20 ms·

Where did the other dollar go, Jeff?

407 points by ezrast 5y ago

Grimm1 5y ago
First I clicked on this hoping it was some interesting thing to learn, and then I saw it quickly devolved into another Bezos rant. Second what weird quibbling over standard language. I read this and feel like I'd prefer to have my time back. "I'm not endorsing an ideology" no instead you'll make it painfully obvious which one you don't. "I’m just meeting the claims on their own terms in the pursuit of that which I truly value, which is quibbling about math." And then proceeded to basically do nothing on the math, but argue about value creation or consumption. I'm not stating if I agree or not, don't take this as that, I just feel the author was basically misrepresenting their goals in the post.
- ct0 5y ago
  The title of the piece includes "Jeff", As in Jeff Bozos. I read your comment and would like my time back too.
  - Grimm1 5y ago
    It's a bad piece of writing. That offered no value. Every business uses the language Bezos used, and it also is very much up to interpretation on their view of value creation and consumption.
    - enragedcacti 5y ago
      If me and my two friends buy paintings from each other for 1 Billion dollars in a circle, did we create 3 Billion dollars in value? No, we created 3 mediocre paintings. Bezos (and every other business, as you mentioned) plays the same game by double and triple counting and changing the definition of value to suit each case. You are right that what value means is up to debate; but Bezos here uses many different definitions at once to reach his number which isn't adhering to any particular ideology other than "Amazon good". I think the most obvious example of this is with the workers: >The most egregious misrepresentation of value creation in the letter is the $91 billion figure that Amazon has paid out in compensation to employees. This is patently ridiculous. Every single dollar of compensation paid out is done transactionally: it is used to purchase labor. > And it estimates the time saved by consumers who shopped at Amazon instead of brick-and-mortar stores, and— in a particularly bold move, considering that just a few paragraphs ago it ascribed no value whatsoever to the time of its own employees— attaches a dollar value to those hours and throws that on the pile as well. This is a shell game where amazon gets to take credit for paying its employees for their hours and also take credit for those hours as value.
  - onionisafruit 5y ago
    It didn't occur to me that the Jeff in the title was Jeff Bezos until after I clicked. I probably wouldn't have read the article if I realized. That would have been my loss. I enjoyed the article.
- lucasmullens 5y ago
  No matter how bad an article is, "I read this and feel like I'd prefer to have my time back" is sort of just a mean thing to say and doesn't contribute to the conversation.
- ezrast 5y ago
  For what it's worth, I find this feedback useful, despite the downvotes it garnered. I think it's important not to misrepresent my biases when I write, and doing that even-handedly can be difficult, so if it's not landing with people I like to know.
  - Grimm1 5y ago
    Yeah sorry I may have been too harsh in my initial reply, and really nothing against you in particular, but I did get through it feeling a bit angry over it. FWIW, I agree with some of your points for sure and disagree with others I just felt misled and I think that's why in part I responded so harshly.
jdmoreira 5y ago
I think this is a very smart piece. It exposes very clearly that money is not value. You can bundle existing value from one side, add maybe an extra bit here and there and collect money for the process. But how much money you collected in the end has very little relation to how much value you added to the system. Especially since some of the shareholders did absolutely no value creation. Jeff Benzos is a very smart person and an excellent CEO. He used to work for the Renaissance Fund as well. I really wish I could hear his honest opinion on this piece. He will most likely never read it but I hope he would and I hope he took the time to reply with honesty and no ego.
- Grimm1 5y ago
  I think it quibbled over standard language that every business uses in it's releases and used Bezos as a whipping post to make a point because it wouldn't have gotten traction otherwise.
  - jdmoreira 5y ago
    So what? That’s why is meaningful. It exposes falsehood that we are too distracted to see and understand. I for one appreciate having my mind blown once in a while and my dogmas questioned.
    - gitanovic 5y ago
      This I also read the letter from Bezos and thought "ok is just useless propaganda" But having someone break it down for me and questioning every statement, was somewhat useful, and possibly increased my awareness to this kind of krap... ehm double standards
- Kranar 5y ago
  I thought it was poorly written and fails to understand some simple financial terms. When people say value is created for shareholders, they don't mean shareholders created that value; they mean that the value of the thing owned by shareholders has increased. I own shares of a company (I am therefore a shareholder), if the value of that company increases then the value I own as a shareholder increases, hence value was created for me as the shareholder. This is such a basic principle that the author failing to understand this is kind of embarrassing. There are other basic things the article gets wrong, like saying that bartering doesn't create value which is patently false. Bartering does in and of itself create value by allocating resources to those who wish to consume it. When Alice trades an apple with Bob for a potato, it's usually done because Alice has a need for a potato and doesn't have a need for the apple, and vice versa for Bob, hence the allocation of apples and potatoes goes to where it's most desired. This increases the efficiency of resource allocation which in and of itself creates value. Furthermore the bartering in and of itself causes an incentive to produce more apples and potatoes. Honestly this is really basic stuff and not worth writing an entire article bickering over semantics.
bombcar 5y ago
If you care more about the dollar than Amazon: https://www.mathsisfun.com/puzzles/where-did-the-dollar-go--solution.html https://www.mathsisfun.com/puzzles/where-did-the-dollar-go--... >When the Waiter returns 3 dollars, the 3 friends had paid $25 to the Cashier and $2 to the Waiter. $25+$2 = $27 = 3 x $9.
