
The Value of Everything: Making and Taking in the Global Economy - SkyMarshal
https://marianamazzucato.com/publications/books/value-of-everything/
======
JSavageOne
I have a friend who opened a coffee shop a year ago. It's gone really well,
she's been profitable beyond expectations, etc (this is not in the U.S. by the
way, if it were I'd imagine there's a good chance COVID lockdown would've
killed the business, but I digress).

I said "wow you're doing really well, have you thought about opening a second
location?"

Her response? "I thought about it, but it's a lot of work. I actually wish
that instead of opening this coffee shop, I had used that money instead to buy
an apartment. I would've made more money on the price appreciation doing
nothing than what I've made so far on this coffee shop."

I was so shocked and disappointed to hear this, but at the same time I
couldn't blame her. And to me this basically sums up the problem with modern
capitalism.

The incentives are all wrong. Our top university graduates overwhelmingly want
to work in finance and consulting. Living the "dream" is owning 15 rental
properties and living off "passive" income. Nobody wants to do actual work,
and even worse, there's often even a negative stigma with doing real work, as
if managers and executives are "above" labor.

When "making money" is equated to "providing value", it incentives and morally
rationalizes the vain pursuit of money, even if at society's expense. I'm
guessing this mental gymnastics rationalizing and even glorifying money making
and price gouging is a big reason why in the U.S. we still haven't fixed the
skyrocketing cost of healthcare and higher education.

EDIT: Since apparently people are misconstruing the point of the story, my
point is not that the world needs more coffee shops and worker bees doing busy
work, my point is that our system incentivizes the wrong things - namely
financial asset speculation and wealth extraction over real work (the whole
point of the book in this thread). Flipping a condo contributes nothing to
society.

~~~
an_opabinia
She'd have to sell the apartment to get the cash from that appreciation.

If she liked where she is living, is she going to sell that apartment at the
"right time?" And then move?

Maybe she's talking about an apartment she wouldn't live in.

If she wanted to buy to rent, and it's in an attractive neighborhood, isn't
the price going to reflect its attractiveness? And then, are neighborhoods
always going to get more attractive in the future?

Isn't a coffee shop going to be successful in the same neighborhood rented
property would? Wouldn't it fail in a correlated way to property?

If it's so easy and obvious, haven't all the good deals in buy-to-rent been
bought? Are you going to do a better job than someone marginally more
effective a land lord? What about the #1 landlord?

What if the neighborhood gets less attractive, and you must sell below what
you paid for? What if it's the same attractive, but everyone sells at the same
time so prices go down anyway? This happened a _lot_ recently in markets like
Miami.

No of course what she's saying makes no sense. It's got this... low-
information Robinhood Reddit level of finance knowledge that just doesn't
reflect how few rags-to-riches landlord millionaires there are. They conflate
hindsight with insight.

There's the extremely narrow group of people, who won lottery tickets by
living in houses in shitty neighborhoods that suddenly gentrified and yes, now
they can sell their homes and move and become very wealthy.

In California this is enshrined in Prop 13 and it is the single most important
reason your friend could never achieve what she's saying here: she would be
outcompeted by lotto ticket winners who pay basically no taxes and therefore
enjoy margins on rent radically higher than she ever could. In places around
the world things like Prop 13 are the actual economic advantages that make
capital intensive businesses like property ownership effective.

~~~
JSavageOne
She was talking about an investment property, so yes a rental property.

Of course hindsight is always 20-20 - anyone can say "I wish I had invested in
Apple in 2003". I really don't understand the point of your comment. The point
of my story was that our system incentives the wrong things, not that we're
all investment geniuses.

I could elaborate on how the choosing of the coffee shop location itself was
an investment in the location after a ton of research and a lifetime of
growing up in that city and knowing it inside and out, all of which worked out
beyond expectations, but really that's totally missing the point here.

~~~
an_opabinia
Another interpretation is that the system clearly incentivized the right
things, because she decided to start a cafe and not do something unproductive
and buy property?

~~~
JSavageOne
She couldn't afford to buy an apartment at the time, opening the coffee shop
was way cheaper (about 1/6 the cost).

In the country she's in, it's big news that rich people and celebrities are
buying expensive real estate and flipping it shortly after making millions
without doing any actual work.

------
SkyMarshal
This is a fascinating book and relevant to some critiques that pop up on HN
from time to time.

Too much of the US economy these days has become about wealth extraction or
speculation, rather than real wealth creation. We’ve outsourced large portions
of our manufacturing ecosystem while arguing that design, services and finance
will make up for it.

This book traces the root of the problem back to changes in how Economics
analyzes and measures economic activity, and examines some industries through
this lense, including VC.

Notably, prior to the development of Marginal Utility, economists from Adam
Smith to Karl Marx and everyone in between were concerned with the distinction
between productive and unproductive economic activity.

For example, manufacturing was productive and wealth-creative, while rents
levied by the landed gentry were unproductive and extractive. Any form of
cornering a market and extracting rent is assumed extractive, unless proven
otherwise.

