The growth of “zero-sum” activities may, however, be even more important. Look around the economy, and it’s striking how much high-talent manpower is devoted to activities that cannot possibly increase human welfare, but entail competition for the available economic pie. Such activities have become ubiquitous: legal services, policing, and prisons; cybercrime and the army of experts defending organizations against it; financial regulators trying to stop mis-selling and the growing ranks of compliance officers employed in response; the huge resources devoted to US election campaigns; real-estate services that facilitate the exchange of already-existing assets; and much financial trading.
Much design, branding, and advertising activity is also essentially zero-sum. ...
Such zero-sum activities have always been significant. But they grow in importance as we approach satiation in many basic goods and services. In the US, “financial and business services” now account for 18% of employment, up from 13.2% in 1992.
What's interesting is that it's the UK's former top financial regulator saying this. It's not a new idea, but it used to be the sort of thing you saw in Mother Jones, and occasionally heard from Warren Buffett. This is a concept that needs to become mainstream and start influencing tax policy.
There's a lot that could be done through tax policy to push capital in more productive directions. The elephant in the room is zero-sum financial activity. Buffett used to say that short-term capital gains should be taxed at 100%. Taxing them at top-bracket personal income tax rates might not be a bad idea. It's a start.
Hedge funds get a completely unnecessary tax break which has a small but powerful lobby.
All the ways that businesses pay for capital should be taxed at the same rate. This includes dividends, interest paid, and stock buybacks. There's a bias towards borrowing rather than dividends, which generates unnecessary banking activity. It's the relative tax rates that matter, not the absolute ones, because they drive business decisions.
Maybe advertising should not be a tax-deductible business expense. US consumer advertising just moves demand around. It doesn't add demand because US consumers are spent out, as the CEO of WalMart says.
Politically, the key to doing this is to do it all at once, with the overall corporate tax rate adjusted to make it revenue-neutral. There will be losers, and they will have lobbyists lined up halfway down the Mall to get into the Capitol. But there will be winners, too, mostly in industries that actually do something. It's politically possible.
> What's interesting is that it's the UK's former top financial regulator saying this. It's not a new idea, but it used to be the sort of thing you saw in Mother Jones, and occasionally heard from Warren Buffett.
I believe the canonical exploration of this idea belongs to he-who-shall-not-be-named. Rich people playing zero-sum games while the poor starve is the natural outcome of building an economy off of the notion that value creation is about doing what wealth-weighted-people want as opposed to what uniformly-weighted people want.
Obviously the best answer lies between the extremes and is a function of an economic sector's structure, growth rate, etc, rather than a single universal solution. The real tragedy is that the school of thought which pursues this angle has been so thoroughly demonized and shunned that its principles have to be rediscovered and rebranded before they can enter the arena of public discourse. On an absolute scale the ideas are simple and fundamental enough that they really ought to be a starting point for discussion rather than a conclusion.
Yes, there's an echo of Marx and Veblen here, but this becoming a big part of the economy is a recent phenomenon. It's a result of having vast manufacturing capacity.
Basic fact: for thousands of years, the big problem was making (or growing, catching, or mining) enough stuff. In the 20th century, that problem started to be solved. By the second half of the 20th century, the leading industrial nations had it solved. Then Asia caught up - Japan, Taiwan, S. Korea, and finally China. China was the big one, being a huge country. Suddenly there was overcapacity in almost everything.
Now, as I write occasionally, it just doesn't take that many people to make all the stuff. It's now possible to have a successful economy with a huge non-productive underclass. Economics and politics haven't caught up with this yet.
Oh no, you said his name, and like clockwork my precious upvotes have started to turn to downvotes :-)
We agree, though. Capitalism is really, really good at growth and really, really bad at steady-state. We've never really come up with a good alternative for steady-state. I think Marx got the diagnosis right and the treatment wrong, which seems like a pretty modest hypothesis given the relative difficulty of the two. Regardless, we had better figure this out or things will get messy. Very messy.
TBH I have higher hopes for a couple more industrial revolutions to push the meltdown out beyond my lifetime. Bio and space, maybe? :/
> Economics and politics haven't caught up with this yet.
That seems unlikely. Political and economic leadership throughout the "White West" has been subsidizing and expanding the non-productive underclass for decades.
And most of that happened after the US ditched the gold standard in 1971, and part of the reason for that was a budget deficit. And the other countries often had FX reserves, only fueling the overcapacity and reducing bond yields.
Japan was already a powerful manufacturing nation well before the second half of the 20th century. Dont you know the defeated Russia at the end of the 18th ?
This was also not a prolonged war (lasted about a year and a half). Japan had to commit all its forces to the (successful) campaign. Russia was forced to surrender due to internal conflict and a stagnant economy, but had much more manpower it could have sent to turn the tides.