- StevenWaterman 5y ago
  It clicked for me when I allowed negative balances Customers: 0 -30 -30 -27 Hotel : 0 30 25 25 Bellhop : 0 0 5 2 Total : 0 0 0 0
  - rthomas6 5y ago
    As an aside, this shows the value and reason behind double entry bookkeeping. More setup in the beginning, but ultimately much less confusing.
  - Joker_vD 5y ago
    "The bellhop, who is very nice, takes $5 from the register and return $2 to each tourist, paying $1 from his pocket— the guests don’t have to fuss over uneven change that way. Now, each of the three tourists has spent $8, for a total of $24. The bellhop has spent $1, which brings the total to $25. Where did the other 5 dollars go?" "The bellhop, who is very much not honest, takes $10 from the register and return only $1 to each tourist, pocketing the remaining $7— the guests don’t have to fuss over uneven change that way. Now, each of the three tourists has spent $9, for a total of $27. The bellhop has retained $7, which brings the total to $34. Where did those other 4 dollars come from?"
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- jccalhoun 5y ago
  When I was a teenager this blew our minds and stumped us for days.
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deleted 5y ago
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cperciva 5y ago
one might consider that, taking the marginal utility of money into account, a dollar in the hands of an Amazon employee is in fact more valuable than the same dollar in the hands of an Amazon shareholder. I'm not at all certain this is correct. Yes, Jeff Bezos owns a lot of Amazon; but so do pension funds and other institutional investors. Amazon has a lot of very wealthy employees, and I wouldn't be surprised in the slightest if the average employee is wealthier than the average beneficial owner of Amazon stock.
- extra88 5y ago
  I don't know about average but the median Amazon employee, including all those working in warehouses, driving trucks, etc. is unlikely to be wealthier.
  - ingleswood 5y ago
    The right tail of Amazon shareholders' wealth is much longer than the right tail of Amazon employees' wealth, since it includes the richest (and 21st richest) person in the world. The best paid employee in the world probably doesn't work for Amazon, and they are also much less rich compared to the median employee than the richest person is compared to the median wealth holder.
    - extra88 5y ago
      I don't know what your point is. I was making a distinction between "average employee" which can be distorted by having vastly wealthier individuals amongst their number, and "median employee,' which is not. I hope Amazon does have a large cadre of well-paid employees but they're vastly outnumbered by the warehouse workers, delivery staff, etc. I was responding to someone speculating that because a lot of Amazon stock is presumably held by pensions and other institutional investors, the value of those stocks goes to very average people who are not wealthy (by U.S. standards). I think that even if a lot of Amazon stock is held that way, if you have a job for which you receive a pension or contribute to a retirement fund that's worth a damn, you're not wealthy but you're probably wealthier than the bottom half of Amazon employees.
ChrisLomont 5y ago
>In a typical transaction, no value is created This claim isn't true - it completely ignores producer and consumer surplus. It adds nothing to the economy, but it adds value to both sides of the transaction. Suppose A and B trade items a and b. This happens because A values item b more than B does, and B values item a more than A does. So by trading both sides have more value to them than originally. Almost zero trades happen right at the margin.
seiferteric 5y ago
> Every single dollar of compensation paid out is done transactionally: it is used to purchase labor. This is my gripe whenever I hear about my employer "covering" part of my health insurance or other benefit etc... No, I pay for EVERYTHING with my labor.
- Pfhreak 5y ago
  Including the profit your employer retains -- employers necessarily pay you less than the value of your labor.
  - dragonwriter 5y ago
    > employers necessarily pay you less than the value of your labor. That’s not true “necessarily” unless you assume all employers are sustainable, in idealized competitive markets, and that all of their inputs are also purchased in idealized competitive markets such that they don’t have monopsony savings they can spend on surplus wages without impacting sustainability. Obviously, even with idealized market assumptions, one reason an firms fail is paying more total for inputs than the value they produce, and lots of firms fail.
    - Pfhreak 5y ago
      Ok, that's fair, I was painting with a broad brush. I acknowledge that yes, employers can pay employees more than the value they bring in, but it's likely that doing so isn't sustainable long term. And I dodged entirely around worker coops and other arrangements where the excess value is distributed back to employees.
  - seiferteric 5y ago
    That part is fine and understood when you take a job with a for profit company. I just don't like it when employers think that are doing you some sort of favor.
  - robocat 5y ago
    > employers necessarily pay you less than the value of your labor. Untrue. Employers aim for that but they often fail. The Credit Suisse employees that lost $5 billion due to Archegos were overpaid. Alternatively if I am the only person that can do a particular necessary job for a business, I should be able to reap the majority of the profits due to my monopoly. Finally, for some professional jobs productivity is hard to measure, yet you may employ many people because in aggregate they make a profit. At an individual level, the profit margin can vary from negative to positive.
ikeboy 5y ago
>The most egregious misrepresentation of value creation in the letter is the $91 billion figure that Amazon has paid out in compensation to employees. This is patently ridiculous. Every single dollar of compensation paid out is done transactionally: it is used to purchase labor. In a typical transaction, no value is created. This is just wrong. The employer gets value because they make more (in expectation) from the worker than they pay; the worker gets value because they get paid more than the the minimum they'd be willing to work for. There's surplus on both sides in most transactions. The article makes some correct points. But it's frustrating to see it combining those with nonsense.
