And because that liquidation or transformation is a taxable event, and holding the wealth is not, people are far more likely to hold onto wealth rather than try to transform it.
Totally agreed that wealth is not zero-sum, and I thank you for bringing it up, because zero-sum-thinking is all too common, and the reason for so much misery when it comes to thinking about these things. (But even as a non-zero-sum, availability of capital is highly influenced by the degree of idleness of wealth hoards.)
> And because that liquidation or transformation is a taxable event, and holding the wealth is not, people are far more likely to hold onto wealth rather than try to transform it.
But if wealth is never liquidated, then how is it anything more than just a life high score? It's inconsequential to the outside world.
If it were completely inconsequential to the outside world, then others would not value it, and it wouldn't be considered wealth.
But I do agree that since wealth is not zero sum, it is completely consequential. Where it really matters is when the wealth distribution becomes more unequal, resulting in less ability to initiate new economic ventures. Extreme wealth inequality results in only a very few people controlling the economy, and in those cases wealth hoarding becomes an end in itself to concentrate economic powers away from others, and an end in itself.
> If it were completely inconsequential to the outside world, then others would not value it, and it wouldn't be considered wealth.
That makes no sense. Just because the fair market value of Elon Musk's holdings in SpaceX and Tesla is some collectively decided amount, doesn't mean that Elon Musk actually possesses that money and can do anything meaningful with it.
If he wants to do anything meaningful at all with that theoretical value,
he will have to liquidate some of it and turn it into non-theoretical money, and that is taxed already. If he just lets it wither away, then it's of no use to anyone else.
> Where it really matters is when the wealth distribution becomes more unequal, resulting in less ability to initiate new economic ventures
But this just hasn't been true at all. Just because Bezos is a 100 billionaire on paper, doesn't mean that I will have a harder time raising venture capital for my startup. Wealth isn't zero-sum. And the paper value of one's wealth isn't backed by liquid money, I.e. Bezos's 100+ billion in wealth doesn't actually lock 100 billion dollars in cash from other investments.
If you're making the argument that it's difficult to initiate a new economic venture in the same space as Amazon, that's just because Amazon is a strong company — there is nothing wrong with that.
There's a huge difference between wealth and money; having massive wealth and valuing it in dollars may seem nonsensical, and at some level it is, yet it is the way that everybody operates. The "Fair market value" is not inconsequential even if wealth is not liquid.
Regarding going to a VC to get capital: think about how this process works in one very tiny slice of the economy. You build trust with a small set of people that are the arbiters of capital and who gets the resources to start a new venture. If there was only one VC firm in the valley, it would be disastrous because they would hold all the power. It is only through the agglomeration of many potential sources of capital that really makes the system run well.
In the rest of the economy, there are few VCs, and for a lot of profitable, but smaller businesses, capital is super hard to come by. A person who sees a future in, for example, electrification retrofits of homes and has several good ideas about how to make it cheaper and more economically efficient, is going to have a really hard tome getting going. However, if their own community knew about this person's ability to scale a small business, and knew of the intelligence and grit of a person through their own personal relationship, and if that community had small amounts of capital to throw in to get the newcomer off the ground, overall wealth is increased as the new venture starts serving the needs of people.
But this requires more equal distribution of capital, and to change the arbiters of capital from a few hundred people to everybody.
I don't really hear many people talking about friends, family, and fools rounds these days because the game has changed. However if we had more people that could use their knowledge of the local lay of the land to invest more wisely, we'd have far greater wealth generation.
IMHO, the problem with inequality isn't the person with $100B, the problem is all the talented and skilled people whose ideas go to waste because they can't get the attention of the very few people that have been entrusted with the ability to allocate capital.
The more inequality there is, the closer we get to central planning, and erasure of the talents of so many people.
Haven’te we heard less of friends and family rounds because there has been an exponential increase in seed funds?
People got wealthy invested into funds or started funds and are now committing capital back.
Having a hard time raising money is an issue but that’s because 90% of companies fail. As such that is too risky for a bank to lend into so you need to go to other segments.
> having massive wealth and valuing it in dollars may seem nonsensical, and at some level it is, yet it is the way that everybody operates.
If this was true, then why is nobody talking about imposing a tax on the market capitalization of corporations? Think about how much revenue you can raise by levying a 1% tax on Microsoft's market cap. But this is absurd, because the market cap doesn't represent actual money, it represents the theoretical value on all shares outstanding.
> In the rest of the economy, there are few VCs, and for a lot of profitable, but smaller businesses, capital is super hard to come by.
This is manifestly untrue. In the last 10 years of near-negative interest rates and quantitative easing, capital has been almost too easy to come by. Everyone and their mother is lending money.
> A person who sees a future in, for example, electrification retrofits of homes and has several good ideas about how to make it cheaper and more economically efficient, is going to have a really hard tome getting going.
Not true at all. Most banks and credit unions would extend dirt cheap loans. We are arguably over-leveraged on these kinds of loans.
