Tag Archives: capitalism

Disturbing New Facts About American Capitalism

From WSJ: Disturbing New Facts About American Capitalism–When winners are taking all, it’s often time to buy the winners

“Let your winners run” is one of the oldest adages in investing. One of the newest ideas is that the winners may be running away with everything.
Modern capitalism is built on the idea that as companies get big, they become fat and happy, opening themselves up to lean and hungry competitors who can underprice and overtake them. That cycle of creative destruction may be changing in ways that help explain the seemingly unstoppable rise of the stock market.

New research by economists Gustavo Grullon of Rice University, Yelena Larkin of York University and Roni Michaely of Cornell University argues that U.S. companies are moving toward a winner-take-all system in which giants get stronger, not weaker, as they grow.

That’s the latest among several recent studies by economists working independently, all arriving at similar findings: A few “superstar firms” have grown to dominate their industries, crowding out competitors and controlling markets to a degree not seen in many decades.

Let’s look beyond such obvious winner-take-all examples as Apple or Alphabet, the parent of Google.

This agrees with earlier posts in which I recommend Amazon, Google, Facebook, and MasterCard stock, all which have market dominance, strong growth, are high-IQ, and have trounced the S&P 500 index over the past decade or longer (with the exception of Facebook, which only went public in 2012). Post-2008 capitalism (but also society) is increasingly winner-take-all, with large and successful firms (but also high-IQ neighborhoods such as Palo Alto and Menlo Park) becoming richer and bigger, as everything else kinda stagnates.

The article offers the following explanation:

Why might it be easier now for winners to take all? Prof. Michaely suggests two theories. Declining enforcement of antitrust rules has led to bigger mergers, less competition and higher profits. The other is technology. “If you want to compete with Google or Amazon,” he says, “you’ll have to invest not just billions, but tens of billions of dollars.”

These explanations seem inadequate. The AOL Time Warner merger was considered a failure and cost shareholders a lot of money. This occurs because parent companies overpay, so bigger is not always better. Established companies can indeed fail or falter when newer and better ones take over (Myspace vs. Facebook; Research in Motion vs. Apple, Google vs. Yahoo, etc.), indicating that the free market system works when it’s allowed to, akin to evolution where better-adapted organisms replace poorly adapted ones. So what could be hindering it? My guess is the difficultly of establishing competing firms, due to high costs. Venture capital has become too scarce and risk-averse (due to the 2008 crisis), and costs such has advertising, rent, labor, insurance, etc. that are required to start a business have all exceeded inflation.

Also, contrary to the ‘tens of billions of dollars’ figure cited by the article in reference to Amazon, in the technology industry, disrupting an existing business can be done for far less. Yahoo was worth $100 billion at the peak of the bubble in 2000, but Google, started 1998 in a garage with $1 million in funding, was able to beat it. In 2006, Myspace was worth billions and owned by Fox News, but Facebook, launched in a Harvard dorm room in 2004, won in the end. But this hasn’t happened yet to Amazon, because the alternatives either don’t exist, aren’t as good, or haven’t been able to unseat the market dominance that Google, Facebook, and Amazon already have, or such alternatives simply cannot get the funding, due to scarcity of venture capital.

Overall, both middle income workers and small businesses are being strained, the latter unable to keep up and take advantage of the cheap borrowing and economies of scale that large firms benefit from; the former on the losing end of the tireless push for more productivity and efficiency, where for many jobs the supply of labor vastly exceeds demand.

With wealth creation the ‘new America religion‘ (which is both kinda cruel and ironic given how hard it has become for the typical American to create wealth, unless you’re in the technology industry, get lucky, or have a lot of money invest in the stock market and or real estate), it’s not surprising many feel left out.

Related: The Post-2008 Economic Reality

Why Socialism for the Rich, Capitalism for the Poor?

This article is going viral: Why Socialism for the Rich, Capitalism for the Poor?

A small annoyance is how the word ‘socialism’ has come to mean so many things, usually depending on the underlying political or economic motives of whoever is using it, that it’s become hard to define. Socialism can mean:

1. Partial or total government ownership and influence of otherwise private firms

2. Worker ownership of the means of production

3. A system of government (social democracy) and or policy characterized by a very large social safety net (welfare state); significant presence of unions

4. Used interchangeably with ‘crony capitalism’ in which the government ‘picks and chooses winners and losers’, and or an economic system or policy that favors the wealthy and or large corporations

The article seems to be alluding to the forth definition.

This passage stood out:

Theirs is cutthroat hyper-capitalism—in which wages are shrinking, median household income continues to drop, workers are fired without warning, two-thirds are living paycheck to paycheck and employees are being classified as “independent contractors” without any labor protections at all.

Yes, as discussed before, for those who don’t have above-average IQs, your life may suck, if it doesn’t already. The past half century, but especially the past decade, has hit these people the hardest, who find themselves stuck in the low-paying service sector or unemployed, the high-paying manufacturing jobs of earlier decades that were doable by people of all IQ levels, long gone.

