> I've often wondered why 'the market' doesn't understand that if garbage men disappeared, my city would look like a hellscape in a week.
I think that's a fundamental misunderstanding of the market. I didn't understand this either until I (self-) studied a bit of economics.
The classic question in economics was this - why are diamonds more valuable than water? Without water you're dead. Without diamonds you're mostly no worse off.
The answer to this led us eventually to the theory of supply and demand. Sure, without garbage workers, the city would be terrible. That's why we pay them. But the supply of garbage workers is apparently much larger than the supply of e.g. software engineers. If you have 100 people who can do one job, vs. person who can do the other job, that 1 person has a lot more leverage and you have to pay them more. Even if both jobs are equally important.
That's how a market works. If your friend quit his team, he would presumably be easy to replace. If you quit your team, it would be harder. That is eventually reflected in your salaries.
It's not perfect - since no one has perfect information, a lot of this stuff is based on guesswork and consensus. But you can very clearly see that the principles are correct.
> My conclusion was that 'the market' isn't a fairly good proxy for actually providing a contribution but as with all things human, there's also politics involved.
That's a fair conclusion, but I disagree with it. I think it's really true that one Einstein contributes more to the world (on average) than one garbage worker. One software engineer contributes more to the world (on average) than one garbage worker. And so on. It's mostly due to scale effects - one garbage worker can only do so much. One software engineer does a lot more because their work is easily duplicated and scaled and affects a lot more people.
I've also self studied economy and am jaded with all the examples that go to the root of the economic theory while reality is oftentimes more complicated. Such as in the example with me working for a VC backed company, my friend working for the utility company and GPs consultant working for whoever pays the money.
> The classic question in economics was this - why are diamonds more valuable than water? Without water you're dead. Without diamonds you're mostly no worse off.
Would people pay more for diamonds if they were dying of thirst? People pay more for diamonds vs. water only if the water problem is already handled. The economy is such a complex model of every interaction that I find it disingenuous to base the assumption that market rate == usefulness on pure theory.
> That's how a market works. If your friend quit his team, he would presumably be easy to replace. If you quit your team, it would be harder. That is eventually reflected in your salaries.
In this particular circumstance, no. He's a lot harder to replace in terms of quality and knowledge than I am in my current team. We were lucky to get injected with millions of dollars of capital while he works for a utility company. He is useful for thousands of people. My lines of code have not been used by anyone yet and possibly will never be.
> It's not perfect - since no one has perfect information, a lot of this stuff is based on guesswork and consensus. But you can very clearly see that the principles are correct.
The principles are correct; is it possible that they are correct because they are fundamental, and not the actual reality where politics come into play? If we'd be designing for the real world like we study physics in high school (no friction, perfect spheres...) there'd be a lot of difference between the theory and practice. I'm not sure why people suggest economy is otherwise.
> That's a fair conclusion, but I disagree with it.
Likewise. We can agree to disagree. But taking politics aside, I am glad that at least on some level, one can find a software engineer in a poorly managed country making less than a garbageman in a well managed one. So, somewhere in the world there exists a garbageman that provides more value to society than a software engineer.
Bravo. You understand that textbook economics (and a huge chunk of research economics) is a hilariously oversimplified model of the fiendishly complex field of human interactions.
I believe it is simply useful for many people to be able to state textbook economic orthodoxy as "a fact", even if it is almost trivially broken (as the supply and demand curve story is on many levels) or historically wrong (as the fable of money arising from barter). This lets people justify all weaknesses of the current economic system by simply saying "It may suck, but this is what it is, a law of nature. We can change it about as well as we can reverse gravity. Conform, and propose no change."
> The economy is such a complex model of every interaction that I find it disingenuous to base the assumption that market rate == usefulness on pure theory.
I agree, but I think this is also generally true. It really is true that a garbage worker is generally less valuable on a societal level than a software engineer (in terms of work output - they might be far more valuable for other things which are just as important!)
> We were lucky to get injected with millions of dollars of capital while he works for a utility company. He is useful for thousands of people. My lines of code have not been used by anyone yet and possibly will never be.
Look, that's true of a lot of software that gets written. There is a lot of waste. For sure if you look back and see that lots of code written was never used, that code in particular wasn't better for society than something more concrete.
But I look at it like with science. Lots of scientists are conducting research that won't ever pan out, doing experiments that end up going nowhere, etc. Was that value-less for society? I don't think so. If we could know ahead of time what would work and what wouldn't, then of course that wouldn't be valuable. But throwing out 100 bad ideas and ending up with a lightbulb is still worth it for society, and the markets react as such.
In your case - the reason VCs even have that money is because in the long run, given enough bets, they make money back, which for the most part translates into "they created enough value." Even if individual bets ended up not mattering.
> The principles are correct; is it possible that they are correct because they are fundamental, and not the actual reality where politics come into play?
Oh for sure there's a lot of distortions, both for good and ill. No argument there.
I just think that for the most part things are correct and adhere to the economic theory, and outliers are relatively rare. As opposed to
> I am glad that at least on some level, one can find a software engineer in a poorly managed country making less than a garbageman in a well managed one. So, somewhere in the world there exists a garbageman that provides more value to society than a software engineer.
Ahah, funny but true. This btw is itself the result of regulations - if people were free to e.g. change countries as much as they wanted, fairly rapidly wage gaps like this would disappear, which would be good for the world IMO. At least economically speaking.
> In your case - the reason VCs even have that money is because in the long run, given enough bets, they make money back, which for the most part translates into "they created enough value."
The VCs get the money from their limited partners. As a rule the VCs don't have meaningful skin in the game. They invest other people's money and get paid a percentage of the money they invest. They don't reinvest their winnings either, that money goes back to the LPs!
