Lots of the 'toll booth' companies in reality are just software shells connecting a large network of small businesses that make it possible for those companies to make money. Google is basically a data service and indexing company for webmasters, all social media companies rely on hordes of media companies supplying content, they all rely on ad management companies, and Amazon relies on both third party sellers and a dizzying array of third party logistics providers.
20th century small business just operates using a different non-software layers of communications which 21st century businesses also share: phones, the interstate highway network, in-state highway networks, the ports, freight rail, newspapers, regulated TV, and the mail. I think Kotkin is wrong: small business is going to become more important and not less important, because big companies are becoming like sclerotic Japanese zaibatsus incapable of fresh, innovative action. The companies that have been succeeding have been growing large networks of dynamic, competitive, and efficient small businesses. Alibaba would be a key example of this type of dynamic operating in China, while Google, Amazon, and Instagram are key examples of this dynamic in the US.
NGOs are religious organizations for secular internationalists. They are responsive to their customers: their rich masters, not the general public. Their profit and loss is based on how much their masters give them. If they please master, master rewards them. It's a thin market subject to big swings based on arbitrary and ill-informed decisions, partly because it's driven by rich people dumping money that would be otherwise taxed. The tax issue would be the key issue to address to improve the dynamic: it's driven by rich guys looking for ways to improve their operating environment in a tax efficient manner. They would be stupid not to play the game.
Zaibatsus are just pensions for busybodies, since a normal pension plan can fail in critical moments, and the necessity of toxicity persists. How many pet projects (social or technical) can be funded by such corporations for innovation such that it can yield consistent net positive returns?
One thing that became very evident during the pandemic to me is that small business kulaks are a reservoir of anti-insanity. For instance, owner owned small businesses around me are dramatically more likely not to make the staff wear masks compared to corporate businesses, even franchises. The only daycare and school in the area that doesn't make kids wear masks are small owner operated affairs.
While it is nice what big business was able to do during the pandemic, it's also true that the government literally shutting their competition down was a big boon to their bottom line and something they ultimately weren't going to protest (or even mildly support). As with everything else, regulation is easier for the big boys to deal with and so they naturally aren't the main enemies of regulation.
Even if they aren't absolutely the most efficient, perhaps keeping a few small business kulaks around is worth it from a societal checks and balances perspective.
One solution to 'elite overproduction' is to make sure there are ample opportunities for them in little leadership positions with strong incentives to do a good job instead of just whine and blame and resent all day every day. O'Meara's account of Napoleon's comments on "a nation of shopkeepers" is probably a fraud, but still, is there a better way to explain 'elite overproduction' than "You are all nobility now, instead of the plain old Englishmen."
This would be like a reserve army of potential pushback against the encroachments and onerous compliance burdens of the regulatory state, as well as doing some electorate shaping in the natural way that someone living the petit bourgeois lifestyle gets a lot of lower-case c conservative, first hand experience with reality, responsibility, the problems of lower classes, the real costs of regulations, and so on.
You see this kind of thing all the time, "I am the most progressive person around with a spotless reputation for supporting everything the left wants, but, as the owner of X-business, my dream and life's work, the thing about that recent proposal is ... "
This is a lot how getting married and having children has a way of changing people's political outlook.
Which is just one reason out of several why even if the GOP tried to introduce distortions into the market to make small businesses artificially more competitive, the progressives who complain all day about big business would suddenly rally to the side of the megacorps.
As a bit of a deep thought, how can "overproduction" even happen, if it is merely skewing the expectation of crack gentry, with reference from Alex Danco and Curtis Yarvin? Danco noted the gentry is 20% of the population, whilst the elite is the top 1%. Yarvin countered that the upper 5% of gentry should stay with the elite, and the other 15% should retire, which is merely a shift in power for the same sets of group. Alternatively, how can general wellbeing be fixed, or that power be redistributed post-production?