The problem is a lack of stability. Manufacturing jobs provided generational stability for families and children, but with these jobs gone, people have become more itinerant and atomistic. Construction and energy jobs, although they pay well, are very sensitive to both macro and miro economic conditions, making it hard for workers to settle down. Gig jobs don’t pay well, are demanding, and offer no benefits, unlike salaried jobs–but gig jobs create a lot of economic value–there is no waste, because workers, who are dependent on feedback and referrals, are fully accountable for their success or failure, whereas in corporate america, the cost of individual incompetence and sloth is shared by the entire firm (it’s like those group projects in school, where the smart kids do all the work but everyone gets equal credit).

It’s not so much that all jobs will vanish, but rather the quality of many jobs in terms of pay is declining, as part of the ‘hollowing out of the middle’.

But also, many businesses are struggling. By some estimates, this is this harshest environment ever for small business (except web 2.0 and stuff like that, which is immune). Employees are being squeezed but so too is small business, which is another component of capitalism. Multinationals are thriving because of an abundance of cheap capital (due to low interest rates), allowing them to expand and possibly crowd out smaller businesses. But there other factors for why small business is doing so badly: over the past quarter century, the cost of rent, land, insurance, and advertising has vastly exceeded inflation, but credit has become much more tight to all but the largest and safest of borrowers (the old joke being, to get credit you must first prove you don’t need it). This is part of America’s transition to a deterministic economy (similar to a planned economy) and society.

Related:
The Meritocracy We Don’t Understand

Debunking Libertarian-Socialist Nonsense

It takes a concerted effort and a persistent willingness to suspend disbelief to be a life-long libertarian-socialist (and its closely-related Marxist variants). Most people outgrow it by their late 20′s upon learning that Marxism is far more violent, ruthless, and just all-around awful than the capitalism it is supposed to replace.

Libertarian-socialism is predicated on imagined oppression of workers by a so-called ‘capitalist elite’, and that workers should ‘free’ themselves from this oppression to control the production and spread the fruits of labor more equally. ‘Libertarian’ is not used in the American sense of the word, but refers to the lesser-known European definition. That’s pretty much the entire 3,000+ word Wikipedia summary, condensed into a few sentences. But anyway, libertarian-socialist arguments are easy to refute through simple common sense and empirical evidence.

Here is one such, easily refuted argument alleging ‘worker exploitation’:

This implies profit margins of over 900%! But then why are so many companies unprofitable, or why retail companies have profits margins between 3-5%? Or why the average S&P 500 company has profit margins between 10-20%. Public companies have to report their operations through public disclosures (forms 10-Q, 10-K), and there is no evidence any public companies are producing 900% profits…even the most profitable handful of public companies only have operating margins around 30-40%. If exploiting workers is so profitable, why were so many jobs lost in 2008? Why do so many companies fail every year and have to terminate all their employees? Hmmmm? When a company fails, employees always get paid first and the common shareholders, upon liquidation, last. Maybe workers have a better deal than commonly believed. The reality is, although a company may generate $200/hour in value from an employee it pays $20/hour, most of the remaining $180 goes back into the company to keep the entire operation running. If the operation fails, the employee loses his job and thus gets $0/hour. Some of that $180 goes into – gasp! – profit, but without profit there is no incentive to create or invest in businesses.

As I explain in Is Going to Work Really So Bad? Jobbers vs. Self-Actualizers in response to a similar argument by James Altucher, in giving up the $180/hour you gain access to the company’s resources: clients, infrastructure, network, and office. An entrepreneur has to provide all of those things himself, but all an employee has to do is show up and perform his assigned job. Entrepreneurship has a very high rate of failure, and most solo-endeavors make very little money (much less than minimum wage), an example being self-publishing, as I describe in Pencil Pushers and The Miracle of Capitalism. Most people, if left to their own devices to make money, would starve to death…which is what happened China and Russia during communism, if history serves me correct. And then there are the empty food shelves of Venezuela, another country that decided it was ‘too good’ for capitalism. With the workers liberated, they can enjoy their non-existent provisions and control of the means of the non-existent production.

Post-2008 Wealth Creation: A Guide, Part 1

Entrepreneurship is too hard, America’s ‘pioneer spirit’ is gone, and the news is pretty much a waste of time. Blogging, writing, etc. also mostly a waste of time and usually doesn’t make money.

In our post-2008 winner-take-all, bigger-is-better economy and society, instead of trying to compete directly with the big and rich, why not piggyback off their success by buying the same rapidly appreciating asset classes that they use to become rich? That leaves two ways to make a decent passive income, or even wealth: real estate (which I already discussed several times here) and investing, also a popular topic here. Both of these take advantage of low interest rates, which boost asset classes. I imagine hundreds of millions of dollars of venture capital could have not been squandered on such duds as Ello (remember that?) trying to compete with Facebook or Google, by instead investing the money in index funds or real estate or returning the money to the investors.

Pre-2008 wealth creation: jobs (enough good-paying jobs, for all levels of intellect and credentials), entrepreneurship, investing (all stocks, all sectors), venture capital (all tech industries), real estate (all regions).

