US GDP is $31.82 trillion dollars per year. Taking the 2.5% growth rate, that's nearly $800 billion dollars per year in new GDP.
The economy very obviously does not progress as a bunch of soldiers marching in a straight line. Some firms will shrink 100%, some will growth 10,000%. This much is obvious by just looking around. But even if no businesses shrank, no wages were docked, nothing bad happened... even still there would be $800B in more GDP.
So if the economy is growing at $800B per year, it's extremely obvious how a company could even grow from $1M to $1B in revenue per year without doing anything shady... Just capture some of the new economic activity that cropped up this year!
And it's even easier when we're talking about an entrepreneur's net worth. Their net worth is going to be mostly holdings in company stock. The value of company stock is some multiple of the company's theoretical future financial earnings.
So if a company is making $1M revenue today, and growths to $5M revenue by the end of the year (15% MoM growth), at let's say a 30% EBITDA margin, they have made $1.5M EBITDA. And let's say that fast growth is rewarded at an extremely rich 50x EBITDA multiple. That company is now worth $75M. If this founder is lucky and owns 50% of their business, they now are "worth" $37.5M.
If they were only at $1M * .30 * 50 * 0.50 = $7.5M net worth at the beginning of the year, and then were at $37.5M at the end, their net worth increased by 500% in one year! And all they had to do was capture $4M / $8000M = 0.05% of the increase in GDP.
Like, none of this is either shady or complicated.
To get a billion from a million you need to do 15% for fifty years, and that ignores inflation. Or 25% for thirty-one years.
These numbers are ludicrous.
They are also speculative, not real. They are based on the notion that the company would be worth that much based on projected cash flows, expenses, etc. If you actually tried to cash it all out at any point in time you could not get anything close to that because the very act of selling will lower the value by destroying confidence in the speculative valuations.
None of these SV billionares have billions in cash or cash equivalents. Maybe a few of the largest companies do.
Growth comes from innovation, and innovators get rewarded with faster growth as non-innovators decline.
Look, I know this is a tech forum and we don't claim to be good at the social sciences, but this is a central debate and r>g, the idea that the rate of return to capital tends to exceed economic growth over the course of history, is a major result from Piketty's Capital In The 21st Century that people interested in "grow the pie" vs "trickle down" really ought to be familiar with. Even if you disagree, you ought to be able to articulate why, and "the average includes winners and losers" ain't it.
"But life has improved, r>g couldn't have been true forever" -- last time the inequality bubble popped because of a great depression and two world wars. The capital was incinerated, metaphorically and literally. It's a cautionary tale and we should aspire to do better.
Why is it a cautionary tale? Sounds like we should have a bunch of incinerations of capital, ideally let the capital mobilizers that are actually competent survive.
I suppose it depends on how broadly you define "innovation".
Lots of companies grow because of, among other things: regulatory capture, regulatory arbitrage, questionable use of other people's IP, offshoring, misclassification of employees/contractors, profit shifting and transfer pricing, subsidized predatory below-cost pricing, dark patterns, aggressive collection and monetization of user data, acqui-hires to stifle competition, implementing high-switching costs to create vendor lock-in, round-tripping, channel-stuffing, business models that intentionally externalize costs, outright fraud.
worth mentioning that our current system is setup by and for the people who own the stuff so its no surprise that we need them to make new stuff.
PG just completely misunderstands and hand-waves over this basic concept and makes the excuse that "hey we worked really hard and made an amazing product that people loved, we aren't harming anyone."
For one thing, founders and employees don't share equally in the high growth rate of the company even though at most a founder is working let's say 2x longer hours than a salaried employee. You can do nothing wrong but you're still taking more of your fair share by the basic structure of how the business is setup.
I think anyone who is running a successful company and doesn't have a path to converting to an employee-owned enterprise is immoral, especially if you have managed to capture $1 billion just for yourself while your median employee is just making market rate salaries, or maybe they happened to gamble on your stock options and have a modest nest egg about 1/100th-1/50th the size of your wealth as a founder.
So yeah, Jeff Bezos made $260 billion dollars, but an alternative that could have happened was "Jeff Bezos makes $50 million and every Amazon employee gets a much more fair share of the happy customers' money."
More importantly, if you have $1 billion in net worth, that means that you can choose to do anything with your life on a daily basis.
When I'm over here working my job in my cushy upper middle class life, it's still an objective truth that I need to be selfish in order to secure the future of my family. Nothing is guaranteed and we need to fend for ourselves. I can't stop working or the home finances collapse within months or a short number of years if I'm very lucky and have something significant saved up or my house paid off. I legitimately don't have the time or money to help many other people outside of my nuclear and extended family.