This could only end in schisms and holy wars ("elite fratricide"). From a memetic hazard standpoint, this sounds an awful like a certain creature that got banned from LessWrong.
I don't think we've hit peak woke yet - more Dems need to lose more elections, more school boards need more replacements, and some businesses need to lose lawsuits.
Charitable contributions should be promoted with a partial tax credit rather than a deduction. Contributions from high income individuals should not be more valued than contributions from the less well off.
Just get rid of the deduction altogether. The ultimate in equal treatment is an equal benefit rate of zero percent.
Pay your taxes then spend your money however you want, leave everyone else out of it.
I get good tax benefits from my giving, so I am speaking against my short-term interests, but it's just gravy for me subsidized by the debt we are pushing on the future. I got better tax benefits from my SALT deductions before the cap, and that's fine now too. The feds don't need to subsidize giving or lower government spending or to promote NGOs.
I am anti-deduction in general. It's a terrible, sneaky, and easily gamed way to pursue policy which should be done in the open not via the tax code. Give people the standard deduction and maybe some EITC welfare and that's it.
If you don't want to favor some expenditures over others, all you need is a higher zero tax threshold. If nothing is deductible, we don't need a standard deduction. Personally, I do like favoring charitable contributions and retirement savings, but yours is a perfectly reasonable point of view
Wasn't a corollary to Say's Law that you need to employee people at a level so they can afford to buy your products? If all production is automated for example, and no one has jobs, then they can not buy the products the robots produce.
It would seem that capital providers need to conclude they have better returns on capital if they invest in new innovation rather than non-profits and government. How does the market signal that trade?
When they invest in Government, that feels like a signal they are really a rent seeker. Which also suggests they are at the end of the S curve innovation in their domain. Does that signal possible creative destruction arbitrage?
The government guarantees a minimum purchasing power to all of its people. The Fordist philosophy of paying people enough to buy the products that they manufacture doesn't really make sense in a post Great Society country because the government picks up a big portion of the tab of effective compensation for the people at the bottom. The Walmart greeter can afford to shop partly with wages, and part through total government assistance provided to them as individuals and to their family members. The Fordist philosophy was first implemented before even the Social Security Act was passed. Circumstances are now quite different for other reasons as well.
Low interest rates signal to the market that there is a surplus of capital and that conditions are low risk. It suggests that the proper attitude is one of complacency, serenity, and present orientation.
Investing entails costs and risks. One usually needs to look after one's investment. Outcomes are uncertain. Employing people in a profitable enterprise is a social good indeed. In an unprofitable - not necessarily. Not every investment is profitable, but every one is costly.
Donating, on the other hand, is much less risky - you are likely to see the results immediately and predictably: some people are helped, and the helpers are happy, and you feel superior. Donation entails instant gratification, no?
The sad thing is that there are plenty of places in government where, even holding mission and output constant, a few dollars of investment could have extremely high returns in terms of cost-saving. If it were possible for someone to earn a share of the cost savings, you would have no shortage of applicants of extremely talented people eager to give it a go. But in the current system for current players, there is no incentive to do this.
There's a big gap in VC from the top firms and the firms at the lower end of the ranking. The long term returns are also quite inconsistent. IANAIA (I Am Not An Investment Advisor), but the answer to this question depends a lot on the capital that you have to invest and what industry you're in.
No sane company goes out of its way to pay more in taxes, but plenty are happy to kick something to lobbyists. Even informal lobbying is pretty high return intangibly or otherwise: people talk to you with a renewed sense of awe when you tell them about your meeting with a congressman or a committee staffer. People love thinking that they have access to power, even if it's just a tiny little reflection of a glimmer of the ancient Silmarils, so to speak, especially if they think they're getting access to power at 95% off the typical price. That's the "Hollywood for ugly people" effect that DC is described as having, except I would tack on "Hollywood for ugly AND stupid people."