- kfarr 5y ago
  I was also surprised by this assumption and the lack of discussion or validation: "in a typical transaction, no value is created" From my econ 101 high school days I remember a super simple example of 2 islands, 1 with only oranges and 1 with only pineapples. Simply by trading 1 orange for 1 pineapple (and vice versa) value is created since both parties get to experience different resources which offer them economic utility.
  - fighterpilot 5y ago
    Trade almost always creates value for both consenting stakeholders. It should be the default assumption and anyone arguing the opposite is talking nonsense. In rare edge cases it can be argued that trade doesn't create value for consenting stakeholders: (1) Information asymmetries that don't rise to the level of fraud, which cause one counterparty to make an uninformed decision. (2) Trades that appeal to the dopamine system but otherwise work against the individual, e.g. with social-media doomscrolling, gambling, drugs, fast food. In this case the individual has diminished agency to make the best decision for themselves in all cases. Anything else? [I'm ignoring externalities here]
    - InitialLastName 5y ago
      I don't think TFA would dispute that transactions create value. The argument being disputed is that the value created by a transaction is meaningfully measured by the value transacted. To use the pineapples and oranges island metaphor, imagine that on island A (which has lots of oranges but no pineapples) pineapples are valued at $1.1 and oranges are valued at $1, and v.v for island b, where oranges are $1.1 and pineapples are $1. If you and I trade an orange on island A for a pineapple on island B, we both went from having $1 in fruit to having $1.1 in fruit on our islands. The value created by that transaction isn't $1, $1.1 (or $2.1 as Amazon appears to be double-counting some of the value between revenue, profit and wages), it's $0.2, which is the value we added to the fruit by moving it between islands.
chmod600 5y ago
"In a typical transaction, no value is created. If I give you an apple and you give me an orange, the total amount of fruit in the economy remains constant. We can’t create fruit by bartering with it. We can only do so by foraging or cultivating an orchard." That seems wrong. If I trade, that means I value whatever I get more than what I gave up; and likewise for the counterparty. Isn't that a net positive even though nothing was physically created?
- Kalium 5y ago
  It makes sense if you believe value to be an objective thing, where each good has a fixed value that is a fact. In a slightly more complicated model - or the real world - the value of a good or service is informed by things like control and location. Value is not objective, but subjective. Value can be and often is created by moving good from a location where they are values little to a location where they are valued highly.
  - chmod600 5y ago
    "It makes sense if you believe value to be an objective thing" Does any serious economic philosophy actually believe that foolishness?
    - Kalium 5y ago
      In feudal times, merchants were often derided for supposedly charging a price different from the "true price" of products. So perhaps not in any serious modern economic philosophy, but people definitely arrive at this idea in naive ways.
      - anoncake 5y ago
        And rightly so. Value may be subjective, but cost – and thus the correct price of a good – is not.
- aidenn0 5y ago
  Shortly after that he does acknowledge that collective labor may be more valuable than individual labor. However we can all agree that Amazon doesn't create $91B of value when it buys something for $91B in cash. The entire supply chain behind creating the thing Amazon buys, plus the raw inputs, creates something of value that Amazon then consumes. You could maybe argue that in a market without Amazon, the workers may have been paid only, say, $85B, so Amazon has transferred $6B from consumers to workers. Even then, the value of transferring $6B from consumers to workers is unlikely to be $6B. If I tighten the last bolt on a car that is worth $20k, I have not created anywhere near $20k in value.
btilly 5y ago
The one figure that this didn't quibble with is also wrong. Net profit definitely adds to shareholder value. But suppose that I make $30 billion, reinvest $20 billion, and create something that is worth $90 billion. My net profit is now $10 billion. But I actually added $100 billion in shareholder value! Jeff Bezos knows this, and knows this well. For many years Amazon ran at a net profit around $0 because it was reinvesting all of its profits in new businesses. So it was adding shareholder value like crazy! (And people who didn't understand this were walking around saying, "Why is Amazon worth so much? They don't even make a profit!") Of course doing this calculation correctly includes estimating the present value of the thing I created. And that is notoriously hard. So the proxy used in the real world is market cap. However market cap is volatile and subject to change based on the emotions of speculators. Certainly Amazon's actions last year are not the whole story for why they added $600 billion in market cap! So while net profit is the wrong measure, there is no measure that can be used which really is right for "added to shareholder value".
- hinkley 5y ago
  The CEO class is still mostly old enough to remember corporate raiders, and of course we have the modern equivalent where groups buy companies, saddle them with debt, and exfiltrate the money long before the company goes bankrupt. Having enough liquid assets to prevent a hostile takeover is not the most profitable thing short-term but it does protect you. Amazon is so big it doesn't have that problem. It's simply too big for anyone to get their teeth around. I think this is another case of "you are not a FAANG, if you act like one it won't turn out the same for you."
  - adventured 5y ago
    The ownership position that Bezos had through most of its history was enough to make a hostile acquisition nearly impossible. That's how they survived the bad years post dotcom bubble without being acquired for relatively cheap. It's very hard to pull off a successful hostile takeover if you have prominent insiders with ~25-35% of the company and they don't want to sell. Certainly after they began reporting AWS results and the stock skyrocketed that was the end of any serious hostile acquisition risk (in the few years prior to the AWS numbers they were a $100-$175 billion market cap company, which eg Walmart could have afforded had regulators allowed it and insiders not made it nearly impossible).
