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This is a fascinating book and relevant to some critiques that pop up on HN from time to time. Too much of the US economy these days has become about wealth ex

This is a fascinating book and relevant to some critiques that pop up on HN from time to time. Too much of the US economy these days has become about wealth extraction or speculation, rather than real wealth creation. We’ve outsourced large portions of our manufacturing ecosystem while arguing that design, services and finance will make up for it. This book traces the root of the problem back to changes in how Economics analyzes and measures economic activity, and examines some industries through this lense, including VC. Notably, prior to the development of Marginal Utility, economists from Adam Smith to Karl Marx and everyone in between were concerned with the distinction between productive and unproductive economic activity. For example, manufacturing was productive and wealth-creative, while rents levied by the landed gentry were unproductive and extractive. Any form of cornering a market and extracting rent is assumed extractive, unless proven otherwise. The term they used was the Production Boundary, with productive activities on one side and unproductive on the other. A few, like law, that were inherently unproductive but that were necessary inputs to productive activity, are situated on the border. Marginal Utility made value subjective rather than objective. If a product or activity has demand for any reason and could thus fetch a price on a market, then it has value and is productive. This made economics more mathematically tractable as well, and became the dominant Economic theory. But it has also enabled extractive and speculative activities to claim to be productive, and thus gain political acceptance and support. The book argues this is the root of the problem facing the US and other developed countries, and that solving it requires new economic measurements and theories that restore the distinction between productive activity vs extractive or speculative activity.