VC is a pretty small sector compared to R&D as a whole, so it's wrong to use that as representative of innovation. It's just seems cool and sexy because of its outsized media presence. VC returns are also quite inconsistent between firms and from year to year when considered in aggregate. VC is also kind of a post-1970s phenomenon. A lot of that 20th century innovation that we rely on today happened before the current VC model emerged.
I managed Boeings R&D investment for 3 years working for the CTO. And run a venture fund. We probably could have a very circular conversation on spillover effects. VC vs R&D is like temporal depending on innovation cycle (Incremental or creative destruction - see Christensen)
In the 50 and 60s we saw consistent GDP growth. In all areas of the country. We had many people willing to start new businesses and generally good access to capital. Great businesses were started in all 50 states.
In time VC (or risk capital) centralized in a few regions and a few sectors. That narrowed capital access in many industries, and over expressed it in others.
The current stock repurchase rate is a signal that corporations don't have innovation opportunity. They bought back their stock rather than invest in innovation. That suggests innovation upstream of M&A or corporate R&D is stagnating.
Corporate investing is more about existing architecture/industry.
But what is the inventory of new industry/architecture? The value of VC is not the investment level, but the exposure of "Imperfect Knowledge" and as a signal for Capital Allocation. (Knowledge in Society, Price Signals, Hayek and Claude Shannon).
Those with capital are likely better capital allocators, or some of them are. So increasing information flow to them should improve their quality. Their marginal value is higher, per Kling's reply, as investors rather than donors.
I'm at the moment preparing to start a new business in the same sector in which I've been working and consulting for quite a while. When brushing up on the current state of affairs with a certain type of business which is supposed to be fast-moving and is currently in the midst of being rolled-up by private equity firms, my thought was "oh, hey, seems like everything's about the same as it was three years ago, just a little bit different, people are having exactly the same conversations about the same things. They are having exactly the same problems that they were having back then, for the same reasons."
What caught me by surprise was that a particular genre of software related to advertising automation was receiving the same negative reviews that I had when I was using early versions of those types of software, years ago. So, the one thing we as Americans are supposed to be good at is something we are not really improving, and might be getting worse compared to just doing it all in Excel manually. 2020-21 machine learning technology defeated by the spreadsheet, grandpa software casually outcompeting the software that was supposed to eat the world.
Capital is returned to corporate. Corporate needs to determine if they should dividend it, reinvest it, etc. They should be investing in the best return to shareholders, or return capital to shareholders.
Dividends are the normal way to return capital to shareholders. Share repurchase has the same effect, but at a lower cost in tax.
They also buyback shares to replenish option pool which is a common form of total compensation. That is another reason to repurchase. In that case, they are reinvesting in human capital which may be a form of R&D investment. Repurchase for options does not explain the magnitude of repurchase. The better explanation is that the corporation does not perceive a threat or have an innovation option, so they return capital to share holders.
Was Ford really interested in increasing demand for his cars by paying people more? He did give a lovely explanation to sound like he was an amazing enlightened person.
Another viewpoint - his staff turnover was extremely high because the work on the production line was so boring. I remember it was something like an average of 3 months per employee. So he tripled their wages. That version (reality?) doesn’t make him sound as wonderful.
Actually Henry Ford didn't originally raise wages so that his workers could afford automobiles, that would be self-defeating. He lowered costs by perfecting the assembly-line and adopting "Taylorization" of his workforce; but then had to pay his workers more because they hated the incessant never-ending routine of those assembly lines. There is something dehumanizing, almost robotic, in being the man who only installs the right-side door continuously. Eventually auto workers received the right to work "down-the-line", rotating tasks to reduce the mind-numbing monotony.
Lots of the 'toll booth' companies in reality are just software shells connecting a large network of small businesses that make it possible for those companies to make money. Google is basically a data service and indexing company for webmasters, all social media companies rely on hordes of media companies supplying content, they all rely on ad management companies, and Amazon relies on both third party sellers and a dizzying array of third party logistics providers.