838812052807016 5y ago
I wonder if you could apply similar reasoning to critique "carbon neutrality".
iudqnolq 5y ago
I found this a very good point. You can almost make a point that Amazon should get credit for the entire value created by every business on AWS, even if it's almost certainly technically wrong. If you then add on the money they paid you, it becomes absurd. They paid you the value (to them) of the thing they bought. > The point is, when you purchase a service from Amazon, the future value created by your usage of the service belongs to you, not to Amazon. Even if it seems like Amazon should get some credit, there’s no reasonable way to measure such things, no scheme for attributing “value creation” fairly between the producers of every good and service you may have consumed on your way to running a business. Anyway, Amazon has already been credited for providing those services since they made money off the deal. Every business relying on Amazon contributes to that $21 billion in profit Amazon made.
Grimm1 5y ago
We use the exchange of money to approximate value. You won't pay me $1,000 dollars for my mousepad, because you don't value it at that. Someone around here used a bad example of rigging art prices, but the reality is, that painting is now valued at whatever 10's of millions of dollars it is regardless of personal feelings of mediocrity. Money is of course not value, and I'm sorry, but that is a completely basic statement that I'm surprised to see so many people it's just dawning on them now, but it is the tool we use to approximate actual value in our transactions, whether that be for labor purchase, value passed on to share holders etc. Of course it's an approximation with issues, someone define value for me? You can't because value is different to everyone but we use money to express the value we perceive something to have in matters of business. The writer here doesn't seem to understand basic economics and money as a proxy for value, again in business, which seems likely and they should probably stay in their lane just like we tell other people who write things they know nothing about. This standard proxy of value is true in every purchase you make, your salary, his stock value etc. and it's the standard we use, and is it perfect, hell no, but it's worked since the concept of exchanging coins in place of cows and barrels of spice came around and we haven't seen anything supplant it yet. The fact the author is quibbling over semantics to me means there is not much of an actual argument being made and everyone here just ate it up.
- seoaeu 5y ago
  The author directly acknowledges that money can be used to measure value: > I’m going to tacitly accept [...] that “value” can meaningfully be expressed in terms of United States dollars That doesn't mean you can just sum up a bunch of dollar figures and have the total make any logical sense. Doubly so when you are arguing that the sum represents value you created and not just the values of things you interacted with. Like if a bank teller takes $5000 dollars and deposits it into a customer's account, they haven't created anywhere close to $5000 because the owner already had it when they walked through the doors of the bank. And if you add that number to the bank teller's wages and the price of a safe deposit box at the bank down the street, you haven't discovered the value of the transaction... all you've got is nonsense.
seoaeu 5y ago
Amusing that the original letter from Jeff Bezos doesn't list taxes paid as counting towards value provided to others. For a more 'normal' company that would be high on the list of ways they're contributing to society. But of course that doesn't work nearly as well when you're not actually paying much in taxes...
theonlybutlet 5y ago
In reality, the only measurable value wrt Amazon is it's retained net profit. For its shareholders, it is the net capital gain on their investment and dividends. Edit: Were it not for the above, assuming an efficient market, the resources would be allocated elsewhere and therefore they cannot lay claim to others profits and value add, considered a cost in their results.
animex 5y ago
This reminds me of Tesla's pricing page which shows your future gas savings deducted from the total cost of the car...
mensetmanusman 5y ago
Value is never created in a vacuum. If you could implement an idea that leverages 0.01$ of value from 500,000,000 people, you have yourself at least a $1,000,000 company.
lifeisstillgood 5y ago
>>> If I give you an apple and you give me an orange, the total amount of fruit in the economy remains constant. We can’t create fruit by bartering with it. We can only do so by foraging or cultivating an orchard. Isn't this principle the entire Financial industry?
- deleted 5y ago
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modeless 5y ago
> I’m going to tacitly accept some of Bezos’ underlying assumptions [...] I’m just meeting the claims on their own terms [...] > In a typical transaction, no value is created. If I give you an apple and you give me an orange, the total amount of fruit in the economy remains constant. Right here he has already failed to abide by his assertions in the previous paragraph. The transaction in fruit does create value because it transfers fruit from people who want it less to people who want it more. Improving the distribution of fruit in the world is valuable even when the total amount of fruit does not change. The value Bezos is talking about is not the same idea of "value" that this guy has in his head. Sure, maybe Bezos is overcounting his value. But arguments like the above are just missing the point.
- JKCalhoun 5y ago
  I thought Bezos was attaching a monetary amount ($) to that value though — so pointing out that a fruit swap is zero-sum, monetarily, seems on point.
  - modeless 5y ago
    It's common to quantify value in units of dollars. It doesn't literally mean that money was printed.
- greatgib 5y ago
  I think that you did not grasp the concept of "value" that is used in the article. There is a difference between the general "value" and an amount of money that pre-exist anyway. In the same way, the "monay value you give to something" is not the "value" of the thing. For example, if you buy 10$ a stock that has a financial value of 100$, you had a good deal btut the stock value is still 100$. In the case of the apple transaction, if the price you got the apple is 10$, and now the product and conditions are the same, but because of the demand some people are ready to buy it 20$ from you. It was not 10$ of value created but just transferred. Someone got a bigger part of money and the other one has less money remaining. But the total amount of money stays the same globally.
