I appreciate this post very much! What a great question you have found. Some old thoughts I had on this topic came back to me.
Personally I think of wealth as neither extractive nor hyper-efficient. I think of it as blind dumb compounding growth. A dollar has a lifespan of 1 year and bears 1.07 offspring in that time. A simple way to see this: even a relatively crappy factory will make more goods in a month than it & its employees consume in a month. Likewise for farms, mines, fishing vessels, etc etc. If nothing major goes wrong, money just grows, like a pile of rabbits if the air were made of carrots. Sometimes there’s lots of opportunity to be clever and bump up a couple productivity notches and go rags to riches. Other times there’s no low fruit on the technological/economic tech tree and you can only get richer quick by stealing/scamming/pillaging. But the core dynamic is that it’s relatively easy for anyone to make more than they use, once they have 1/.07=14x their annual spending available as liquid cash (or tied up in decent investments).
This is all because we live in a universe that clearly wants things to happen. We have the greatest endowment ever, a whole damn star, and others nearby! Nuclear energy sitting in the ground if you need cash fast. It’s better than ZIRP, better than a stimulus check! You don’t even have to find a trade partner; you can use it directly to do anything you want, no questions asked. No credit check or collateral. No minimum hours per week; in fact, nothing is asked in exchange at all; you couldn’t give anything back even if you tried — usable energy seems to only go down — but we start with so much that it won’t matter for a trillion years.
This notion hasn’t made me rich and it’s not much use for my day-to-day decisions, but I think it does describe the reality I see. My parent’s friends are all rich (compared to young people) from a lifetime of saving, even the dumb ones. Half the crappy stocks I owned doubled simply because the companies stayed in business; if energy is free then “stay in business” is all you need to do once you reach $10M in annual profits or so. If an individual holds more than ~$100M, they’ll make a good profit indiscriminately investing in every single startup and land offering that shows up in their face: with compounding growth and diminishing losses, the losses just don’t really matter. This seems to me to essentially be the fundamental law of our universe, at least until some pine tree is tall enough to block out everyone’s light at once. (That pine tree may only be 1-4 years away now.)
Wrt swimsuit+umbrella, I feel similarly to Dave Orr. I don’t see why eg the matter of AI Safety vs Global Health has to be settled. Effective altruism is more coherent IMO than most social movements and even some governments (eg I know someone who is paid by the US federal govt to help immigrants avoid ICE). I don’t know if coherence much beyond the current level can be achieved without just falling into blind ideology. Even a very thoughtful and rational collective decision making process might be worse than the current chaotic one, due to missed opportunities. You disagree?
The assumption that value simply multiplies without reference to underlying mechanisms treats money as magical. While this description often matches observed behavior, I think this apparent match requires explanation. Some people become very wealthy precisely by finding or creating exceptions to this pattern.
I try to decompose apparently irreducible trends into physical configurations and social agents’ decisions. When apparent magic persists, I look for the magician—someone intentionally working to make the magic appear true.
Sometimes people are directly targeting a trendline in underlying reality that would support a corresponding high-level economic trend. For exampke, Intel worked for a long time fairly explicitly with the goal of keeping up with Moore’s law). Other times they’re cooking the books. For example, economist Scott Sumner proposed making smooth nominal GDP growth the explicit Fed target, since it’s already the implied target).
Cooking the books causes the nominal trend to diverge over time from what we originally might have wanted to measure with it. So, since we’ve been cooking the books to make financial investment smoothly profitable outside the original context where that trend emerged, this corresponds to some sort of decline in the purchasing power of money, as the set of goods and services we care about increasingly diverges from the ones for which we transact in dollars.
I believe I did explain/decompose the underlying mechanism
A simple way to see this: even a relatively crappy factory will make more goods in a month than it & its employees consume in a month. Likewise for farms, mines, fishing vessels, etc etc.
I could also have mentioned that it’s relatively easy for two people to make three.
If someone prints money for themselves, they’ll devalue their currency, but they won’t be making factories less productive.
Intel makes more stuff than they use, no technical progress required.