Post-2008 wealth creation: fewer jobs (but lots of low-paying service sector jobs, lots of credentialism and competition for medium-paying and even low-paying jobs, as the middle class gets squeezed and pushed to the periphery), real estate (especially in high-end regions like the Bay Area, Manhattan, Orange County, etc.; less expensive regions have failed to recover fully), investing (only index funds, large cap stocks with market dominance, NOT small or medium-sized individual stocks), venture capital (mostly Web 2.0, and only Uber, Snapchat, Air BNB, Dropbox, Pinterest, Slack, and a handful of others).

It’s obvious that wealth creation in post-2008 society is much more selective, choosy, and concentrated in fewer industries and sectors. It’s much easier to make mistakes when the targets are smaller. What worked decades ago likely will not work anymore.

From Post-2008 Capitalism: A Guide:

But overall, when pundits proclaim ‘capitalism is dead/dying’, they may be referring to an antiquated meaning or idealization of capitalism that does not take into account how capitalism is changing, but this does not mean capitalism is dead -hardly by any stretch of the imagination – instead, it’s evolving to a more efficient, technological, network-driven, ad-based, winner-take-all version of capitalism that we have now. Capitalism, like much of the post-2008 economy, has become bifurcated, with winners being high-IQ capitalists and ‘high-IQ’ capitalist endeavors, and less intelligent people and ‘low-IQ’ businesses are struggling.

Perhaps post-2008 capitalism is characterized by the following ‘themes’:

1. High-IQ favoritism – both in the business/investing world and individually, with smarter people and smarter businesses succeeding over their less intelligent peers.

2. Winner-take-all/bigger-is-better (small business failure at record highs, expensive real estate regions keep getting more expensive, Web 2.0 valuations at record highs for a handful of companies, etc.).

3. Flight to quality (similar to #2) – observed in the investing world, venture capitalism, Bay Area real estate, and strength of the treasury bond market & US dollar vs. weakness of foreign peers.

From 2014, The New Gilded Age; The Post-2008 Economy, Part 4:

The best investment strategy right now (and for many, many years to come) is to take advantage of the bigger is better market environment and go long large cap tech, such as Facebook, Google and or the S&P 500, while hedging it with a combination of emerging market short positions and or small cap shorts. Or you can short ALL markets excluding the US while going long the S&P 500. Since 2014, in the wake of the fear of recession in Europe and elsewhere, we’re seeing a huge flight to safety. Fund managers are taking money out of the smallest, weakest stuff and pouring into the safest and highest quality stocks, indexes and sectors such as the S&P 500, healthcare, biotechnology, and large cap technology such as Microsoft, Google and Apple. Again, this trend will continue of the big getting bigger and companies with huge growth and zero competition being rewarded with enormous but sustainable valuations. Such high-growth companies include Facebook, Snapchat, Uber, Tesla, Dropbox, Pinterest, Tinder, and Air B&B.

So far, two years later, that strategy has paid off handsomely.

And with the S&P 500 at new record highs (in agreement with my predictions), I remain optimistic [1] as ever about the US stock market (record high profits and earnings; globalization; strong exports and consumer spending), treasury bond market (‘flight to safety’ and ‘flight to quality’ due to weakness in Europe and emerging markets; global liquidity boom), and expensive real estate (due scarcity, rich foreigners, Web 2.0 boom in Silicon Valley).

Part Two will describe the specific method I and others are using to take advantage of this.

[1] Whether it’s finance, investing, economics, or HBD, Grey Enlightenment represents a reality-based approach divorced from wishful thinking and delusions. Or you can listen to losers at Zerohedge, who haven been predicting since 2009 a bear market, bond market collapse, and hyperinflation, to no avail. Same for Peter Schiff, who has also been wrong about everything since 2009 (as usual, Mike Stathis has the best takedowns of Peter Schiff and other losers who peddle overpriced gold and other bad investments).

Source: avaresearch.com

But anyway, the stock market is driven primarily by two things: profits and earnings. It doesn’t care about about student loan debt, wealth inequality, national debt, whether Trump or Hillary becomes president, the latest media-generated crisis or scandal, Europe, or whether some pundit (including even George Soros) is bearish – as long as profits and earnings keep rising, so too will stocks. As shown below, profits and prices are correlated:

There was a large divergence in the late 90′s during the ‘tech bubble’, but such a divergence doesn’t exist now, suggesting prices are aligned with fundamentals (not a bubble).