The term they used was the Production Boundary, with productive activities on
one side and unproductive on the other. A few, like law, that were inherently
unproductive but that were necessary inputs to productive activity, are
situated on the border.

Marginal Utility made value subjective rather than objective. If a product or
activity has demand for any reason and could thus fetch a price on a market,
then it has value and is productive. This made economics more mathematically
tractable as well, and became the dominant Economic theory. But it has also
enabled extractive and speculative activities to claim to be productive, and
thus gain political acceptance and support.

The book argues this is the root of the problem facing the US and other
developed countries, and that solving it requires new economic measurements
and theories that restore the distinction between productive activity vs
extractive or speculative activity.

~~~
lifeisstillgood
I really think economics is undergoing a sea change - a lot of what was
mainstream theory is getting overturned (as a lay person looking from the
outside) what with MMT and the above (see also Josh Ryan-Collins). I am
watching an interesting series from UCL (cannot find it right now)

Edit: search "rethinking capitalism" UCL on youtube there is a list (mix?) of
twenty videos. It seems to be an undergraduate course aimed at people in
public policy. Include the above Marianna Mazzucato as well

Edit edit : mainstream their overturned is probably a bit rich - let's say
now-liberalism is getting cut out

~~~
6510
[https://www.youtube.com/playlist?list=PLCB5zYFnXOqye7Z8vs56K...](https://www.youtube.com/playlist?list=PLCB5zYFnXOqye7Z8vs56KPfso2p3cHu8g)

------
olivermarks
I also highly recommend Rana Foroohar's two books 'Makers and Takers: The Rise
of Finance and the Fall of American Business' (2016) and 'Don't Be Evil: How
Big Tech Betrayed Its Founding Principles -- and All of Us' (2019). These are
both easy to read, highly informative and well thought through.

~~~
hitech_dude
But are these books really surprising?

Is it any different that the way Western middle class plundered the developing
world resources?

It's just the wheel going round :( SAD!! :(

------
benjohnson1707
The problem eventually seems to boil down to this: 'if you don't make stuff,
then there is no stuff' (E. Musk)

And there are less and less incentives to contribute in making / selling
things vs. just making more money out of money for a living.

It's an important debate that the MM is trying to facilitate. And actually
quite a good historic recap of the term value over time.

But while the finance economy 'feels morally wrong' (especially when being on
the loser side), that doesn't make for a convincing argument yet.

~~~
amiga_500
Finance is subject to the same dichotomy. Some activities, like identifying
lending to productive endeavours, are of some value. As are derivatives for
producers looking to lock in prices. Then there is also the rentier side, such
as lending to non-productive enterprises. People will say, as they do with
everything now, "who can make the distinction". Adam Smith could. I think we
can.

Not trying in case we accidentally inhibit a few rich financiers from become
even more rich, where the prize of extricating ourselves from what is fast
becoming a nightmare mess is left untouched, is a mistake.

~~~
twblalock
> People will say, as they do with everything now, "who can make the
> distinction". Adam Smith could. I think we can.

We already do. Finance is an extremely heavily regulated industry. The
regulations make all kinds of distinctions.

The hard part is deciding what the regulations should be. What, specifically,
would you change?

~~~
Retric
I think the single greatest change would be an AMT style wealth tax.
Hypothetically, set to say 1%/year and owning non productive assets is highly
discouraged. That acts as a release valve on endlessly escalating virtual
wealth in favor of productive activity. Aka a stock with a 7% dividend sees
zero change, but owning a vault of gold becomes a significant expense.

While it might seem to rob the global economy of vast wealth overnight, all
physical and intellectual assets are still around. So, if anything it’s simply
aligning the economy more closely with reality which should increase
efficiency.

~~~
rtx
I am assuming you are American. A vault of gold is more important than any
stocks or factories. You come to realise its value through cultural memory.

~~~
oh_sigh
A vault of gold does nothing but sit there. A factory produces things that
people actually want to use. I'd prefer to live in a society filled with
factories versus a society filled with gold vaults.

------
noch
It's worth revisiting Thiel's, "You are not a lottery ticket" (2013)
[https://www.youtube.com/watch?v=iZM_JmZdqCw](https://www.youtube.com/watch?v=iZM_JmZdqCw),
in which he outlines a compelling model for reasoning about the present world
and the future: Outlook can be located on a grid where:

\- y-axis: optimistic/pessimistic

\- x-axis determinate/indeterminate

The key point is that we could interpret the US in 1982-2007 as an historical
moment where the general mindset was optimistic-indeterminate i.e. we assumed
the future will be better but we had no idea exactly what concrete steps to
take to make it better. In such an environment, finance and law are the
dominant industries (while engineering and art decline).