  - 5y ago
Trias11 5y ago
It's easy, depending how to ask question: Checks and Balances CSV: ============================================== Tourists,Cash Register,Bell guy 30,0,0 0,30,0 3,25,2
paxys 5y ago
Didn't see Bezos's original comments, but yeah they seem weird. He simply added up a bunch of random numbers from Amazon's balance sheet and said "see we created exactly this much value".
goldenkey 5y ago
To elucidate the bellhop problem, the $2 the bellhop has, should be subtracted from the $27 that the patrons paid. This leaves you with $25, which is the correct amount the hotel has after refunding $5.
bartimus 5y ago
> If I give you an apple and you give me an orange, the total amount of fruit in the economy remains constant. That's not entirely correct. The economy isn't a zero sum game. If person A has 2 apples and person B has 2 oranges. They trade 1 apple for 1 orange. Now they both have an apple and an orange. The value is increased for both parties.
A_non_e-moose 5y ago
Reminds me of the more adult 100$ debt riddle. Found it at econlib.org by David Henderson, but I've heard multiple variations before, so I have no idea where the original comes from. "It’s a slow day in some little town…….. The sun is hot….the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit. On this particular day a rich tourist from back west is driving thru town. He stops at the motel and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs in order to pick one to spend the night. As soon as the man walks upstairs, the owner grabs the bill and runs next door to pay his debt to the butcher. The butcher takes the $100 and runs down the street to retire his debt to the pig farmer. The pig farmer takes the $100 and heads off to pay his bill at the feed store. The guy at the Farmer’s Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her services on credit. She, in a flash rushes to the motel and pays off her room bill with the motel owner. The motel proprietor now places the $100 back on the counter so the rich traveler will not suspect anything. At that moment the traveler comes down the stairs, picks up the $100 bill, states that the rooms are not satisfactory, pockets the money & leaves. NOW,… no one produced anything…and no one earned anything…however the whole town is out of debt and is looking to the future with much optimism."
- deleted 5y ago
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- Sniffnoy 5y ago
  Link to the actual post: https://www.econlib.org/archives/2012/01/an_answer_to_a.html https://www.econlib.org/archives/2012/01/an_answer_to_a.html
- bartkappenburg 5y ago
  Hence the existence of a clearing house in the stockmarket: cross off debt and credit in the whole market. Every one in your story has 100 credit and 100 debt which makes them worth 0. Aligning that in the right way makes a lot of sense :-)
  - cgb223 5y ago
maerF0x0 5y ago
> Money and labor are both more abstract than fruit, so there is a little bit of leeway to interpret employment transactions as being non-zero-sum. This paragraph gets into something i've been pondering about GDP/societal wealth. Imagine we have a carpenter and a plumber both sitting idle and who needs eachothers' services. If they cannot agree upon an exchange or price then the system loses out on the potential productivity. The system as a whole is made poorer by actors being disagreeable. I have often wondered how rich life could be if we were more agreeable to give to the other the gifts of our marginally unused productivity (rather than giving it to netflix, facebook, instagram, and tik-tok...)? Would poverty be erased, or other desirable things be achievable? Now look at the ideas of a minimum wage or of being frugal. Both are a kind of refusal to participate in the economy leaving behind marginal potential value creation. If we refuse to spend our money it doesnt fund development of projects, if we refuse to work at a certain rate we lose out on the goods that could have been built. Anyways that's a musing I was reminded of by this piece.
- mdoms 5y ago
  > I have often wondered how rich life could be if we were more agreeable to give to the other the gifts of our marginally unused productivity (rather than giving it to netflix, facebook, instagram, and tik-tok...)? You think life would be better if we all never stopped working and simply 'did our part' 16 hours a day without compensation?
  - maerF0x0 5y ago
    that is approximately the most negative spin you could have made on my point. The point is that if the trade doesn't occur, both parties lose out on what good could be and sometimes we cannot actually see the good but could value the good of the other. I'm not saying everyone should go work for bezos for free because his utility will rise. But more like in normal community interpersonal relationships. Say a small business owner wants to use some services, but cannot afford an expensive experienced person like a large business could (Say a high priced contract engineer) during a quiet period the resource goes idle and the business loses out, when both could have had some value if one would be more agreeable and say "look, I'm not working right now and sure I'll work for X% off for that reason and because I like you" And where it fits with the commentary on minimum wage is that it technically would be illegal if that percent off dropped below minimum wage, then no trade could happen leading to vicious cycles rather than virtuous ones. The business that got its website built can make more sales and can pay more for high priced engineers. Whereas the business that cannot get a website built loses out on sales and cannot give any future work to the engineer. There's a sort of symbiosis in the health of the actors in the system and their ability to pay for generally good things.
gshulegaard 5y ago
This is an interesting article but it starts off on the wrong foot for me: > This is patently ridiculous. Every single dollar of compensation paid out is done transactionally: it is used to purchase labor. In a typical transaction, no value is created. This, as I understand it in a limited fashion, is not true. There is a concept of the velocity of money in which more value than the initial transaction is created: https://en.wikipedia.org/wiki/Velocity_of_money https://en.wikipedia.org/wiki/Velocity_of_money This is, in part I believe, why a nation's GDP can exceed it's nominal cash in circulation. In particular, the Great Depression was a period of low monetary velocity and yet staggering inflation; the term "stagflation" (stagnation + inflation) was coined to describe this phenomena. https://en.wikipedia.org/wiki/Stagflation https://en.wikipedia.org/wiki/Stagflation Which in turn calls into question the following criticism: > But however you look at it, taking full credit for every single dollar of compensation as value creation— as if Amazon, and not the US Mint, created those dollars, and as if the many, many millions of hours of labor consumed by the company in return were valueless— is a ghastly overstatement. While I would never want to make it seem like Amazon is some sort of altruistic entity who simply makes the lives of those on it's payroll better, it is not as ghastly an overstatement as claimed. There is a reason recovery from the Great Depression involved job creation through The New Deal and war-time production and not simply the US Treasury "creating those dollars". These kinds of economic inconsistencies continue throughout the post. In particular there seems to be a pervasive belief that Monetary Supply is finite/controlled by the Federal Reserve and therefore cannot be used to measure value creation: > But the value you created isn’t the money. The money already existed and was floating around the economy long before you picked up the brush. The value you created was in the art, which is now in someone else’s hands. This is a false premise. Dollar-value estimations of created value like GDP are often imperfect measurements, but they do exist; furthermore, they often exceed the nominal amount of financial notes in circulation. There also certainly is additional value that isn't captured by a dollar value, such as the value an owner places on a created piece of art, but that is not the same as no monetary value created. I don't know who the author is, but even my limited grasp of economic theory makes me question the main thrust of their arguments. But I also know my grasp of economic theory is threadbare at best, so perhaps I am completely off base.