20th century small business just operates using a different non-software layers of communications which 21st century businesses also share: phones, the interstate highway network, in-state highway networks, the ports, freight rail, newspapers, regulated TV, and the mail. I think Kotkin is wrong: small business is going to become more important and not less important, because big companies are becoming like sclerotic Japanese zaibatsus incapable of fresh, innovative action. The companies that have been succeeding have been growing large networks of dynamic, competitive, and efficient small businesses. Alibaba would be a key example of this type of dynamic operating in China, while Google, Amazon, and Instagram are key examples of this dynamic in the US.
NGOs are religious organizations for secular internationalists. They are responsive to their customers: their rich masters, not the general public. Their profit and loss is based on how much their masters give them. If they please master, master rewards them. It's a thin market subject to big swings based on arbitrary and ill-informed decisions, partly because it's driven by rich people dumping money that would be otherwise taxed. The tax issue would be the key issue to address to improve the dynamic: it's driven by rich guys looking for ways to improve their operating environment in a tax efficient manner. They would be stupid not to play the game.
Zaibatsus are just pensions for busybodies, since a normal pension plan can fail in critical moments, and the necessity of toxicity persists. How many pet projects (social or technical) can be funded by such corporations for innovation such that it can yield consistent net positive returns?
One thing that became very evident during the pandemic to me is that small business kulaks are a reservoir of anti-insanity. For instance, owner owned small businesses around me are dramatically more likely not to make the staff wear masks compared to corporate businesses, even franchises. The only daycare and school in the area that doesn't make kids wear masks are small owner operated affairs.
While it is nice what big business was able to do during the pandemic, it's also true that the government literally shutting their competition down was a big boon to their bottom line and something they ultimately weren't going to protest (or even mildly support). As with everything else, regulation is easier for the big boys to deal with and so they naturally aren't the main enemies of regulation.
Even if they aren't absolutely the most efficient, perhaps keeping a few small business kulaks around is worth it from a societal checks and balances perspective.
One solution to 'elite overproduction' is to make sure there are ample opportunities for them in little leadership positions with strong incentives to do a good job instead of just whine and blame and resent all day every day. O'Meara's account of Napoleon's comments on "a nation of shopkeepers" is probably a fraud, but still, is there a better way to explain 'elite overproduction' than "You are all nobility now, instead of the plain old Englishmen."
This would be like a reserve army of potential pushback against the encroachments and onerous compliance burdens of the regulatory state, as well as doing some electorate shaping in the natural way that someone living the petit bourgeois lifestyle gets a lot of lower-case c conservative, first hand experience with reality, responsibility, the problems of lower classes, the real costs of regulations, and so on.
You see this kind of thing all the time, "I am the most progressive person around with a spotless reputation for supporting everything the left wants, but, as the owner of X-business, my dream and life's work, the thing about that recent proposal is ... "
This is a lot how getting married and having children has a way of changing people's political outlook.
Which is just one reason out of several why even if the GOP tried to introduce distortions into the market to make small businesses artificially more competitive, the progressives who complain all day about big business would suddenly rally to the side of the megacorps.
As a bit of a deep thought, how can "overproduction" even happen, if it is merely skewing the expectation of crack gentry, with reference from Alex Danco and Curtis Yarvin? Danco noted the gentry is 20% of the population, whilst the elite is the top 1%. Yarvin countered that the upper 5% of gentry should stay with the elite, and the other 15% should retire, which is merely a shift in power for the same sets of group. Alternatively, how can general wellbeing be fixed, or that power be redistributed post-production?
This could only end in schisms and holy wars ("elite fratricide"). From a memetic hazard standpoint, this sounds an awful like a certain creature that got banned from LessWrong.
A bit OT but an important essay on Wokeness - and the long fight against it ahead of all who oppose it. https://theupheaval.substack.com/p/no-the-revolution-isnt-over
I don't think we've hit peak woke yet - more Dems need to lose more elections, more school boards need more replacements, and some businesses need to lose lawsuits.