Most VCs are also pretty bad at their jobs. They're totally undifferentiated, are not able to recognize great startups, and don't have much to offer to founders. You wouldn't expect an industry with those characteristics to do very well. VC investment is much riskier than investment in some boring 60/40 stock bond portfolio, so venture as an industry has a high hurdle to clear if they want to deliver superior risk adjusted returns.
How many venture bets in the past 15 years have produced companies that will become the next Google or Microsoft or Apple or Facebook? Zero. It's those winners that make the venture business work on paper, and when they don't show up for a decade the entire industry is in the red.
You can postulate that venture must be profitable because otherwise how could it possibly exist. But if nobody is investing their own money (not the VCs, not the LPs, not the startup founders) you're not going to get an efficient market.
I think a lot of this is about perceived value. A gardner gets to see the products of their labour around them every day. A software developer at a bank might write lines of code and never even know when they are run, but those lines of code might, protect against a risk that would otherwise have brought down the company, or optimise investments for a pension fund that help generate additional tens of millions of dollars for people's pensions over the lifetime of the code. A lot of code makes only a tiny difference, but it can make that difference for millions of people over decades.
The entire idea that money is a good representation of value to society boils down to a really poisonous just world fallacy built on a lot of ugly assumptions.
I disagree. Do you have a reason to think you're right? Or a better way to represent value?
(Note again: I'm talking specifically about productive value to a society. Someone without a lot of money can still be enormously valuable in many other respects, e.g. a beloved family member.)
Many of the people who are extremely wealthy did so by exploiting society and corporations are well known for consistently dumping their externalities on society to deal with while reaping the benefits for themselves and their shareholders.
To say that money is a good proxy for value to society seems incredibly naive at best and downright disingenuous at worst.
I know yours is a common view. I just think it's wrong.
There are certainly some wealthy individuals who "exploited society". But I don't think that's a majority (depending on how you define wealthy.) I also don't think most corporations are just dumping externalities on society and reaping benefits. The age of corporations is also at least partially the age with the best standards of living and the best life for most people, at least in terms of wealth.
> I also don't think most corporations are just dumping externalities on society and reaping benefits
Are you measuring most in terms of where the money goes or just the number of corporations? Because some of the biggest are quite literally causing climate change, poising the land, and getting people killed (if not killing them directly).
Of those that are left I'd still make the argument that they're destroying public health through marketing, but apparently "having ads shoved at you all day every day damages your mental health and that damages society as a whole" is somehow a controversial statement because marketing helps people make money.
> one Einstein contributes more to the world (on average) than one garbage worker
And so does one Putin. Your point about scale is valid but the implied value judgement of choosing Einstein is not (whether you intended that or not, choosing Einstein ensures everyone will read it that way).
One software developer or engineer working for a big nasty corporation like Shell or Facebook does create more change in the world than one garbage collector, undoubtedly. But it's fully possible for the change they create to be entirely negative. An engineer who creates a faster rainforest cutting machine, for example, or a better method of catching fish that results in destruction of an ecosystem, or a developer who writes ever more sneaky ways to invade your privacy. More change does not equal more value.
Even the most naive don’t believe that a perfect capitalist market exists today, so that’s irrelevant. He isn’t arguing that “in a perfect system this would be true”, he is arguing that in this system, it is true.
Because it requires the literal use of government force to suppress market forces, ie to prevent the slaves from refusing to work and running away to find better opportunities.
That doesn't work. You're effectively saying that if I create an army and simply steal from you, that is capitalism because its my own private army. It violates many tenets of capitalism. Buyers and sellers must act voluntarily and enslavement against the will of the slaves, certainly seems to violate this.
That said, even if you simply view the slaves as property with no agency of their own, my original point was more that you can't compare the net worth of the slaves against the slave owners in terms of value created.
>Buyers and sellers must act voluntarily and enslavement against the will of the slaves, certainly seems to violate this.
Can you go into this a bit. In general sellers can acquire materials (oil say) by invading a country and mining it. If that seller then sells the oil acquired thus, I can't see how the buyers and sellers are not acting voluntarily? Is war/violence antithetical to Capitalism in some way that I'm not aware of?
Do you have examples of widespread slave economy that did not require a government framework to support it? All examples from modern civilization i can think of involved laws specifically blocking slaves from participating as equals in the market economy, ie anti capitalist?
I think that's a fundamental misunderstanding of the market. I didn't understand this either until I (self-) studied a bit of economics.
The classic question in economics was this - why are diamonds more valuable than water? Without water you're dead. Without diamonds you're mostly no worse off.
The answer to this led us eventually to the theory of supply and demand. Sure, without garbage workers, the city would be terrible. That's why we pay them. But the supply of garbage workers is apparently much larger than the supply of e.g. software engineers. If you have 100 people who can do one job, vs. person who can do the other job, that 1 person has a lot more leverage and you have to pay them more. Even if both jobs are equally important.
That's how a market works. If your friend quit his team, he would presumably be easy to replace. If you quit your team, it would be harder. That is eventually reflected in your salaries.
It's not perfect - since no one has perfect information, a lot of this stuff is based on guesswork and consensus. But you can very clearly see that the principles are correct.
> My conclusion was that 'the market' isn't a fairly good proxy for actually providing a contribution but as with all things human, there's also politics involved.
That's a fair conclusion, but I disagree with it. I think it's really true that one Einstein contributes more to the world (on average) than one garbage worker. One software engineer contributes more to the world (on average) than one garbage worker. And so on. It's mostly due to scale effects - one garbage worker can only do so much. One software engineer does a lot more because their work is easily duplicated and scaled and affects a lot more people.