He’s Right Again

He’s right again (Martin Shkreli in response to Senile Sanders):

People such as myself and Martin want to create economic environments where the best and the brightest can succeed to their fullest potential – to create tomorrow’s Facebooks, Teslas, Googles, Amazons, and Ubers – whereas far-left liberals like Sanders think wealth can be created by spreading it from those who earned it to those who didn’t, or by wasting money on useless social programs for society’s ‘losers’, neglecting the ‘winners’. Imagine a Football team where only the worst players are chosen, and the best are expelled or relegated to 3rd or 4th string. That’s Sander’s vision for America. How are we supposed to inspire America’s smartest when policy neglects them? How is America supposed to compete with countries like China and South Korea, that elevates, not suppresses, talent? The free market is still the best path to prosperity and innovation, of all the alternatives, but it can’t work if far-left policy shackles it with excess regulation, high taxes, and misappropriation of resources. As Martin Shkreli understands, we need policy that promotes, helps America’s best and brightest. And those who succeed should be able to keep what they earn instead of having to spread their wealth.

NRx and Capitalism

From Reactionary Future: Zizek nails it

The very architects of the Cathedral have been “Randian” heroes. The idea that capital will flee the Cathedral is absurd, as is the idea that the elite will shut up shop and walk – they made this mess and they think it is great.

Look at all the great fortunes that have been made by capitalist ubermensch – it all went to promoting leftism for fuck sake, which it will by default, as leftism is chaos. Even the counter example of Henry Ford is dubious – he did run for senate as a democrat. Just look at the current examples we have as well. Do you think Bill Gates and Zuckerberg are being forced to promote liberalism? really?

Seems like the Zeorhedge ‘recessionary utopia’, where greed, ambition, and self-interest doesn’t exist, and everything is slow and tranquil, with abundance for all – in other words, a society that can’t exist, as it conflicts with human nature and economics.

A theme of this blog is that technological progress/capitalism and liberalism need not be mutually inclusive. Historically speaking, SJW-liberalism is a new phenomena, yet the ‘arrow’ of technology, for thousands of years, has pointed forward. Technology and liberalism coexisting doesn’t prove that technology is the antecedent. Did technology and capitalism cause this to happen? Ford or Gates having some liberal tendencies doesn’t void their contributions to the economy and society in terms of productivity, job creation, and rising standards of living. Even Zuckerberg, if you can hold your nose at his political leanings, has created more economic value than probably a million SJWs combined.

As Mitt Romney and later Trump astutely pointed out, 51% of the country is on some form of unemployment or other government handouts. They, these ‘free loaders’, are the problem, not entrepreneurs. Another problem are people who are a drain on the system in terms of medical expenses, costing more in care than they return in economic value.

And furthermore, as I explain:

Technology may actually auspicious for the NRx or anti-democracy cause, hastening the decline of democracy and egalitarianism, with IQ and wealth as the new caste system in our hyper-competitive post-2008 economy. Social hierarchies and techno-commercialism can coexist.
Technologists and scientists like George Gilder, Razib Khan, Peter Thiel, Marc Andreessen, and Matt Ridley, who may not necessarily subscribe to NRx, have voiced criticism and skepticism of the various tenets of liberalism, which include democracy, egalitarianism, and concern over anthropic global warming.

The UAE is an example of a monarchical government that rejects western norms of social liberalism, while embracing technology and capitalism.

Related:

Libertarian = Socially Liberal ?
Liberalism is the Problem, Not Technology
Embracing Modernity, Part 2

Pencil Pushers and The Miracle of Capitalism

Although I often rail against collectivism, an exception is collectivism in the context of a firm. The miracle of capitalism and comparative advantage is that it gives a high standard of living to otherwise mediocre people.

To go somewhat on a tangent, consider the somewhat grim prospects of self-publishing (indie) writing, a topic I have discussed here, here, and here.

Successful self-publishers will often extol the benefits of publishing on Amazon – higher royalty rates, no political biases, creative control, etc – glossing over the fact that traditional publishers offer two thing Amazon doesn’t: promotion and an advance, the latter which – contrary to all the doom and gloom about traditional publishing – can be quite big for debut authors. Guy like Vox will bemoan the political ‘bias’ in the publishing world (gatekeepers), and maybe he’s right, but if you go to Barnes and Noble, for example, you’ll see thousands of books spanning many genres and many publishing houses. I find it hard to believe that books with conservative themes are being systematically suppressed. I was at a Borders (this was before it shut down) and there was an entire shelf full of various conservative-themed books from Ann Coulter, Johnah Goldberg, Mark Levin, etc.

But the earnings for writers (both indie and traditional) are highly skewed, an extreme ‘winner-take-all’ distribution where the mean is substantially grater than the median. An example of such a distribution is the long-normal distribution. Half of self published-authors earn less than $500 a year and the mean is $10,000.

The skew for salaried income is less (a 2-1 ratio of mean vs median, vs. 20-1 in writing):

So in other words, your typical writer will make as much a third world worker…pretty bad. Like with regular jobs, there is likely a correlation with IQ, with smarter writers likely earning more than less intelligent ones. The smartest and savviest self-publishers are successfully able to build brands and sell thousands of books, making tens or even hundreds of thousands of dollars a year. Mike Cernovich, for example, sold 20,000 copies of his book Gorilla Mindset in eight months. With each copy costing $10 and Amazon taking 30%, the total take is $140,000. But there are probably other expenses, too, like cover design, editing, etc. So maybe we can extrapolate a total profit of $150,000 for the year, assuming additional sales for the remaining four months. According to the income percentile graph above, that puts him in the top 5% or the 95% percentile. Mike as well as Vox Day, who sold thousands of copies of Cuckservative and SJWs Always Lie), are unquestionably hugely successful authors who earn probably more than 99% or even 99.9% of writers – both traditional and indie. Mike himself says he earns more than 99% of writers.