lifeisstillgood 6y ago
I really think economics is undergoing a sea change - a lot of what was mainstream theory is getting overturned (as a lay person looking from the outside) what with MMT and the above (see also Josh Ryan-Collins). I am watching an interesting series from UCL (cannot find it right now) Edit: search "rethinking capitalism" UCL on youtube there is a list (mix?) of twenty videos. It seems to be an undergraduate course aimed at people in public policy. Include the above Marianna Mazzucato as well Edit edit : mainstream their overturned is probably a bit rich - let's say now-liberalism is getting cut out
- 6510 6y ago
  https://www.youtube.com/playlist?list=PLCB5zYFnXOqye7Z8vs56KPfso2p3cHu8g https://www.youtube.com/playlist?list=PLCB5zYFnXOqye7Z8vs56K...
clairity 6y ago
agreed on the lament about us getting away from distinguishing productive/unproductive uses (an argument i've made a lot and am glad to see getting more light of day), but your critique sounds overly pessimistic about marginal utility, which is a fairly value-neutral concept that's been pressed into the service of politics and ideology. value will never be purely objective (at least not in our lifetimes or many, many after), but we can ground it in bedrock shared values like fairness and industry.
- SkyMarshal 6y ago
  Perhaps I should have clarified, my comment above is 100% paraphrasing what is written in the book. It’s not my critique, but the author’s.
  - clairity 6y ago
    kinda figured, but by submitting the link and quoting it that way, it seems you agree, or at least are pursuaded somewhat? or have different takes on these things? a lot of politicoeconomic theory over the last many decades has been a one-sided push to justify rentierism, consolidate wealth/power, and corner sources of wealth extraction (e.g., globalism, trickle-down, labor movement vilification, etc.). it's a slow boil toward fascism, which is concerning to say the least.
    - SkyMarshal 6y ago
      I agree with the book’s analysis of the problem. Not sure about the solution yet, which I think will need to incorporate and extend marginal utility rather than discard or replace it.
amiga_500 6y ago
Cogent, polite, thoughtful comment. But talking about rentiers on hacker news == instant downvotes. Extra downvotes? Mention VCs. Even more downvotes? Mention landlords. Probably won't be able to reply to comments as normally in these threads I get "you're submitting too fast" due to a mod flag.
neves 6y ago
This book is in my to read list for some time. I believe it touches the kernel of the problem about economy as a field. The definition of Value. A good book and easy to read book that touches in this subject is Yanis Varoufakis's excellent "Talking to My Daughter about the Economy: A Brief History of Capitalism"
- WalterBright 6y ago
  Value (in the economic sense) is where the supply & demand curves intersect. There is no such thing as "intrinsic" or "true" value.
  - Gibbon1 6y ago
    Economists rejects the idea of intrinsic and true value. Because economists don't know how to quantify it as a scalar.
  - 6510 6y ago
    It seems silly perhaps but for true value I have a kind of thought experiment: If we took everything away from you what would you want the most? Breathable oxygen is nice to have. Second? Probably water. 3rd probably a comfortable enough place to sleep. 4th would be some kind of food. Here it gets less obvious but opinions shouldn't vary to much. 5th at least some cloths? 6th a roof over your head? (depends on the climate ofc) 7th someone to talk with? 8th a partner perhaps? 9th a decent pair of shoes? If we don't look at things that way we might think that there is so much air and so much clean drinking water that it doesn't have value. You can just keep taking it in unlimited amounts until it gets scarce enough to create a market for it self. At that point we might argue the economy is growing. We also love to tell [mainly ourselves] comforting stories about well being that exclude those who are not doing well. I mean, your life isn't all that valuable to me is it? If I can have shoes and you would have to go without air it would be hard to turn down the shoes? Economically shoes are a great idea?
repsilat 6y ago
> manufacturing was productive and wealth-creative, while rents levied by the landed gentry were unproductive and extractive This seems like a commonly made distinction, and maybe it's an honest and correct one, but the phrasing does seem a little slanted to me. Couldn't we also say that the gentry providing workable land to farmers is productive use of capital, and the prices charged for manufactured goods are unproductive rents? I suppose it doesn't hold together quite as well, but focusing on different sides of the ledger (and bringing class into the discussion) makes me question if the argument holds together as well when considered soberly.
- pjc50 6y ago
  > Couldn't we also say that the gentry providing workable land to farmers is productive use of capital, and the prices charged for manufactured goods are unproductive rents? You could say that, but it would be wrong or meaningless? You've not defined terms or made an argument, you've just swapped the labels like a guy trying to swap product barcodes so he can cheat the store. Also fails to cover how the land was "provided" in the first place, and who was taking it at sword point..
  - Nasrudith 6y ago
    It is over a vast period of time as well and was both raw exploitation and a legitimate service essentially. When the lords were able to provide meaningful protection against vikings raiding that was a legitimate service - militias alone didn't cut it compared to a professional warrior elite. Now when they were the source of instability with feudal squabbles they can't be said to even be helping except maybe in a power vacuum potentially leading to even worse outcomes.
  - repsilat 6y ago
    I think that's my point. If the structure of the soundbite doesn't argue for its case then it's a useful short-hand for people who know the economic definitions, but it otherwise isn't enlightening. If the purpose of making the distinction between productive and unproductive activity is to inform, then a reason needs to be given for activities being called one or the other. Without that reason, the framing looks more like politics than economics. As for "provided": leaving aside the moral question of how the status quo obtained (which, I'll grant, was likely not moral at all), the landlord has land that can be used for farming, but also for polo or fox hunting or whatever. The farmers have time and energy that can be used for farming, but also for football and arm-wrestling competitions etc. I'm not saying they're the same, I'm just saying that if they're different we need to do more than just assert it.
WalterBright 6y ago
Keep in mind that government tax laws wield enormous influence over how markets operate. If you want more of something, subsidize it. If you want less, tax it. It's trite, of course, but few take it into account when formulating tax/subsidy policy. For example, the Seattle City Council has passed what they themselves called an "Amazon Tax". Amazon has seen the writing on the wall and is moving their headquarters to Bellevue.
- an_opabinia 6y ago
  There are more people holding equity than ever before. If we raised capital gains taxes, would people sell? Would they hold until capital gains taxes lowered? If capital gains taxes are raised, would equity prices rise, because fewer people are selling? Would more people sell, causing prices to fall? Would fewer people buy, because they anticipate paying those taxes in the future? Would rising prices attract more people to buy equities? So that would mean, rising capital gains taxes could cause an even higher rise in equity prices, because both fewer people are selling and more people are buying in response to rising prices? Doesn't someone have to sell their equities, into cash, in order to have a gain? Is it a complete picture to just count, "market value = shares outstanding * last price paid?" If no one is selling are those returns real? If capital gains taxes are increased, and fewer people sell, is revenue offset by the increase in equity prices? Or not? What does it mean, for your theory about taxes? These are extremely basic questions about how markets operate. Anyway, my point is, you have no idea how tax laws wield influence of how markets operate. You're totally right about how trite you are. In my experience researching these questions, the answers are inconclusive, and cannot at all be predicted from some kind of first principles understanding of taxes or economics.
  - WalterBright 6y ago
    For my own investments, capital gains taxes certainly cause me to trade less, because each trade is a taxable event. Trading less means I stay invested much longer in less productive investments. In the tax regime before Reagan, tax rates were so high that people found it worthwhile to invest instead into poorly performing tax shelters. Reagan's deal was to trade lowering marginal rates for eliminating the shelters. It was a good deal, as shown by increased GDP growth rate. Tax policy is why employers offer health insurance. Tax policy is why we have estate planners, trusts, etc. Tax policy is why we have 401ks. So yeah, I do have an idea how tax laws influence how markets work.
SubiculumCode 6y ago
Top comment, hands down. Thank you for explaining the subject clearly. An objective standard definition for what is productive and that which is not seem impossible to me, at least once you get past the basic necessities of life. Food is plentiful. Shelter has problems directly stemming from rent seeking. Healthcare is increasingly costly. Yet electronic entertainments are ridiculously cheap.
- amiga_500 6y ago
  Another comment downvoted for mentioning rent seeking.