Charitable contributions should be promoted with a partial tax credit rather than a deduction. Contributions from high income individuals should not be more valued than contributions from the less well off.
Just get rid of the deduction altogether. The ultimate in equal treatment is an equal benefit rate of zero percent.
Pay your taxes then spend your money however you want, leave everyone else out of it.
I get good tax benefits from my giving, so I am speaking against my short-term interests, but it's just gravy for me subsidized by the debt we are pushing on the future. I got better tax benefits from my SALT deductions before the cap, and that's fine now too. The feds don't need to subsidize giving or lower government spending or to promote NGOs.
I am anti-deduction in general. It's a terrible, sneaky, and easily gamed way to pursue policy which should be done in the open not via the tax code. Give people the standard deduction and maybe some EITC welfare and that's it.
If you don't want to favor some expenditures over others, all you need is a higher zero tax threshold. If nothing is deductible, we don't need a standard deduction. Personally, I do like favoring charitable contributions and retirement savings, but yours is a perfectly reasonable point of view
Wasn't a corollary to Say's Law that you need to employee people at a level so they can afford to buy your products? If all production is automated for example, and no one has jobs, then they can not buy the products the robots produce.
It would seem that capital providers need to conclude they have better returns on capital if they invest in new innovation rather than non-profits and government. How does the market signal that trade?
When they invest in Government, that feels like a signal they are really a rent seeker. Which also suggests they are at the end of the S curve innovation in their domain. Does that signal possible creative destruction arbitrage?
The government guarantees a minimum purchasing power to all of its people. The Fordist philosophy of paying people enough to buy the products that they manufacture doesn't really make sense in a post Great Society country because the government picks up a big portion of the tab of effective compensation for the people at the bottom. The Walmart greeter can afford to shop partly with wages, and part through total government assistance provided to them as individuals and to their family members. The Fordist philosophy was first implemented before even the Social Security Act was passed. Circumstances are now quite different for other reasons as well.
Low interest rates signal to the market that there is a surplus of capital and that conditions are low risk. It suggests that the proper attitude is one of complacency, serenity, and present orientation.
Is it marginally better for capital providers to invest a dollar in more government (taxes) or more innovation (Venture capital)?
Good point. And my point is that those with capital are likely to generate more social good by investing than by donating.
"Likely" needs explanation.
Investing entails costs and risks. One usually needs to look after one's investment. Outcomes are uncertain. Employing people in a profitable enterprise is a social good indeed. In an unprofitable - not necessarily. Not every investment is profitable, but every one is costly.
Donating, on the other hand, is much less risky - you are likely to see the results immediately and predictably: some people are helped, and the helpers are happy, and you feel superior. Donation entails instant gratification, no?
The sad thing is that there are plenty of places in government where, even holding mission and output constant, a few dollars of investment could have extremely high returns in terms of cost-saving. If it were possible for someone to earn a share of the cost savings, you would have no shortage of applicants of extremely talented people eager to give it a go. But in the current system for current players, there is no incentive to do this.
There's a big gap in VC from the top firms and the firms at the lower end of the ranking. The long term returns are also quite inconsistent. IANAIA (I Am Not An Investment Advisor), but the answer to this question depends a lot on the capital that you have to invest and what industry you're in.
No sane company goes out of its way to pay more in taxes, but plenty are happy to kick something to lobbyists. Even informal lobbying is pretty high return intangibly or otherwise: people talk to you with a renewed sense of awe when you tell them about your meeting with a congressman or a committee staffer. People love thinking that they have access to power, even if it's just a tiny little reflection of a glimmer of the ancient Silmarils, so to speak, especially if they think they're getting access to power at 95% off the typical price. That's the "Hollywood for ugly people" effect that DC is described as having, except I would tack on "Hollywood for ugly AND stupid people."