But, as successful as the are, this isn’t a huge sum of money, relatively speaking, for the rarity of talent involved. Mike and Vox, as well as James Altucher and other writers, are among the top 1% or even .5% of IQ, skill, and talent compared to their peers. These people are at the very top of their game. But some no-name Microsoft pencil pusher, on the other hand, can make $100,000-200,000 a year. You’ve never heard of him, and his internet presence is probably invisible and he has 0 twitter followers, but he (as well as thousands of other pencil and paper pushers at other large corporations) make a lot of money despite being somewhat mediocre in talent and skill. The pencil pusher is in the top 70% of of his game (the top 1% guys make a million a year), not top 1%. Then you have regular workers, who are average (50% percent) in terms of IQ, skill, and talent – they make $20,000-$40,000 a year – which is the same as top 5% writers who also likely also have top 5% IQ and skill.

So what is the meaning of this. It comes down to the miracle of capitalism, and, more specifically, comparative advantage. A large, successful firm is able to generate so much economic value, as well as through comparative advantage extract value from people of varying skill levels and talents, that it is able to pay ordinary people a livable income, whereas ordinary people on their own would make far less ($500/year for the typical indie writer). These average, mediocre people should be grateful, not resentful to the ’1%’ who create so much economic value so they (mediocre people) can have jobs that pay a livable income.

Some say the US government is analogous to a giant corporation, in which case bureaucrats are vastly overpaid relative to skill and competence.

But with the ‘shrinking middle‘ and the rise of temp and gig jobs, the sun may be setting on the pencil pusher era. Consequentially, since 2008, profit margins for S&P 500 companies have surged, as management re-evaluates why they are paying mediocre employees high salaries. The result is lower real wages and a more competitive economic environment where individuals are more accountable for whether they succeed or fail, with talent and skill being paramount, which for better or worse, benefits smart, competent people and hurts those of middling intelligence who have just been riding the coattails and benevolence of the most productive.

Paul Graham: Economic Inequality and The Refragmentation

Tech VC heavyweight and hugely influential blogger Paul Graham posted two new essays:

Economic Inequality

The Refragmentation

These essays are almost the same in that they deal with trends and paradigm shifts affecting post-2008 America, specifically about society, capitalism, start-ups, and wealth inequality.

The meta-discussion is almost as interesting as the topic itself. These essay went hugely viral online yesterday, getting hundreds of comments and votes each. It helps they were written by Paul Graham, who is very influential, but also the subject matter itself: economics as it pertains to post-2008 America, which squares with the ‘great economics debate’* that is raging online now.

Related: The Great Debate: Automation, Jobs, Wealth Inequality, Basic Income, Post Scarcity

Economics is a social science, which means, to some extent, it affects everyone, allowing anyone to participate in the debate. Wealth inequality touches everyone, including the rich, who are often blamed for wealth inequality.

People have observed how much thing have changed in this ‘new era‘ we find ourselves in, and they want explanations as well as solutions: like how to find work without much job experience, how to not get fired, how to make money without a traditional job, how to find meaning in life, and so on. The explanations for why or how the economy has changed are easy to elucidate, but solutions are harder to come by. Such solutions, is they exist, may not be what people want to hear.

The trend, I predict, is that wealth inequality will become almost the same as IQ inequality. IQ is more much important today than a generation ago in influencing individual economic outcomes. 100 years ago in an economy dominated by manual labor, the difference between a 90 IQ and 120 IQ wasn’t that important, but now it is.

The reality is that people are failing behind because of low IQs in an economy and society where intellect is becoming increasingly valued, as I explain in The Great Decoupling.

To repeat myself, people are falling behind because of low IQs and the winner-take-all economy that enriches some, but doesn’t leave a whole lot for everyone else. Today’s hyper-meritocracy is amplifying the socioeconomic ramifications of individual cognitive differences such that a person with an IQ >110 is much more likely to succeed than someone with an IQ <90, whereas decades ago the disparity wasn't so obvious. Yeah, It's a well-worn argument, but it's probably the most applicable, succinct answer I can think of. As long as we keep asking the same questions (why is there so much inequality, etc..) there's no reason why the answer should suddenly change.

The solution, on the other hand, is harder than the explanation because you have to account for incentives and politics. Too much welfare and the incentive to work is gone. A solution that is too 'radical' may be roadblocked by politics. No one really knows the best solution, and that's why this is such a big debate. So many people realize that this is one of the most pressing issues of the 21st century. How are we going to develop a compromise or solution that handles automation-related jobs loss and inequality. Some propose a basic income; others want redistribution; others wants more spending on education, and so on...