> Rich people playing zero-sum games while the poor starve is the natural outcome of building an economy off of the notion that value creation is about doing what wealth-weighted-people want as opposed to what uniformly-weighted people want.
If so, the problem must go away with a sane wealth redistribution program. (What might be much more realistic than taxing marketing.)
Agreed, but even modest fungibility of wealth and power (which happens almost by definition) makes any such solution fragile.
The technological approach is more interesting to me. If you can make distributed manufacturing efficient enough that a single person or group of people can own the capital needed to sustain themselves, you place a lower limit on the extent to which market-based social contract regression can harm a population. Alternatively, from the capitalist angle: companies that directly trade goods for labor are in a unique position to profit from a glut of labor that is not competitive on the global market.
This isn't a new idea. We call them communes. They have a well deserved reputation for being a shitshow. Probably because what they're trying to do -- boil a globe-spanning sprawl of infrastructure and trade down to an acceptable MVP -- is really, really hard. Unlike the world economy, though, that difficulty is a function of technology, rather than politics. Technology improves over time. Politics does not. Which means there's probably going to be a crossing point. I haven't the faintest clue when. I do my (tiny) part by contributing to "industrial" open source projects (mechanical and electrical modeling and simulation), which sorely need any attention they can get, regardless the underlying philosophy.
I've been thinking about this a bit. I think we need to get better intelligence augmentation. We are limited in what we can produce, because we are limited in what we can manage. So we need to improve how much we can manage.
I'm thinking about it in terms of improving autonomy
How have I never heard of this before? (EDIT: oh, it's a really recent post.)
That list of bullet points hits hard. Bookmarked.
The name is excellent. It focuses on the work to be done, ties it to a traditional virtue, and jettisons the baggage that would otherwise come with references to earlier iterations on the theme.
Ditto that about the community being diffuse, although my failure to find similarly minded company may in part be due to the fact that I haven't figured out how to boil this all down to an elevator pitch. The "Autonomy" post helps.
Cool. Glad you liked it. It was great to read your comments about similar ideas.
I think my next step is to see if it'll take on HN, so I've just submitted it. If not try and repackage it and get it on an interesting blog/website. Where would you expect to see something like that?
Communes need not be focused on producing anything.
Suppose you take a group of 20 people making minimum wage, and rather than buying the cheapest internet possible 1Mbps x 20, they buy a 100Mbps connection and share them. Well there is added HW requirements, but for the cost of 1Mbps everyone is getting 5+Mbps except everyone is not using at the same time so it's closer to 20+Mbps.
There is a lot of things you can buy in bulk and see similar savings. The most obvious being housing. The classic 15 collage students in a house can be a lot cheaper than a dorm room. But, it also applies say vacations with carpooling / car rentals and a beach house, or stables like bulk rice.
Forgot to factor in management and maintenance. Typically such projects fail because a key manager or maintainer disappears and there are not enough funds to hire a replacement or get good enough training for someone to replace them.
Alternatively key people become overloaded and burn out.
Hardware is the cheap part, people are not. (Until infrastructure becomes really big such as roads, mass transit and big ISPs. Because these utilise economies of scale in workforce.)
Well yea, these things are unstable. But when the break even point is only 3 months or so you don't have to stick with it very long to see a net gain. What seems like a reasonable effort to save money when your a minimum wage collage collage student may not when your making six figures.
My point was most communes are closer to having roommates to collage fraternity side vs soviet worker camp.
The fundamental problem with this is that, as technology becomes more advanced, the facilities required to make it have become more complex and dependent on centralized manufacturing. For example, the cost of a fab capable of building even reasonably modern ICs is in the billions and there are a handful of companies that have the ability to run them, and they rely on equipment from a number of equally specialised suppliers.
I dunno, quant is taking over short term trading and reducing volatility. Computers are automating fintech and rote legal work. It took awhile, but the free market is working things out. No need for government interference.
If government wants to get involved, they should replace wealth generating income taxes with taxes on planet destroying consumption.
The government created the internet, GPS, and funds much of the innovative research going on.
I totally agree with reforming our tax system away from income taxes and towards a land value tax, carbon taxes, and other Pigovian taxes. Or at least we can start taxing capital gains at the same or a higher rate than income taxes.
Those things aren't zero sum. When a business gets hacked and shuts down, a bunch of people spend time sitting around trying to get a new job, and then learning that new job. If going outside is scary, police can make it not scary and value will be generated out of thin air. And so on.
I think the point is that hackers and cybersecurity researchers, or lawyers and other lawyers, cancel each other out. To take yet another example, countries pay lots of money to maintain nuclear arsenals that will never be used because their adversaries also have nuclear arsenals. If all nuclear arsenals disappeared, the only real difference to any country would be that they would be spending less money.