VC is a pretty small sector compared to R&D as a whole, so it's wrong to use that as representative of innovation. It's just seems cool and sexy because of its outsized media presence. VC returns are also quite inconsistent between firms and from year to year when considered in aggregate. VC is also kind of a post-1970s phenomenon. A lot of that 20th century innovation that we rely on today happened before the current VC model emerged.
I managed Boeings R&D investment for 3 years working for the CTO. And run a venture fund. We probably could have a very circular conversation on spillover effects. VC vs R&D is like temporal depending on innovation cycle (Incremental or creative destruction - see Christensen)
In the 50 and 60s we saw consistent GDP growth. In all areas of the country. We had many people willing to start new businesses and generally good access to capital. Great businesses were started in all 50 states.
In time VC (or risk capital) centralized in a few regions and a few sectors. That narrowed capital access in many industries, and over expressed it in others.
The current stock repurchase rate is a signal that corporations don't have innovation opportunity. They bought back their stock rather than invest in innovation. That suggests innovation upstream of M&A or corporate R&D is stagnating.
Corporate investing is more about existing architecture/industry.
But what is the inventory of new industry/architecture? The value of VC is not the investment level, but the exposure of "Imperfect Knowledge" and as a signal for Capital Allocation. (Knowledge in Society, Price Signals, Hayek and Claude Shannon).
Those with capital are likely better capital allocators, or some of them are. So increasing information flow to them should improve their quality. Their marginal value is higher, per Kling's reply, as investors rather than donors.
I'm at the moment preparing to start a new business in the same sector in which I've been working and consulting for quite a while. When brushing up on the current state of affairs with a certain type of business which is supposed to be fast-moving and is currently in the midst of being rolled-up by private equity firms, my thought was "oh, hey, seems like everything's about the same as it was three years ago, just a little bit different, people are having exactly the same conversations about the same things. They are having exactly the same problems that they were having back then, for the same reasons."
What caught me by surprise was that a particular genre of software related to advertising automation was receiving the same negative reviews that I had when I was using early versions of those types of software, years ago. So, the one thing we as Americans are supposed to be good at is something we are not really improving, and might be getting worse compared to just doing it all in Excel manually. 2020-21 machine learning technology defeated by the spreadsheet, grandpa software casually outcompeting the software that was supposed to eat the world.
So its better for capital providers to invest in non-profits because some parts of the market have crap software?
"That suggests innovation upstream of M&A or corporate R&D is stagnating."
I would be grateful to read your thoughts as to why this is the case.
Capital is returned to corporate. Corporate needs to determine if they should dividend it, reinvest it, etc. They should be investing in the best return to shareholders, or return capital to shareholders.
Dividends are the normal way to return capital to shareholders. Share repurchase has the same effect, but at a lower cost in tax.
They also buyback shares to replenish option pool which is a common form of total compensation. That is another reason to repurchase. In that case, they are reinvesting in human capital which may be a form of R&D investment. Repurchase for options does not explain the magnitude of repurchase. The better explanation is that the corporation does not perceive a threat or have an innovation option, so they return capital to share holders.
Was Ford really interested in increasing demand for his cars by paying people more? He did give a lovely explanation to sound like he was an amazing enlightened person.
Another viewpoint - his staff turnover was extremely high because the work on the production line was so boring. I remember it was something like an average of 3 months per employee. So he tripled their wages. That version (reality?) doesn’t make him sound as wonderful.
Actually Henry Ford didn't originally raise wages so that his workers could afford automobiles, that would be self-defeating. He lowered costs by perfecting the assembly-line and adopting "Taylorization" of his workforce; but then had to pay his workers more because they hated the incessant never-ending routine of those assembly lines. There is something dehumanizing, almost robotic, in being the man who only installs the right-side door continuously. Eventually auto workers received the right to work "down-the-line", rotating tasks to reduce the mind-numbing monotony.
Sharp post, Arnold.
However much we may distrust what Congress spends on, at least we should want to tax enough to the deficit to near zero is not a surplus.