But when you have a billion dollars (and some people have hundreds of those and one person even has a thousand of those), that means you have no limit to what you spend your time on. You can do anything, and deciding not to work on capitalist endeavors anymore has zero chance of turning you destitute.
In other words, when you are a billionaire, what you choose to spend your time on says a lot about the content of your character compared to someone who is not that wealthy.
Paul Graham is out here giving speeches to rich kids at Oxford Union, but he could be spending his morning in the local soup kitchen or building homes with Habitat for Humanity. He could be mentoring people who are struggling to escape housing insecurity, or he could be working with advocacy groups to expand healthcare access and end childhood hunger.
He doesn't have to go to work every day like I do. But he is one of the people who has dedicated his life to capitalism, even after successfully taking care of his family for many lifetimes, and that says a lot about him.
What is fair? Obviously hours worked is one metric to determine what is fair. But another way to arrive at what is fair is through negotiation. Neither the founders nor potential hires are obligated to work with one another. The only way it happens is if an early employee believes the compensation they are offered by the founders is fair. If it was unfair, they would presumably reject the offer outright.
Your definition of "fair" is questionable.
If you're negotiating from a position where you've taken on debts and rent that you can't afford to pay, and time has run out to the point where you're desperate for a paycheck as soon as possible, that's unfortunate. But that's not the fault of the person you're negotiating for a job with. Exceptional cases aside, 95% of the time that's likely due to your own risk-taking, neglect, poor decision-making, or financial mismanagement. And you had a "fair" chance to not get into that situation to begin with.
But regardless of blame, it's certainly not the fault of the counterparty in your employment negotiations in that you're in that spot. Nor is it their responsibility. Nor should we want it to be! What kind of system would that be, exactly? A brutal one where many more people fall through the gaps than would otherwise. A much better system is the one we have, where people pay taxes, and do so at higher rates the more fortunate they are, and that tax money goes into programs like unemployment, which helps people in exceptional situations.
What's so unfair about this, exactly?
> What's so unfair about this, exactly?
We don't roll the same dices at birth.
My first startup was one where I was hired because I was young and cheap. I could be paid in free lunches rather than 401k matching and decent healthcare plans.
Big companies often pay better salaries.
Your last sentence you’re saying it’s fair to make this assumption that most other jobs are worse.
So that means if a non-startup offered you a better pay package your assumption and bias might steer you away and take worse compensation to do the same job.
I ask you this question because I made a similar mistake in my youth. I took a pay and benefits cut for a startup because it sounded a lot more fun. 6 months later and the company was going under and I was out of a job.
There are also plenty of employees who just didn’t get a job offer elsewhere. When I took my first startup job I didn’t have a competing offer.
We might as well just say “I exploited my structural power over my employees and got a better deal for myself.”
Of course the employees agreed to the deal presented to them, what other option did they have? They aren’t like all these founders that have the luxury of being unemployed because their dad will pay the rent.
That’s another point I forgot to bring up entirely: PG also hand-waved over the quantity of billionaires from his accelerator that came from families of very decent means where they have the luxury of risking failure. The quantity of true rags to riches billionaires is extremely slim.
What? The employees had infinity other options! They could have negotiated harder. They could have declined the job. They could have taken a job somewhere else. They could have taken the risk to start their own startup, and been in the founder position, instead of choosing to be in the employee position and getting the security and reduced stress that comes along with it.
> That’s another point I forgot to bring up entirely: PG also hand-waved over the quantity of billionaires from his accelerator that came from families of very decent means where they have the luxury of risking failure. The quantity of true rags to riches billionaires is extremely slim.
Over 200M Americans come from middle class backgrounds are above. YC also provides founders with the funds to pay themselves while they start their company. I did YC when I had almost $0 to my name and no well-off family to rely on.
Jeff Bezos famously took an $80,000/yr salary. Bezos didn't make $260 billion, or anything within 1/1000th of that. He built a company, that through some inane estimations his share of which might be $260 billion.
For him to not have that imaginary $260 billion would be for the company to not be built at all. So, if that's what you want, you're at least consistent... but no one else would think that a particularly good idea. Quite a few people like being able to order things online and receive them quickly. They don't want to have to go back to stomping through Walmart, hoping that the store has what they need.
I think part of the problem is that if you can slap a label on someone of "Eleventy billion dollars", everyone's brain malfunctions and treats it as a literal fact, regardless of the truth of the label. When you don't want billionaires to have billions, what you're saying is that you don't want them in control of those billion dollar companies. But do you not want the companies to exist, or do you just want someone else in control of those companies? And who?
