink: “…..We hold these
truths to be self-evident, that all men are created equal, that they are
endowed by their Creator with certain unalienable Rights, that among these are
Life, Liberty and the pursuit of Happiness….” (The unanimous Declaration of
the thirteen united States of America -In Congress, July 4, 1776) I am willing
to pledge all I have to preserve this promise, this hope, this Dream. I will
“not go quietly into the night”! The government will not take these liberties
away without a fight to the end. As long as there is just one shred of a
chance for the “pursuit” of happiness, The American Dream is alive and I will
give my full measure, if necessary, to preserve Her for me and my family. Be
“resolute”. Pass this on now or risk the fate of working the rest of your life
to come out from under the tyranny of socialism, the strong arm of government
and the suppression imposed on you by the "Statists"._

Is this... spam? A Markov-chain generated comment? WTF.

I've _really_ gotta quit reading comments on random websites.

~~~
milkshakes
this might help: <http://stevenf.com/pages/shutup/>

~~~
Groxx
oh, sweet, it's a safari plugin now. The one thing I didn't like is the
difficulty in turning it off.

/me tries

NOOOooooo! It doesn't work on that site! >.< Thanks anyway though, I intend to
get use out of it :)

~~~
milkshakes
my pleasure!

you could always add #ctl00_ContentPlaceHolder1_pComments to the css, it's a
shame css can't do wildcards

~~~
Groxx
Yeah, the closest you get is the substring matching, which is inadequate any
time you want to do more than one or anything not on either ends.

Would it be _so_ much to ask for _basic_ regex on selectors? Sure, it means
abuse is possible... but no worse than allowing JS.

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Locke1689
I think it pretty much went downhill from where he stated that the wealthy
aren't the intellectual elite and then used Wosniak, Gates, Allen, Larry, and
Sergey to make his point. I guess Berkeley, Harvard, and Stanford are chump
schools now? Boy do I feel bad about my rejections...

