> Graham never addresses how a startup economy would put men like Paul Graham in positions of plutocractic authority, since the majority of us are deprived of startup capital without first submitting ourselves to the judgment of people like Paul Graham. It might not be overtly rent-seeking, but it’s definitely not democratic.
Yeah, a similar thought occurred to me last night a little after I'd stepped away from HN. By making startups the normal thing to do, venture capitalists get between otherwise-qualified employees and jobs that actually suit them. "You're in your 20s, do a startup." "Why stay in school? Do a startup." "You have your whole life to work at big companies, do a startup." And on the hiring side: "This kid didn't work at any startups during college, how about this other kid?" "Let's hire this person who was previously a CTO."
It's not quite rent-seeking, because it's not quite as bad as I described it, but the normalization of either founding or working for a startup is directly profitable for people who make money on the startup economy, without clearly providing one cent of value for all those future-big-company-employees who don't manage to found/work for one of the few successes.
In aggregate, startups certainly do create wealth. (So do other types of companies.) Certainly not every startup creates value. Perhaps even most don't.[1] But some startups generate a massive amount of wealth. (Apple for instance, or Google, or Tesla, to give a few hopefully non-controversial examples. We are better off as a society for these companies having been started.) And the ones that don't create wealth don't tend to destroy much either. It's not like investment funds are just torched. They go to purchasing materials, paying employees, etc. For the most part these actions simply redistribute wealth, rather than destroying it. Therefore it seems clear that, in aggregate, startups create wealth.
I suppose one could argue that more wealth would be created if everyone went to work for large, established companies, or started lifestyle businesses, rather than starting startups. At the very least it would be more difficult to disprove that assertion, but using the same logic as above it seems unlikely to be true. For all we're immersed in startup culture here, the number and people and amount of capital focused on startups is still small relative to the rest of the economy, and yet the benefits we've seen from just a few high-profile ones, let alone the smaller benefits accrued by many others, are very significant.
[1] Although, just because a startup "fails" does not mean that it has not created wealth during its existence. Obviously any time two people voluntarily make some sort of exchange (absent mistakes), wealth is created. IE, both people are necessarily better off than they would have been otherwise, else they would not have made the exchange. So it is very possible for a startup to create wealth on the way to shutting down.
Wall Street is full of dirty rent-seekers whose recklessness has destroyed the American economy over and over again ever since Reagan deregulated Wall Street. The comic wealth that came as a result of that deregulation has allowed Wall Street to chokehold politicians in campaign finance and squeeze out from them financial policies that can only be fairly be described as federal handjobs.
Such shameless and misguided populism. Ostensibly, "Wall Street" are an evil cabal and not at all subservient to incentives granted by the state? Interesting. You could certainly critique the financial sector on basis of Hyman Minsky or even on basis of credit-driven boom-bust cycles, but this simplistic narrative of deregulation is insulting.
What actually happens is wealthy people like Paul Graham fund startups because they think these things are valuable. Through venture funding, rich people legitimate startups. Thus, they confer value upon the startup.
No shit. Value is subjective. Or perhaps you're still stuck in the political economy of Ricardo, I take it?
We, as a people, determine what is and is not of value mostly through what we believe to be legitimate and worthy of significance. And in late capitalism, we have all basically agreed to allow the market to dictate what is and is not of legitimate value. (This is what social critics recognize as Neoliberalism.)
But what the market deems valuable is not necessarily aligned with what is ultimately good for us as a society or even what we want. Because under conditions of extreme inequality, the market is biased towards people who have lots of money, at the expense of virtually everyone else.
What does this person think "the market" is? Some being existing independently of humans? Markets consist of exchanges, valuations and schedules of human participants, constrained by the institutional framework of governance in a particular jurisdiction.
That's not what "neoliberalism" is, either. Neoliberalism has two different meanings in the field of international relations, and in political economy. Neither of them have to do with the fallacious reasoning expressed above.
And just what, pray tell, is this mystical "social utility," some objectively measurable quantity of what is "good for society"? Demagogues always love to speak of it, and almost always it is a coded phrase for making humans subservient to whatever state policies they envision. There might be "social utility" in some theoretical metaphysical sense. In practice, one cannot do interpersonal comparisons of utility, hence the famous "utility monster" paradox illustrated by Nozick. Thus to speak of any greater societal good without taking into account that every individual has preferences that they reveal, is a folly.