- ezrast 5y ago
kixiQu 5y ago
"Employees' contribution to Amazon is literally zero; they should be appreciative of all this Value we generate for them by giving them money" is a pretty rough thing to read in that shareholder letter, not gonna lie. That insulting of an implication could only make it into a final draft in such an obvious state if it really reflects how the top people think, and that's... rough.
necovek 5y ago
Heh, also reminds me of all the "piracy lost us this much" statements from Microsoft back in the day, and movie and music industry until recently (it's now "streaming nets us too little" instead). As if there would have been a guaranteed transaction at sticker prices for each and every illegally copied unit.
- ShroudedNight 5y ago
  Ah yes, the insidious cost of ringtone piracy: https://youtu.be/GZadCj8O1-0 https://youtu.be/GZadCj8O1-0
Animats 5y ago
This is why you always scroll down to the end for the GAAP financial statements. (Has anyone ever see an "adjustments to income" item which decreased reported profits?)
eruci 5y ago
The other dollar is included in the three dollars they got back. 9x3 + 2 = $30.
baryphonic 5y ago
This article is a complete mess from top to bottom and the author is literally doing the sham accounting from the brain teaser that he (erroneously) attributes to Bezos. I could go at length about everything wrong with it, but I'll take aim at one particular analogy he uses: the artist's painting. > Bezos claims that Amazon made $21 billion in net income for the year, and counts that as value created for shareholders. [...] If you spend $50 on art supplies and turn them into a painting worth $500, you have created $450 worth of value. And when you sell the painting, you end up with net $450 that you didn’t have before, because that’s the difference in values between what you consumed and what you produced. What!? No! Literally just before this paragraph is a passage claiming Amazon values its employees' time at $0. Now the author himself literally does this: in the story, the artist's labor is entirely unaccounted for. Where did the labor that produced the painting come from? Is it worth literally nothing? Did magical faeries come in the night and produce it? In reality, we have "opportunity costs": what we give up in order to get things we want. When we trade our labor, we give up not only the labor itself, but also the alternative uses of our time, namely leisure or maybe labor that is more enjoyable. The most valuable thing (subjectively to us) we give up is the "opportunity cost" of our labor. Certainly the artist's leisure is worth more than $0. > In this way, the amount of money you made is equal to the value you produced (we are assuming, like good little capitalists, that markets are efficient and that externalities don’t exist and all that). Externalities? Dafuq? Is this "art" an ugly billboard or something? Maybe the paint is quite pungent and makes the artist's roommates angry? Is the author just cargo culting from an anti-capitalist word bank without any clue about what the words mean? I think so. > But the value you created isn’t the money. The money already existed and was floating around the economy long before you picked up the brush. Oh, Christ, money supply is not the same as currency in circulation. We have M1 and M2, for instance. This "money" is more than just dollar bills, but includes checking accounts, savings accounts, even things like CDs. > The value you created was in the art, which is now in someone else’s hands. So while Amazon shareholders may be $21 billion richer than they were before, it’s not meaningful to say that value was created “for the shareholders”. It doesn’t matter whom value was created for— the shareholders would be the ones getting rich regardless. Okay, let's use an analogy that properly maps to what Amazon is doing. Let's consider someone who commissions an artist to produce an artwork which the commissioner intends to sell. The "total value" produced for the commissioner (using the admittedly obnoxious "profit in dollars" meaning above) would be the sale price of the art less the cost of supplies and the compensation for the artist. But this is literally how Amazon is using the meaning here! What value did the commissioner get? Well, he tied up his money in art supplies and an artist, and took the risk that he'd never get any of it back. Moreover, if we change this scenario back into the version the author himself presented, where the artist and commissioner are the same person, then the artist captures all of the value less cost of supplies. Isn't this exactly what Bezos is doing? I think it would be a much richer conversation to question whether the sainted Amazon Shareholders or the Archangel Bezos himself are engaging in much risk-taking these days, or just exploiting monopoly profits and political connections for returns beyond a risk-adjusted level, and whether this allows Amazon to give labor and "human capital" short shrift, but alas, this seems to elude our author. Regardless, shareholders are tying up their money in something illiquid, and so should be compensated at least a little bit for their trouble. The rest of the article is just as incoherent, sloppy and tendentious as this excerpt. And while the author is correct to criticize the concept of value as invoked by Bezos (and finance people in general), he accepts it for the sake of argument early on. So even the lone valid criticism is muddled and involves goalpost shifting.