After 2008, there was a shift in mindset to pessimistic-indeterminate in which
there is a large increase in discretionary expenditure on insurance/savings
(with education being a form of insurance, thus the education bubble: "I don't
know what my degree is for, but I had better get it anyway to avoid falling
through the ever larger cracks in society."), while real investment in
novel/radical projects declines.

------
unixhero
This reminds me of the Ferenghi lore of "The Great Material Continuum"

[https://stt.wiki/wiki/Great_Material_Continuum_Texts](https://stt.wiki/wiki/Great_Material_Continuum_Texts)

------
LatteLazy
It really worries me that people try to understand economics or society by
starting with how things should be and labeling anything else "wrong". We've
had 1000s of cults and ideologies on this basis. Today we get weird long
diatribes and books pushing conspiracy theories.

The truth is humans are an efficient market: if someone finds a better way of
doing things, it spreads and takes over, this are the way they are because we
tried other ways and they were worse. If something is bad, its either because
we can't get rid of it without making other things worse or because people
themselves are bad and like it this way.

This theory is very boring, but overwhelmingly accurate imho.

------
alexashka
These types of books should all be under 'identify problems, offer unrealistic
solutions' category.

It's really not that hard to identify problems. Weaving them into a somewhat
coherent narrative is a _little_ more work. Having realistic solutions is the
real kicker.

Take Windows, the operating system. It is not unlike a political system - full
of problems. Imagine people writing books about where it went wrong and how
_we_ need to rethink operating systems to fix it. Wat?

Here's a quote from the books' page:

> The lesson here is urgent and sobering: to rescue our economy from the next,
> inevitable crisis and to foster longterm economic growth, we will need to
> rethink capitalism, rethink the role of public policy and the importance of
> the public sector, and redefine how we measure value in our society.

The lesson is that _we_ need to rethink something? Very cool, we are going to
_rethink_ our way out of living in a dysfunctional plutocracy...

~~~
SkyMarshal
Agreed. This seems to be a case where despite understanding the problem, the
solution is not readily apparent. The author does a good job of exploring the
problem, and states that any solution will need to include reformulating
economic theory of value.

But I think a viable reformulation will extend or build on marginal utility
rather than replacing it, perhaps with differences in second order effects of
different activities on value creation.

------
hogFeast
I love how the author complains about wealth extraction but the author's last
book opined about the brilliant entrepreneurial ability of govts.

Just a guess but I never got the impression that the author understood
anything about capitalism or what companies in the private sector do.

You can complain about finance and make all kinds of statements with horrible
historical parallels...the fact remains: this isn't like law, if something
isn't valuable in some way then you don't get paid for it. The definition of
value is what someone else will pay. The govt, by contrast, is the ultimate
wealth extraction vehicle.

~~~
repsilat
> _if something isn 't valuable in some way then you don't get paid for it_

They say "The market can stay irrational longer than you can stay solvent."
Naturally that's a sword that cuts two ways -- many "correct" early Wirecard
short-sellers lost money, but also many "incorrect" Wirecard bulls got rich on
its rise. The weighing machine can take a long time to do its job, and in the
meantime a lot of wealth destruction can take place.

Not that I think there's a better solution, just that the system is imperfect
and is improved by many of the baseline regulatory functions of government.
Government isn't _all_ a money-pit :p

~~~
hogFeast
Right but the baseline regulatory function actually increases costs and
prices. Extractive firms love these regulations because they create rents
(i.e. law). The irony is too much.

And the problem with Wirecard is that people don't ask what would have
happened otherwise. Wirecard had the govt suing people for them (basic
regulatory function I suppose? lol). The point of markets isn't that the price
is always right but that by creating a venue for people to disagree, you get
an efficient outcome in the end. Fund managers who owned the stock get rinsed
and will probably not get more capital. Fund manager who shorted the stock got
more capital.

Btw, the reason why Wirecard didn't blow up instantly was the govt. Regulators
are tasked with a limited set of functions. They choose not to perform them.
The failure wasn't the market, it was regulation (the fraud itself was
ludicrously childish, it is the kind of thing you see in China).

------
rossdavidh
"In this scathing indictment of our current global financial system..."

Ugh. Lost me right there. I even agree with nearly everything it says in the
summary, but if there's one thing I'm _not_ looking for, it's a book of
"scathing indictment" of anything. I get plenty of anger and vicious
conversation for free on the internet, unasked for, to want to seek out more.

Calm, reasoned analysis would be welcome. If this book is actually "scathing"
(and that's not just some publisher's idea of what people are looking for), I
can do without, thanks.

~~~
kristianc
> The book uses case studies–from Silicon Valley to the financial sector to
> big pharma–to show how the foggy notions of value create confusion between
> rents and profits, a difference that distorts the measurements of growth and
> GDP.

This also reads like the book was written with the conclusions already in
mind, and the case studies cherry picked.

~~~
SkyMarshal
That’s a possibility, but the build up in explaining those conclusions is in
depth and comprehensive. The exploration of the problem space is worth
reading, even if you disagree with the conclusions and solution proposals.