This seems to come up on every thread like this. Owning 9% of a company that generates ~$80B in profits and employees 1.5m+ people is literally a massive amount of wealth and putting a dollar figure on that is both straightforward and accurate.
Anyone who owns a house can understand that liquidity and net worth are two different things. But shares of Amazon are far more liquid than a typical home.
In case you need a real example, Bezos personally funds Blue Origin by selling around $1B worth of Amazon stock each year. That's 11000 people earning their salaries + a huge amount of capital investment that are all funded from this so-call "imaginary" money. I can assure you that each time those people get a paycheck, it's just as real as yours.
Which of those would provide the most benefit to the world?
Grombobulous says "But he is one of the people who has dedicated his life to capitalism, even after successfully taking care of his family for many lifetimes, and that says a lot about him."
You're simply anti-capitalist. Please post about that instead of mounting personal attacks on people who make more money than you. And please cease telling other people what to do and not do! Try to put yourself into their shoes and think harder about their situation.
This is the most ironic comment I've seen in a while.
People like you are so sociopathic and unaware that it's simply comedy.
> people who make more money than you.
One of the things I realized, as I made more money... was how much _easier_ every aspect of earning gets, as you are already earning more, and as you need it less.
We live in a system that almost _automatically_ overallocates wealth to people who do little for society. It's pathetic.
By growing better than the average?
The most poignant example is tobacco. Tobacco is a net-negative product for the world. But many people find it very valuable, because it helps them with the stresses of their life and they have a biological dependency on nicotine. And so, it’s a multi billion dollar industry. But, for the world as a whole, it generates negative billions of dollars. Because of the health cost and the cost of lost work. If you did 10, 20 years early then that’s a lot of human productivity burned.
Of course, most products are not tobacco. But every product is tobacco a little bit, I think, in the sense that they merely move some money from externalities into the product. In that sense, it’s not all value creation, it’s value siphoning or moving.
Im not going to disagree that externalities are everywhere though. The question is to what extent and if, after correcting for them, there are still products which create so much value they make their founders billionaires. I think the most obvious case for this are artists. JK Rowling sold her writing for over a billion dollars. The work was, as far I know, created pretty much solely by her. You can point to the book publishing system as a whole, but she has nothing to do with that. All she did was write some books and sell them to an already existing system.
You’re moving value later to value now, in the form of enjoying smoking.
Consider: if the conditions of our work were different, many people would not smoke. If nicotine didn’t happen to have a biological effect on the human brain, then nobody would smoke. The value created is only in the context of those constraints, and many more (including regulatory ones, which is why we see less smoking today).
I view it as a type of loan. Is loaning money a productive activity? Of course not, because no value is created, it’s merely moved. If the entire economy was just loaning money, then GDP would maybe go up but no value would be created. Smoking is a loan from the tobacco company. You get immediate relief, in the cost of more value paid back to society at a later date.
Consider: if the tobacco industry has sold 5 billion in tobacco products, but tobacco as a whole results in 20 billion dollars in lost productivity and healthcare, then the value generated is -15 billion dollars. In actuality the estimates are much worse, because typically models only consider healthcare cost, not suffering or lost productivity due to death. Suffering, too, has a cost. How well do people work when a loved one dies?
> if the economy is growing at 2.5%, how do you sustain 15% over 5 years
My family of five is getting taller at say 1% per year. But my 4 year old and 7 year old are growing at 10% per year. My wife, my teenage daughter, and I have topped out. What exactly is inconsistent about this?
Assuming invariance of scale between how growth works between a family's height and how a company worth a billion(s?) operates relative to the environment. It's the same error Paul makes when he has the politicians calculate the log base and form that connection about exponents in their minds.
You will note that PG does not provide such a mechanism for how a $100m company grows into a $10b company (thus producing $b wealth for founders).
Just to be clear. I am not saying at the object level that such growth is impossible. I am saying that at the meta/causal level, PG did not adequately characterize it it.
If we take this analogy further, your kids would be the ones working the hardest to bring the food on the table required for this growth, and the adults would consume like 90% of it.
"You're young, and usually young founders should make something that they themselves want. You don't have enough experience yet to know what other people need. But at the same time your own needs are uniquely valuable, because your needs predict future demand. You're the age when people start using new things. Whatever you and your friends start using now, everyone is going to be using in ten years. Since your intuitions about other people's needs are usually a crap signal, and your own needs are an especially valuable one, you should usually listen to the second signal; you should make something you and your friends want.
Making something you and your friends want doesn't mean you have to build a consumer product. Maybe you and your friends are molecular biologists, and there's something cool that could be done now to DNA that everyone else has overlooked. Maybe you and your friends are into drones. The idea doesn't have to have a wide appeal. It literally just has to appeal to you and your friends."