SamvitJ 5y ago
This article starts of well, but quickly goes south. > In a typical transaction, no market value is created. If I give you an apple and you give me an orange, the total amount of fruit in the economy remains constant. We can’t create fruit by bartering with it. We can only do so by foraging or cultivating an orchard. Economics 101 begs to differ. Surprised at the level of economic illiteracy in this article (the author should read up on concepts like consumer surplus, labor markets, comparative advantage, economies of scale), given the interesting riddle it began with.
- simongr3dal 5y ago
  I'm pretty sure Marx would disagree with you on that. A transaction creates no extra value by itself. Just because we end up with a bigger use value through transactions doesn't mean any extra value was added to the world. Funnily enough that was the point of the article, Jeff Bezos letter was conflating different types of values and adding them together because they could all be measured in the same unit, dollars.
- cmeacham98 5y ago
  Read the associated footnote for that line.
deleted 5y ago
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yossarian1408 5y ago
Good accounting, bad economics >In a typical transaction, no market value is created.[1] If I give you an apple and you give me an orange, the total amount of fruit in the economy remains constant. We can’t create fruit by bartering with it. We can only do so by foraging or cultivating an orchard. This is egregious. We no longer live in a world where trade is a zero sum game. Market value is created in every transaction. If I have an apple tree, and my neighbour has an orange tree, and I want to eat oranges and my neighbour wants to eat apples, we might: A) Forage for the seeds of the respective tree we want, cultivate an area to grow it, spend a significant amount of time looking after it while it grows, and all this for the risk of it dying or being eaten by bugs before it fruits, or B) Trade surplus fruit of our respective trees for the respective fruit we want to consume. While yes, in accounting terms we have traded 1 fruit for 1 fruit, in economic terms we have traded 1 fruit for 1 fruit as well as the time/effort/cost associated with option A. This is because how economists see value is different to how accountants see value. This is represented in the concept of 'opportunity cost'. >But however you look at it, taking full credit for every single dollar of compensation as value creation— as if Amazon, and not the US Mint, created those dollars, and as if the many, many millions of hours of labor consumed by the company in return were valueless— is a ghastly overstatement. Amazon didn't create the money. They created the value. And this isn't to say that the millions of hours of labour spent were valueless, but it is a fact that if someone is working for Amazon, it is because it is the best value-per-hour they could get. Yes, in the absence of Amazon these people would probably all have other jobs, but the fact that they are working at Amazon and not these other jobs is evidence that Amazon is creating value in these people's lives above what would exist in the absence of Amazon existing. >It doesn’t matter whom value was created for— the shareholders would be the ones getting rich regardless. >And to be clear, using profit to measure value created is also fraught. Except this is exactly the point of capitalism. It absolutely matters to whom the value is created for. The shareholders will only get rich if value is created for society. No rational person would make a purchase at their own expense, and the circumstances where the marginal value of utility is 1 to 1 are extremely rare, if possible at all. Outside of monopoly or oligarchy markets, value necessitates a profit-incentive. > These are three completely different measurements: one is profit, one is savings, and one is time. They cannot be added together to anything meaningful. They are all measurements of value, and the dollar figure attached is the dollar figure of this added value. The author has done the same thing that he claims Bezos is doing, and as illustrated in the opening scenario. Juxtaposition of accounting, mathematics and economics so as to suit the purposes of getting to an answer that the author envisions. Except this time the aim isn't to educate but to mislead.
riantogo 5y ago
I arrive at a village. I see 100 villagers with $1 each. I extract $1 from all, pocket $20, give $80 to one villager. Resume: Made a villager extremely wealthy ($80 value created). Fucked up the whole village.
perryizgr8 5y ago
The whole point of any trade is that I give you something that I value less, but you value more. I have 10,000 apples just lying around. You have $10,000 in your bank account. So you pay me a dollar and I give you an apple. To you, $1 was more than fair for the apple, because you were hungry for apples. To me, 1 less apple for 1 more dollar was also more than fair, because I want to buy other things. So when Amazon pays 100k to an engineer, it is not a zero sum transaction. To the engineer, 100k was worth more than his time. To Amazon, the work done by the engineer in that time was worth more than 100k. Value was created. How much value? I don't know, but definitely greater than zero.
badhabit 5y ago
10+10+10 = 30 = 25+5 = 25 + 2 + (1+1+1) 9+9+9 = 25+2
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lucideer 5y ago
> The most egregious misrepresentation of value creation in the letter is [...] compensation to employees. This is patently ridiculous. Every single dollar of compensation paid out is done transactionally: it is used to purchase labor. In a typical transaction, no market value is created. [...] > Money and labor are both more abstract than fruit, so there is a little bit of leeway to interpret employment transactions as being non-zero-sum. [...] But however you look at it, taking full credit for every single dollar of compensation as value creation— as if Amazon, and not the US Mint, created those dollars, and as if the many, many millions of hours of labor consumed by the company in return were valueless— is a ghastly overstatement. It's obviously sensible for the author to focus on Amazon & Bezos' letter in the blogpost instead of casting a broad non-specific net, but I feel like this very argument is the main one used by various government ministers / congressmen / economists / etc. ad nauseum to justify various support & investments in large multinationals and the so-called "job creation"/"value creation" they offer national economies throughout the world. Time. And. Time. Again. And it has never made any sense to me for these exact reasons. It also strikes me as a pretty basic fallacy that should not hold up to any scrutiny when used by high-profile decision-makers like this.*

407 points by ezrast 5y ago

First I clicked on this hoping it was some interesting thing to learn, and then I saw it quickly devolved into another Bezos rant. Second what weird quibbling over standard language. I read this and feel like I'd prefer to have my time back. "I'm not endorsing an ideology" no instead you'll make it painfully obvious which one you don't. "I’m just meeting the claims on their own terms in the pursuit of that which I truly value, which is quibbling about math." And then proceeded to basically do nothing on the math, but argue about value creation or consumption. I'm not stating if I agree or not, don't take this as that, I just feel the author was basically misrepresenting their goals in the post.