I should’ve said “a dollar’s worth of stuff can produce 1.03 dollar’s worth of stuff”. That would have been more clear.
I appreciate this post very much! What a great question you have found. Some old thoughts I had on this topic came back to me.
Personally I think of wealth as neither extractive nor hyper-efficient. I think of it as blind dumb compounding growth. A dollar has a lifespan of 1 year and bears 1.07 offspring in that time. A simple way to see this: even a relatively crappy factory will make more goods in a month than it & its employees consume in a month. Likewise for farms, mines, fishing vessels, etc etc. If nothing major goes wrong, money just grows, like a pile of rabbits if the air were made of carrots. Sometimes there’s lots of opportunity to be clever and bump up a couple productivity notches and go rags to riches. Other times there’s no low fruit on the technological/economic tech tree and you can only get richer quick by stealing/scamming/pillaging. But the core dynamic is that it’s relatively easy for anyone to make more than they use, once they have 1/.07=14x their annual spending available as liquid cash (or tied up in decent investments).
This is all because we live in a universe that clearly wants things to happen. We have the greatest endowment ever, a whole damn star, and others nearby! Nuclear energy sitting in the ground if you need cash fast. It’s better than ZIRP, better than a stimulus check! You don’t even have to find a trade partner; you can use it directly to do anything you want, no questions asked. No credit check or collateral. No minimum hours per week; in fact, nothing is asked in exchange at all; you couldn’t give anything back even if you tried — usable energy seems to only go down — but we start with so much that it won’t matter for a trillion years.
This notion hasn’t made me rich and it’s not much use for my day-to-day decisions, but I think it does describe the reality I see. My parent’s friends are all rich (compared to young people) from a lifetime of saving, even the dumb ones. Half the crappy stocks I owned doubled simply because the companies stayed in business; if energy is free then “stay in business” is all you need to do once you reach $10M in annual profits or so. If an individual holds more than ~$100M, they’ll make a good profit indiscriminately investing in every single startup and land offering that shows up in their face: with compounding growth and diminishing losses, the losses just don’t really matter. This seems to me to essentially be the fundamental law of our universe, at least until some pine tree is tall enough to block out everyone’s light at once. (That pine tree may only be 1-4 years away now.)
Wrt swimsuit+umbrella, I feel similarly to Dave Orr. I don’t see why eg the matter of AI Safety vs Global Health has to be settled. Effective altruism is more coherent IMO than most social movements and even some governments (eg I know someone who is paid by the US federal govt to help immigrants avoid ICE). I don’t know if coherence much beyond the current level can be achieved without just falling into blind ideology. Even a very thoughtful and rational collective decision making process might be worse than the current chaotic one, due to missed opportunities. You disagree?
The assumption that value simply multiplies without reference to underlying mechanisms treats money as magical. While this description often matches observed behavior, I think this apparent match requires explanation. Some people become very wealthy precisely by finding or creating exceptions to this pattern.
I try to decompose apparently irreducible trends into physical configurations and social agents’ decisions. When apparent magic persists, I look for the magician—someone intentionally working to make the magic appear true.
Sometimes people are directly targeting a trendline in underlying reality that would support a corresponding high-level economic trend. For exampke, Intel worked for a long time fairly explicitly with the goal of keeping up with Moore’s law). Other times they’re cooking the books. For example, economist Scott Sumner proposed making smooth nominal GDP growth the explicit Fed target, since it’s already the implied target).
Cooking the books causes the nominal trend to diverge over time from what we originally might have wanted to measure with it. So, since we’ve been cooking the books to make financial investment smoothly profitable outside the original context where that trend emerged, this corresponds to some sort of decline in the purchasing power of money, as the set of goods and services we care about increasingly diverges from the ones for which we transact in dollars.
I believe I did explain/decompose the underlying mechanism
I could also have mentioned that it’s relatively easy for two people to make three.
If someone prints money for themselves, they’ll devalue their currency, but they won’t be making factories less productive.
Intel makes more stuff than they use, no technical progress required.
I should’ve said “a dollar’s worth of stuff can produce 1.03 dollar’s worth of stuff”. That would have been more clear.