> I don't really hear many people talking about friends, family, and fools rounds these days because the game has changed. However if we had more people that could use their knowledge of the local lay of the land to invest more wisely, we'd have far greater wealth generation.
The reason for this has everything to do with globalization and 21st century communications technology. It is no longer sufficient to be the best electrician in your neighborhood, you now need to be the best electrician in the country or perhaps even the world, given how easy it is to reach consumers today.
To give you a sense for how the scale of globalization has made it difficult to compete locally, consider how easy it is for a new business to reach every American today. There are 330 million people in America. You just need to provide $3 of value ONE TIME to every American, and you become a billionaire. Likewise, on a global scale, there are 7.8 billion people in the world. If you can get 1% of them to pay you a penny once a year, you're making $780k/year.
"Inequality" is inevitable in this world, but again the wealth isn't zero-sum. We're not remotely close to "central planning", because the wealthiest person on the planet (on paper) only represents ~0.5% of the annual GDP of the US alone. And that's not even an apples-to-apples comparison because the paper wealth is accumulated over years, whereas the GDP occurs every year. The accumulation of Bezos' wealth over the last 20 years is about 0.05% of the accumulated gross-product of the US, alone.
Yes. The point is exactly that globalization has made competing locally hard. That's the accepted fact. Globalization has increased, not decreased (as was the original hypothesis) the distance between the top and the average wealth holders in society.
The coalescing and hoarding of wealth results in the deterioration of the average value of a human life. This is bad for a western liberal society because it demonstrates that the values upon which the society operates do not yield positive outcomes for enough people to be satisfied and hopeful. If capitalism is to remain the dominant economic system, it either has to enslave the masses and oppress them into submission (which they are currently resisting), or it has to work to continually operate in a way such that the perception of wealth is maximally shared.
I agree inequality is inevitable. Everyone has different priorities, abilities, etc. But human rights must be preserved (globally) and access to opportunity and capital, hope, must be universally available. This is the only way to justify the inequality of outcomes.
To tax wealth is really to say that socially we don't want institutions to remain in comfortable positions of perceived power without continually demonstrating utility. You build up a large estate? Great. But you must continually demonstrate its utility by actively working to distribute the wealth, not just generate goods and services. Or, have it done for you.
It doesn't seem to me that it's a problem, per say, that wealth is not tangible. Money isn't really either. Cash is simply a tool that a capitalist society uses to encourage the exchange of goods and across markets where it wouldn't otherwise be obvious how to make an exchange. Having a lot of cash does not make one wealthy, and having wealth does not imply liquidity. At any moment one can become the other or simply evaporate altogether.
It seems that the point is really about how to mitigate the tendency for institutions that have extracted much wealth from society to deploy it in efforts of self preservation. In the current state, you need a revolution to tear down entrenched institutions. In this forum and generally in the valley where we have essentially arbitrary access to capital, we prefer (or have been trained) to be a little bit disruptive all the time rather than massively disruptive a little bit of the time. We've demonstrated that this model works. And fundamental to the model is essentially arbitrary access to capital.
So I guess my question is if as you suggest access to capital is more available than it's ever been, why isn't it being deployed? Perhaps globalization has driven the bastions of wealth to build such high walls that they find themselves among the clouds?
> The coalescing and hoarding of wealth results in the deterioration of the average value of a human life.
This is not true at all. If Bill Gates walks into a bar, the wealth distribution changes dramatically, but the absolute standard of living of the existing people doesn't change at all. In fact, you could even argue that the absolute standard of living increases, since almost nobody is super-wealthy in a vacuum; they enjoy their wealth because they provide value to others via goods & services. That's the whole point behind the argument that "wealth is not zero-sum".
> access to opportunity and capital, hope, must be universally available
Again, it's not clear at all how one's theoretical net worth negatively impacts someone else's access to opportunity / capital. When my rent goes up, it's not because I'm in a bidding war with Jeff Bezos. An MRI doesn't become unaffordable because Jeff Bezos exists.
> Money isn't really either. Cash is simply a tool that a capitalist society uses to encourage the exchange of goods and across markets where it wouldn't otherwise be obvious how to make an exchange.
Money is arguably zero-sum, because there's a finite amount of it. When someone else hoards billions in cash, it means that there is a significant portion of the total money supply that is out of circulation. That's what's bad for society. When wealth turns into money, we already tax it..
> It seems that the point is really about how to mitigate the tendency for institutions that have extracted much wealth from society
Wealth isn't "extracted from society", because it isn't zero-sum. It's not like there's some finite amount of wealth, and the super-rich have taken it from everyone else.
> So I guess my question is if as you suggest access to capital is more available than it's ever been, why isn't it being deployed?
I'm not sure the premise is correct. There is more capital deployed today, per capita, than at any time in human history, even after adjusting for inflation.
Totally agreed that wealth is not zero-sum, and I thank you for bringing it up, because zero-sum-thinking is all too common, and the reason for so much misery when it comes to thinking about these things. (But even as a non-zero-sum, availability of capital is highly influenced by the degree of idleness of wealth hoards.)