Now, the question of money. What is money? It can be many things, most notably a medium of exchange. But it's also an accounting device for settling debt obligations and coordinating exchanges through time. One of the key insights of the mutualists and later heterodox monetary reformers like E.C. Riegel is that there is no reason for the latter accounting function to be monopolized by a state. Having groups of people issue their own debt instruments to intertemporally coordinate their consumption and production on coarse-grained collective levels, perhaps through a mutual credit bank, would be a great boon on many. This is not the fault of capitalism that it's so rare. It is the monetary monopoly of the state doing this. It is an unrelated issue.
That is not the future I want so I really have no choice but to insist that we resist and come to terms with the fact that the Market we call god is a sick and twisted god, indeed.
The market is not our god. Not even close.
People like Paul Graham need to write essays like this so you don’t question how undemocratic a market system is under conditions of extreme wealth inequality.
"Undemocratic". Another baseless buzzword. The market is not undemocratic. Its democracy operates on a more fine-grained level, and moreover for market participants to form a collective body of action to pool resources (like a corporation) requires unanimous approval on part of these people. A state only needs a thin majority (if at all).
Your criticism is "out to kill" style while the fact is that article has many good points and many bad points. For example, her comment on avoiding automation is outright wrong and uninformed. However her comment on the actual value that startups create vs value conferred by priesthood of super-rich vs value generated by non-startup folks is right on target. Her assertion that startups are becoming tool to facilitate inflated artificial returns for super rich rent-seekers doesn't look way out there. Her comparisons for current valuations with entire continent worth of countries or thousands of human lives should provoke thoughts on how the system is getting rigged by super rich crowd in the name of "risk taking" but without actually having to deliver proportional value to society. Even with successful exists most startups eventually get killed anyway in their new corporate owners destroying pretty much all of the supposedly created massive valuations. The only net outcome of even successful startups is super rich getting more richer along with few dudes tagging along for the ride. However I think her attacks on pg is off mark, uncivilized and even completely wrong, again in "out to kill" style just like your critic as opposed to extracting and isolating food for thought. PG had lots of good points to make his case that startups do generate wealth as opposed to take away wealth from poor but he then went off road to assert that limitless inequality is generated solely because of wealth creation which runs counter to pretty much economic data points.
Hm. What's your position on the article's claim that it is intutively absurd for schoolteachers and nurses to be valued millions of times less than Candy Crush Saga?
I think you can argue (and I think this is where she's going) that the schoolteachers and nurses are being fairly priced by the market, sad as it may be, but rhetoric about the tech industry is overvaluing Candy Crush Saga.
If by "intuitively absurd", you mean "counterintuitive", sure. Many things are.
Firstly, when you speculate on something like Candy Crush Saga, you're really speculating on what the brand and assets can yield you in terms of the rent gained from its unit services stretching out through the future. The risk is high, yet so is the anticipation of high yield. It might seem so stupid and trivial when seen superficially (it's "just" Candy Crush Saga), but what a brand like that can mean in a modern economy is surprisingly far-going.
Human labor is different because you can't reliably account for an individual productive laborer being there over some prolonged period of time without turnover. Otherwise, you'd be a slave owner, essentially. So, ceteris paribus, some estimate of a worker's marginal value product (marginal physical productivity discounted by the rate of interest) has to be made, which in a real-world economy is of course difficult and never really converging. This provides ample opportunity for bargaining.
Of course, this is all a ceteris paribus condition. State policies, institutional factors and unionization all severely complicate things.
Thanks, I did not expect this response and I'm thinking through it. I suppose Candy Crush Saga being valued at $X quite literally means that (some people believe that) if one were to purchase all of Candy Crush Saga, it would be able to generate about $X in value, either by collecting revenue or by reselling it or whatever. And at that point you could spend the resulting $X on nurses or schoolteachers or whatever.
I think my reservations with that are largely about how that interacts with "created" wealth, and whether created wealth is fungible for nurses and schoolteachers, but I don't think I have a well-formed response here yet.
This is a language problem: people with emotions hear "value" & recognize a (for lack of a better term) moral component to the implied judgement, where finance people are happy to confuse "value" with "wealth" or "profit" or "money" or "power" or "IGMFU".
This confusion allows economic arguments to fall back on economic arguments when confronted with moral opposition & it's worked for centuries.