So yes, your statement about the police is correct. But if there were neither criminals nor police, the situation would be the same as with criminals and police, only less expensive. I believe this is why they call it zero-sum.
I don't see how taxation will solve the criminals/police problem, but it's fairly clear for legal services.
Nuclear arsenals bring peace. Lybia's dictator was immediately assasinated as soon as he agreed to disarm. North Korea is constantly showing off their nukes because they've seen what happens to small resource-rich countries with no nuclear weapons. The U.S., China EU and Russia are all commited to peaceful economic competition because there is an understanding that the first war fought between nuclear powers will be the end of the human race. Removing nukes from the equation would drastically alter the state of the world.
Nuclear buildup may look similar to the cat and mouse game of law enforcement but in fact they're two different games; the former cannot be used to reason about the latter.
Legal services and policing are not zero-sum. Policing ensures stability, which facilitates essentially all the productivity that we enjoy. Similarly, legal services provide foundations for cooperation and trust, which are also substantially relevant for nearly all large scale forms of productivity.
>> Look around the economy, and it’s striking how much high-talent manpower is devoted to activities that cannot possibly increase human welfare, but entail competition for the available economic pie. Such activities have become ubiquitous: [...] [such as] real-estate services that facilitate the exchange of already-existing assets
It would be nice if top financial regulators didn't believe that trade was a zero-sum activity. The belief is many thousands of years old, but it's never been, you know, true. The vast majority of all value is created through the exchange of already-existing assets.
>The vast majority of all value is created through the exchange of already-existing assets.
Could you explain that? Not having studied much economics, I would defined "value" the net sum of assets across society. From there, I would say that no value is created through exchange, only through production. The purpose of financial markets would then be to optimize production, not in an end in themselves.
The theory of comparative advantage ( https://en.wikipedia.org/wiki/Comparative_advantage ) tells us that optimal production requires exchange. If you prohibited the exchange of existing assets, it would not be possible to achieve the same total production regardless of who you assigned to produce what. (You could of course have everyone keep producing what they were producing for the trade-is-possible world, but if you did that, nearly 100% of all production would be thrown away as waste. Coal is valuable in small quantities as a heat source, but it's valuable to power plants only because they can sell electricity, and it's valuable to mine owners only because they can sell it to power plants.)
This is completely wrong. I sell stocks because I need cash. I make a loan because someone else needs cash. Liquidity preferences matter, volatility preferences matter, both parties can gain value.
I hate advertising, but I could see an argument for it not being zero sum if you believe that it is truly useful in disseminating information that people otherwise wouldn't get and promoting education of the consumer. Our modern advertising, which are essentially just movie shorts, probably wouldn't qualify for this.
The growth of “zero-sum” activities may, however, be even more important. Look around the economy, and it’s striking how much high-talent manpower is devoted to activities that cannot possibly increase human welfare, but entail competition for the available economic pie. Such activities have become ubiquitous: legal services, policing, and prisons; cybercrime and the army of experts defending organizations against it; financial regulators trying to stop mis-selling and the growing ranks of compliance officers employed in response; the huge resources devoted to US election campaigns; real-estate services that facilitate the exchange of already-existing assets; and much financial trading.
Much design, branding, and advertising activity is also essentially zero-sum. ...
Such zero-sum activities have always been significant. But they grow in importance as we approach satiation in many basic goods and services. In the US, “financial and business services” now account for 18% of employment, up from 13.2% in 1992.
What's interesting is that it's the UK's former top financial regulator saying this. It's not a new idea, but it used to be the sort of thing you saw in Mother Jones, and occasionally heard from Warren Buffett. This is a concept that needs to become mainstream and start influencing tax policy.
There's a lot that could be done through tax policy to push capital in more productive directions. The elephant in the room is zero-sum financial activity. Buffett used to say that short-term capital gains should be taxed at 100%. Taxing them at top-bracket personal income tax rates might not be a bad idea. It's a start.
Hedge funds get a completely unnecessary tax break which has a small but powerful lobby.
All the ways that businesses pay for capital should be taxed at the same rate. This includes dividends, interest paid, and stock buybacks. There's a bias towards borrowing rather than dividends, which generates unnecessary banking activity. It's the relative tax rates that matter, not the absolute ones, because they drive business decisions.
Maybe advertising should not be a tax-deductible business expense. US consumer advertising just moves demand around. It doesn't add demand because US consumers are spent out, as the CEO of WalMart says.
Politically, the key to doing this is to do it all at once, with the overall corporate tax rate adjusted to make it revenue-neutral. There will be losers, and they will have lobbyists lined up halfway down the Mall to get into the Capitol. But there will be winners, too, mostly in industries that actually do something. It's politically possible.