lifeisstillgood 6y ago

I really think economics is undergoing a sea change - a lot of what was mainstream theory is getting overturned (as a lay person looking from the outside) what with MMT and the above (see also Josh Ryan-Collins). I am watching an interesting series from UCL (cannot find it right now) Edit: search "rethinking capitalism" UCL on youtube there is a list (mix?) of twenty videos. It seems to be an undergraduate course aimed at people in public policy. Include the above Marianna Mazzucato as well Edit edit : mainstream their overturned is probably a bit rich - let's say now-liberalism is getting cut out

6510 6y ago
https://www.youtube.com/playlist?list=PLCB5zYFnXOqye7Z8vs56KPfso2p3cHu8g https://www.youtube.com/playlist?list=PLCB5zYFnXOqye7Z8vs56K...

clairity 6y ago

agreed on the lament about us getting away from distinguishing productive/unproductive uses (an argument i've made a lot and am glad to see getting more light of day), but your critique sounds overly pessimistic about marginal utility, which is a fairly value-neutral concept that's been pressed into the service of politics and ideology. value will never be purely objective (at least not in our lifetimes or many, many after), but we can ground it in bedrock shared values like fairness and industry.

SkyMarshal 6y ago
Perhaps I should have clarified, my comment above is 100% paraphrasing what is written in the book. It’s not my critique, but the author’s.
- clairity 6y ago
  kinda figured, but by submitting the link and quoting it that way, it seems you agree, or at least are pursuaded somewhat? or have different takes on these things? a lot of politicoeconomic theory over the last many decades has been a one-sided push to justify rentierism, consolidate wealth/power, and corner sources of wealth extraction (e.g., globalism, trickle-down, labor movement vilification, etc.). it's a slow boil toward fascism, which is concerning to say the least.
  - SkyMarshal 6y ago
    I agree with the book’s analysis of the problem. Not sure about the solution yet, which I think will need to incorporate and extend marginal utility rather than discard or replace it.

amiga_500 6y ago

Cogent, polite, thoughtful comment. But talking about rentiers on hacker news == instant downvotes. Extra downvotes? Mention VCs. Even more downvotes? Mention landlords. Probably won't be able to reply to comments as normally in these threads I get "you're submitting too fast" due to a mod flag.

neves 6y ago

This book is in my to read list for some time. I believe it touches the kernel of the problem about economy as a field. The definition of Value. A good book and easy to read book that touches in this subject is Yanis Varoufakis's excellent "Talking to My Daughter about the Economy: A Brief History of Capitalism"

WalterBright 6y ago
Value (in the economic sense) is where the supply & demand curves intersect. There is no such thing as "intrinsic" or "true" value.
- Gibbon1 6y ago
  Economists rejects the idea of intrinsic and true value. Because economists don't know how to quantify it as a scalar.
- 6510 6y ago
  It seems silly perhaps but for true value I have a kind of thought experiment: If we took everything away from you what would you want the most? Breathable oxygen is nice to have. Second? Probably water. 3rd probably a comfortable enough place to sleep. 4th would be some kind of food. Here it gets less obvious but opinions shouldn't vary to much. 5th at least some cloths? 6th a roof over your head? (depends on the climate ofc) 7th someone to talk with? 8th a partner perhaps? 9th a decent pair of shoes? If we don't look at things that way we might think that there is so much air and so much clean drinking water that it doesn't have value. You can just keep taking it in unlimited amounts until it gets scarce enough to create a market for it self. At that point we might argue the economy is growing. We also love to tell [mainly ourselves] comforting stories about well being that exclude those who are not doing well. I mean, your life isn't all that valuable to me is it? If I can have shoes and you would have to go without air it would be hard to turn down the shoes? Economically shoes are a great idea?

