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A bubble exists when people buy something based not on their belief in it's intrinsic underlying value but because people think it will appreciate in price. I.e

A bubble exists when people buy something based not on their belief in it's intrinsic underlying value but because people think it will appreciate in price. I.e. tulips, california real estate. You can't have a bubble in something you can't resell. This isn't an argument that salaries are at the correct long term level. I'm just saying that salaries can't have a bubble that "pops" and collapses like asset bubbles do.

jtb99 16y ago
Hi, I'm the author, and I disagree with you about the definition of a bubble. A bubble is when you're paying for something based purely on speculation about the future value of that thing, rather than on a rational analysis of the expected future return. I would wager that Google does not have an internal projection of the value of any engineer showing them to be worth $3.5m over four years; rather, I'd bet that comp decision was made based on an irrational fear of yet another defection from Google to Facebook.
- d2viant 16y ago
  $3.5 million is simply too large a number for your theory to be correct. A number that large to a single employee doesn't come out of thin air, it's based on something -- whether that be formal analysis or back of the envelope calculation.
  - jtb99 16y ago
    I suspect the calculation was (expected value of FB package) * 1.5
    - sudont 16y ago
      It's also possible that it was based on the potential damage done to Google by Facebook's talent acquisition, or if this isn't a zero-sum game, to prevent any gains by Facebook.
- kevinpet 16y ago
  I completely agree that a bubble is when you buy based on speculation of the future value rather than expected utility to you. My point is that this is completely impossible if you cannot realize the appreciation in value. As an employer, you can only realize the engineer's productivity until he or she changes jobs. If we were talking tulips, if you purchase at 100 florins, and a year later the bulbs are worth 400 florins in the market, you've made 300 florins profit. With an employee, if you hire them at a salary of $100k, and a year later, they are worth $400k in the market, you do not receive any of that difference. edit: A bubble in assets that can be resold can happen because it rational on the small scale to buy into the bubble. Everyone may know it will pop eventually, but people think they can make money and then get out. A bubble in unsellable things like employees can't happen because no one can expect that he will be able to "resell" an employee at a higher price.

jtb99 16y ago

Hi, I'm the author, and I disagree with you about the definition of a bubble. A bubble is when you're paying for something based purely on speculation about the future value of that thing, rather than on a rational analysis of the expected future return. I would wager that Google does not have an internal projection of the value of any engineer showing them to be worth $3.5m over four years; rather, I'd bet that comp decision was made based on an irrational fear of yet another defection from Google to Facebook.

d2viant 16y ago
$3.5 million is simply too large a number for your theory to be correct. A number that large to a single employee doesn't come out of thin air, it's based on something -- whether that be formal analysis or back of the envelope calculation.
- jtb99 16y ago
  I suspect the calculation was (expected value of FB package) * 1.5
  - sudont 16y ago
    It's also possible that it was based on the potential damage done to Google by Facebook's talent acquisition, or if this isn't a zero-sum game, to prevent any gains by Facebook.
kevinpet 16y ago
I completely agree that a bubble is when you buy based on speculation of the future value rather than expected utility to you. My point is that this is completely impossible if you cannot realize the appreciation in value. As an employer, you can only realize the engineer's productivity until he or she changes jobs. If we were talking tulips, if you purchase at 100 florins, and a year later the bulbs are worth 400 florins in the market, you've made 300 florins profit. With an employee, if you hire them at a salary of $100k, and a year later, they are worth $400k in the market, you do not receive any of that difference. edit: A bubble in assets that can be resold can happen because it rational on the small scale to buy into the bubble. Everyone may know it will pop eventually, but people think they can make money and then get out. A bubble in unsellable things like employees can't happen because no one can expect that he will be able to "resell" an employee at a higher price.