Another problem is ‘mass education’. The skills taught in school, which a couple generations ago were good enough to get a decent job, have become saturated. In the early 20th century, a much smaller percentage of the population could read and write proficiently; now (percentage-wise) many more can:

In the past thirty years, literacy rates have surged in the developing world, possibly creating downward pressure on wages for many jobs that involve writing and numeracy. The solution is that economic forces create more jobs (to keep up with the supply of educated labor), the result being a sort of homeostasis, which was stable until recently, but now equilibrium may have broke – the result being too many educated people and not enough jobs.

Literacy rates and real wages rose together, until the latter peaked in the early 80′s. The early 80′s may have been ‘peak school’, where the benefits of mass education paid off, now the ROI is less.

However, ‘real compensation’ has also surged, suggesting that employers are making up the difference in more benefits:

Perhaps education needs to be reformed, with more emphasis on teaching skills that employers are seeking. Teaching the kids to code could be a start, but then you run into the limitations imposed by the Bell Curve (coding is hard). Segregating the smart kids to learn high-ROI skills like STEM is a good idea, but then certain people will complain about discrimination. Public schools spend inordinately more money on special education than on the gifted, even though both are represented equally on the Bell Curve – what a waste.

This passage from the ‘Refragmentation’ essay stood out:

In the early 20th century, big companies were synonymous with efficiency. In the late 20th century they were synonymous with inefficiency. To some extent this was because the companies themselves had become sclerotic. But it was also because our standards were higher.

Huh? His memory must have stopped in 2000 at the peak of the dotcom bubble. Everything has become much more efficient (both in the stock market and in corporate america) and competitive, with droves of college graduates applying for jobs that can be completed by high-school dropouts.

The 2008 recession gave employers a great excuse to thin the herd, and keep it thin long after stock prices and earnings made new highs. There were too many people being overpaid to do jobs that could otherwise be automated, outsourced, or simply eliminated.

Today the low-paying service sector dominates, as the labor force becomes bifurcated with the ‘creative class’ or ‘cognitive elite’ on one extreme everyone else on the other. In spite of visas and outsourcing, STEM still offers the best career prospects:

There is also a small hump in the middle for cushy government jobs, which pay well, have a lot of benefits, and many don’t require much intellect or education to attain.

As for wealth inequality, most people understand it’s an unavoidable byproduct of capitalism and economic progress. People who produce more economic value, directly or indirectly, tend to make more money. That’s why wealth inequality as a political issue is never a winner, because people want to help each other get rich, not tear each other down by waging class warfare. Also the argument that high wealth inequality is bad for the economy – as opposed to just neutral – is tenuous at best. Rather than attacking job creators with higher taxes and regulation, a better approach is to create economic conditions that are conducive to job creation.

The ‘endgame’ is that a lot of these people who are treading water will continue to draw government aid, hence having a negative or near-negative effective tax rate, meaning that they consume more in benefits than they produce in economic value. The welfare state will continue to expand.

However, the good news is that utility due to new technologies is surging, allowing workers to get more ‘bang’ for their buck, even if real wages stay stagnant. Technology and globalization act as deflationary forces, making many things cheap and abundant. In the 50′s, for example, a worker had to save for months to buy a black and white TV that only had a handful of channels; nowadays, a middle low-income worker can buy a considerably better TV with just two weeks’ worth of income.

I discuss these trend in more detail in the three-part “capitalism & crisis” series:

Post-2008 Capitalism: A Guide, Post-Labor Capitalism, Collapse can wait

and some more here The Hivemind, Immigration, and IQ

* There are three ‘great debates’ raging online right now: Gamergate vs. SJWs, a ‘digital’ twist on the age-old left (SJWs) vs. right (gamers) divide; the second debate is about to economics – specifically about job loss, wealth inequality, basic income, and automation; and the third is about college, STEM vs. liberal arts, and whether college is necessary or not.

Wealth Inequality Not a Big Concern

‘Capitalism, Tradition and Traditionalism’ – An Overview

. The Reactionary sees no problem with wealth inequality, which reflects differences of aptitude, however the people at large will be prone to complaints of wealth inequality if their entire world is centered around capital, that which they may be unsuccessful at accumulating. Marx himself said that communism could never have gotten its start had capitalism not done away with the older system, which was able to effectively distract from common economic hardship.

Wealth inequity between the top .1% and everyone else keeps widening, especially in the past three decades, yet public opinion of wealth inequality is unchanged since 1985:

Predictably, democrats are more concerned about wealth inequity than republicans:

The fact fact that public opinion hasn’t changed in over three decades is more of a reflection of America’s persistent left/right divide, which has remained proportionally unchanged for decades, with approximately half the country holding conservative economic views and the other half more liberal.