repsilat 6y ago

> manufacturing was productive and wealth-creative, while rents levied by the landed gentry were unproductive and extractive This seems like a commonly made distinction, and maybe it's an honest and correct one, but the phrasing does seem a little slanted to me. Couldn't we also say that the gentry providing workable land to farmers is productive use of capital, and the prices charged for manufactured goods are unproductive rents? I suppose it doesn't hold together quite as well, but focusing on different sides of the ledger (and bringing class into the discussion) makes me question if the argument holds together as well when considered soberly.

pjc50 6y ago
> Couldn't we also say that the gentry providing workable land to farmers is productive use of capital, and the prices charged for manufactured goods are unproductive rents? You could say that, but it would be wrong or meaningless? You've not defined terms or made an argument, you've just swapped the labels like a guy trying to swap product barcodes so he can cheat the store. Also fails to cover how the land was "provided" in the first place, and who was taking it at sword point..
- Nasrudith 6y ago
  It is over a vast period of time as well and was both raw exploitation and a legitimate service essentially. When the lords were able to provide meaningful protection against vikings raiding that was a legitimate service - militias alone didn't cut it compared to a professional warrior elite. Now when they were the source of instability with feudal squabbles they can't be said to even be helping except maybe in a power vacuum potentially leading to even worse outcomes.
- repsilat 6y ago
  I think that's my point. If the structure of the soundbite doesn't argue for its case then it's a useful short-hand for people who know the economic definitions, but it otherwise isn't enlightening. If the purpose of making the distinction between productive and unproductive activity is to inform, then a reason needs to be given for activities being called one or the other. Without that reason, the framing looks more like politics than economics. As for "provided": leaving aside the moral question of how the status quo obtained (which, I'll grant, was likely not moral at all), the landlord has land that can be used for farming, but also for polo or fox hunting or whatever. The farmers have time and energy that can be used for farming, but also for football and arm-wrestling competitions etc. I'm not saying they're the same, I'm just saying that if they're different we need to do more than just assert it.

WalterBright 6y ago

Keep in mind that government tax laws wield enormous influence over how markets operate. If you want more of something, subsidize it. If you want less, tax it. It's trite, of course, but few take it into account when formulating tax/subsidy policy. For example, the Seattle City Council has passed what they themselves called an "Amazon Tax". Amazon has seen the writing on the wall and is moving their headquarters to Bellevue.

an_opabinia 6y ago
There are more people holding equity than ever before. If we raised capital gains taxes, would people sell? Would they hold until capital gains taxes lowered? If capital gains taxes are raised, would equity prices rise, because fewer people are selling? Would more people sell, causing prices to fall? Would fewer people buy, because they anticipate paying those taxes in the future? Would rising prices attract more people to buy equities? So that would mean, rising capital gains taxes could cause an even higher rise in equity prices, because both fewer people are selling and more people are buying in response to rising prices? Doesn't someone have to sell their equities, into cash, in order to have a gain? Is it a complete picture to just count, "market value = shares outstanding * last price paid?" If no one is selling are those returns real? If capital gains taxes are increased, and fewer people sell, is revenue offset by the increase in equity prices? Or not? What does it mean, for your theory about taxes? These are extremely basic questions about how markets operate. Anyway, my point is, you have no idea how tax laws wield influence of how markets operate. You're totally right about how trite you are. In my experience researching these questions, the answers are inconclusive, and cannot at all be predicted from some kind of first principles understanding of taxes or economics.
- WalterBright 6y ago
  For my own investments, capital gains taxes certainly cause me to trade less, because each trade is a taxable event. Trading less means I stay invested much longer in less productive investments. In the tax regime before Reagan, tax rates were so high that people found it worthwhile to invest instead into poorly performing tax shelters. Reagan's deal was to trade lowering marginal rates for eliminating the shelters. It was a good deal, as shown by increased GDP growth rate. Tax policy is why employers offer health insurance. Tax policy is why we have estate planners, trusts, etc. Tax policy is why we have 401ks. So yeah, I do have an idea how tax laws influence how markets work.

SubiculumCode 6y ago

Top comment, hands down. Thank you for explaining the subject clearly. An objective standard definition for what is productive and that which is not seem impossible to me, at least once you get past the basic necessities of life. Food is plentiful. Shelter has problems directly stemming from rent seeking. Healthcare is increasingly costly. Yet electronic entertainments are ridiculously cheap.

amiga_500 6y ago
Another comment downvoted for mentioning rent seeking.