Many people understand that wealth inequality is an inevitable byproduct of economic progress. People who produce more economic value are rewarded in the marketplace with more wealth than those who produce less. Those who create a lot of indirect economic value are rewarded the most, examples being entrepreneurs like Steve Jobs and Bill gates, whose inventions have created millions of jobs and hundreds of billions of dollars in economic activity, both directly and indirectly. Donald Trump, for example, is the highest polling candidate in the GOP primaries despite being much wealthier than his opponents. Revolution occurs when fundamental needs are unmet, typically due to economic collapse, not because of class envy. In addition to other factors, the October Revolution (food shortages due WW1) and French Revolution (flour war) were engendered by economic collapse resulting in shortages of food and hyperinflation. Although wealth inequality is high, it’s not like people are starving; in fact, there is so much abundance there is an obesity crisis and many people are choosing not work.

Some on the right want to see a more ‘holistic’ or ‘nicer’ version of capitalism, but what does that mean? It’s like saying you want to see a ‘nicer’ version of evolution. It doesn’t really work that way. Capitalism, like evolution, is autonomous, as a way of converting inputs (money, labor, etc) to achieve an outcome or state that is more efficient than what proceeded it.

Post-2008 Capitalism: A Guide

From n+1 magazine, After Capitalism:

HOW WILL IT END? For centuries even the most sanguine of capitalism’s theorists have thought it not long for this world. Smith, Ricardo, and Mill pointed to a “falling rate of profit” linked to inevitable declines in agricultural productivity. Marx applied the same concept to industrial production, suggesting that the tendency to replace workers with machines would lead to a chronic and insurmountable lack of demand.

The only thing that has as good of track record as capitalism are predictions of capitalism’s demise.

Fiscal austerity is general, taxes remain low, and debt levels continue to rise—which means that Western countries, by selling treasury bonds to the rich through capital markets, are actually paying their elites in bond yields to avoid having to go through the politically impossible process of taxing them. Absent any political recourse to countercyclical fiscal policy, central banks in the US, the Eurozone, and Japan have kept interest rates low and pumped trillions of dollars of fiat money into the financial system, keeping banks and dot-com companies liquid and driving the rich to put their money into the condos now flooding Manhattan, all while leaving median wages pleasantly low.

That is similar to the process I describe in an earlier article, Post-Labor Capitalism. But instead of post-capitalism, it’s more like post-labor capitalism; capitalism remains intact. As well as other factors like the petrodollar, the ‘flight to safety‘ is keeping yields low and the dollar high. The author seems cynical about how money is flowing into tech companies, but tech companies offer among the best growth prospects of all sectors. * Amazon stock, up 200% in the past few years, has been a great place to put your money; Diamond Offshore, a drilling company whose stock is down 50% this year, has not, because of weakness in emerging markets, depressing commodity prices. In a post-2008 era of slow growth, Web 2.0 is where the growth is.

Getting less work seems unlikely to come about without the fight for solidarity, the chief intellectual achievement of the workers’ movement, and one that none of the accelerationists see fit to mention as an ideal worth preserving or even renovating. This is despite the fact that automation—or, more broadly, the increasing precariousness of labor through technologically assisted means—has always been dialectically connected with it.

The Luddite Fallacy will likely remain a fallacy, but the composition of the labor force is changing to one of more lower-paying service sector jobs, as well as the rise of gig, freelancer, and temp jobs. The result is a bifurcated workforce: lots of low-paying jobs and a handful of good-paying jobs occupied by the cognitive elite and creative class. This is an example of how technology and automation provides a deflationary force through lower wages.

But overall, when pundits proclaim ‘capitalism is dead/dying’, they may be referring to an antiquated meaning or idealization of capitalism that does not take into account how capitalism is changing, but this does not mean capitalism is dead -hardly by any stretch of the imagination – instead, it’s evolving to a more efficient, technological, network-driven, ad-based, winner-take-all version of capitalism that we have now. Capitalism, like much of the post-2008 economy, has become bifurcated, with winners being high-IQ capitalists and ‘high-IQ’ capitalist endeavors, and less intelligent people and ‘low-IQ’ businesses are struggling.

Perhaps post-2008 capitalism is characterized by the following ‘themes’:

1. high-IQ favoritism – both in the business/investing world and individually, with smarter people and smarter businesses succeeding over their less intelligent peers

2. winner-take-all/bigger-is-better (small business failure at record highs, expensive real estate regions keep getting more expensive, web 2.0 valuations at record highs for a handful of companies, etc)

3. flight to quality (similar to #2) – observed in the investing world, venture capitalism, Bay Area real estate, and strength of the treasury bond market & US dollar vs. weakness of foreign peers

4. capitalism is getting smarter, choosier and pickier (** *) Lending standards are more stringent than ever, despite profits & earnings for multinationals at record highs, whereas in the pre-2008 era it was much easier to obtain financing for home or business. This is good because it reduces the likelihood of a crisis like in 2008, but perhaps frustrating for many who are unable to get financing at competitive rates. But this should not be confused for total risk aversion. Valuations for Silicon Valley tech firms keep going up, so money is flowing into the sectors and regions where the quality is perceived to be the highest, resulting in a bifurcation of very high valuations for quality and very low valuations for everything else.

5. capitalism is confusing, partly due to the new rules and trends that many don’t understand. That’s why I wrote this guide to help readers better understand how the landscape of capitalism has changed.

This high-IQ favoritism is also evident in the stock market since 2008, with the best performing sectors being information technolgy, pharma/bio/healthcare, payment processing, investment banking, and consumer discretionary. The biggest losers, have been ‘blue collar’ sectors like mining, shipping, commodities, energy, etc. The only ‘blue collar’ sector that has thrived since 2008 is …auto parts, because consumers, squeezed by a weak labor market and other lingering effects of the recession, are not replacing their cars as often. Maybe also housing, catering, daycare, and landscaping in the Bay Area to cater to the new tech rich.

Besides IQ, the ‘bigger is better‘ theme also dominates in our post-2008 world. The failure rate for small business is higher than ever, party due to low interest rates and plunging treasury yields, making it easier for large companies with access to cheap capital to expand, thus crowding out small businesses. The most valuable web 2.0 companies keep going up in value. In late 2013 Uber and Snapchat were worth $30 billion combined. Now it’s over $100 billion or so, depending on the source.

This bigger is better/IQ favoritism trend is also observed in Bay Area real estate, which keeps going up long after other regions have stagnated. Bay Area home prices are well-above the 2006-2007 highs, yet the national average still well-below the old highs. Expensive homes in high-IQ regions keep getting more expensive, year after year, with calamitous events such as the 2006 housing bubble resembling merely speedbumps in an otherwise uninterrupted trajectory of higher prices.

San Jose home prices, which were already expensive, are higher than their 2006 highs, while the less-expensive national average is still 10% below the old highs.

This is all part of America’s meritocracy, which while intact, is harder to understand. A lot of people are finding themselves left behind, either because they are not smart enough or because they don’t understand how the post-2008 economy works, they don’t understand how to get rich in our new era:

That’s the way you get rich in the smartist era – with stocks, Bay Area real estate, web 2.0…stuff like that. Overpaid, low-IQ, redundant salaried jobs are becoming obsolete, replaced by automation, temp-workers, outsourcing, or eliminated altogether. Due to the supply of labor vastly exceeding demand, employers not only have the luxury of choosing the cream of the crop out of a huge pool of applicants, but to save money and avoid bad PR, employers are becoming increasingly trigger-happy, thus no one’s job is safe.

The rug has been pulled…but all too many people are stuck in a pre-2008 mindset, thinking that the old rules of business and life still apply. They don’t.

The fact 20 and 30-somethings are becoming millionaires or even billionaires in Silicon Valley, with apps and other technologies, while coders strait out of college are making six-figure salaries – is evidence capitalism is thriving, or at least thriving in high-IQ sectors and regions. Anyone with some coding and a good idea can become rich, almost overnight, and if that is not the epitome of capitalism, what is? Some call it a bubble, but assuming it is one (I don’t think it is), technologies are borne out of boom bust cycles, examples being the 90′s dotcom boom and the 80′s personal computer & video game console boom. After the dust settles, what was considered speculative becomes commonplace.

Since 2008, trillions of dollars of wealth has been created in stocks, real estate, and tech. The mobile and video advertising market, linking advertisers with social media platforms, is projected to be worth $100 billion by 2016. The new Star Wars movie is projected to earn over $2 billion, setting a box office record. That is capitalism. You can’t tell me capitalism is dead when you have all this activity going on – but – Capitalism may seem dead if you’re doing it wrong ** or if you’re looking at it through an old lens.

* Capitalism is getting smarter, as part of the post-2008 ‘flight to quality’ trend. In the pre-2008 world, money flow was careless (such as to subprime borrowers, energy companies with poor prospects, emerging markets, etc), but now it’s much more focused, and that’s why the most successful and valuable web 2.0 companies like Snapchat, Air BNB, Uber, and Dropbox keep getting more valuable with every passing year. The same ‘flight to quality’ trend observed in the stock market, which is why only a handful of companies (Microsoft, Google, Facebook, Amazon) accounted for all of the gains of the S&P 500 in 2015. As explained earlier in the article, a similar flight to quality/’winner take all’ pattern is observed in the real estate market. After many decades of trial and error, boom and busts, capitalism may have reached the pinnacle of refinement.

** The types of business endeavors that seem to be succeeding in the post-2008 era harness network effects or act as a middlemen, are scalable, have market dominance, and have low operating costs. Some examples include Uber and AirBNB, neither of which cost much to operate, are readily scalable, and act as middlemen by linking people with rooms or people with cars. There are millions of rooms and millions of routes for Air BNB and Uber, respectively. Facebook and Snapchat are scalable and harness network effects to generate billions of impressions for advertisers, making these companies very valuable even if they don’t produce any content. Facebook, LinkedIn, and Google’s profit margins are among the highest on Wall St. All these companies do is host a social media platform and an ad platform, and just sit back and watch the money flow in. None of these companies have viable competitors; over a decade later, despite many efforts, no one has been unable to unseat the dominance of Facebook and Google, and I predict nothing will.