ct0 5y ago
The title of the piece includes "Jeff", As in Jeff Bozos. I read your comment and would like my time back too.
- Grimm1 5y ago
  It's a bad piece of writing. That offered no value. Every business uses the language Bezos used, and it also is very much up to interpretation on their view of value creation and consumption.
  - enragedcacti 5y ago
    If me and my two friends buy paintings from each other for 1 Billion dollars in a circle, did we create 3 Billion dollars in value? No, we created 3 mediocre paintings. Bezos (and every other business, as you mentioned) plays the same game by double and triple counting and changing the definition of value to suit each case. You are right that what value means is up to debate; but Bezos here uses many different definitions at once to reach his number which isn't adhering to any particular ideology other than "Amazon good". I think the most obvious example of this is with the workers: >The most egregious misrepresentation of value creation in the letter is the $91 billion figure that Amazon has paid out in compensation to employees. This is patently ridiculous. Every single dollar of compensation paid out is done transactionally: it is used to purchase labor. > And it estimates the time saved by consumers who shopped at Amazon instead of brick-and-mortar stores, and— in a particularly bold move, considering that just a few paragraphs ago it ascribed no value whatsoever to the time of its own employees— attaches a dollar value to those hours and throws that on the pile as well. This is a shell game where amazon gets to take credit for paying its employees for their hours and also take credit for those hours as value.
- onionisafruit 5y ago
  It didn't occur to me that the Jeff in the title was Jeff Bezos until after I clicked. I probably wouldn't have read the article if I realized. That would have been my loss. I enjoyed the article.
lucasmullens 5y ago
No matter how bad an article is, "I read this and feel like I'd prefer to have my time back" is sort of just a mean thing to say and doesn't contribute to the conversation.
ezrast 5y ago
For what it's worth, I find this feedback useful, despite the downvotes it garnered. I think it's important not to misrepresent my biases when I write, and doing that even-handedly can be difficult, so if it's not landing with people I like to know.
- Grimm1 5y ago
  Yeah sorry I may have been too harsh in my initial reply, and really nothing against you in particular, but I did get through it feeling a bit angry over it. FWIW, I agree with some of your points for sure and disagree with others I just felt misled and I think that's why in part I responded so harshly.

jdmoreira 5y ago

I think this is a very smart piece. It exposes very clearly that money is not value. You can bundle existing value from one side, add maybe an extra bit here and there and collect money for the process. But how much money you collected in the end has very little relation to how much value you added to the system. Especially since some of the shareholders did absolutely no value creation. Jeff Benzos is a very smart person and an excellent CEO. He used to work for the Renaissance Fund as well. I really wish I could hear his honest opinion on this piece. He will most likely never read it but I hope he would and I hope he took the time to reply with honesty and no ego.

Grimm1 5y ago
I think it quibbled over standard language that every business uses in it's releases and used Bezos as a whipping post to make a point because it wouldn't have gotten traction otherwise.
- jdmoreira 5y ago
  So what? That’s why is meaningful. It exposes falsehood that we are too distracted to see and understand. I for one appreciate having my mind blown once in a while and my dogmas questioned.
  - gitanovic 5y ago
    This I also read the letter from Bezos and thought "ok is just useless propaganda" But having someone break it down for me and questioning every statement, was somewhat useful, and possibly increased my awareness to this kind of krap... ehm double standards
Kranar 5y ago
I thought it was poorly written and fails to understand some simple financial terms. When people say value is created for shareholders, they don't mean shareholders created that value; they mean that the value of the thing owned by shareholders has increased. I own shares of a company (I am therefore a shareholder), if the value of that company increases then the value I own as a shareholder increases, hence value was created for me as the shareholder. This is such a basic principle that the author failing to understand this is kind of embarrassing. There are other basic things the article gets wrong, like saying that bartering doesn't create value which is patently false. Bartering does in and of itself create value by allocating resources to those who wish to consume it. When Alice trades an apple with Bob for a potato, it's usually done because Alice has a need for a potato and doesn't have a need for the apple, and vice versa for Bob, hence the allocation of apples and potatoes goes to where it's most desired. This increases the efficiency of resource allocation which in and of itself creates value. Furthermore the bartering in and of itself causes an incentive to produce more apples and potatoes. Honestly this is really basic stuff and not worth writing an entire article bickering over semantics.

bombcar 5y ago

If you care more about the dollar than Amazon: https://www.mathsisfun.com/puzzles/where-did-the-dollar-go--solution.html https://www.mathsisfun.com/puzzles/where-did-the-dollar-go--... >When the Waiter returns 3 dollars, the 3 friends had paid $25 to the Cashier and $2 to the Waiter. $25+$2 = $27 = 3 x $9.

StevenWaterman 5y ago
It clicked for me when I allowed negative balances Customers: 0 -30 -30 -27 Hotel : 0 30 25 25 Bellhop : 0 0 5 2 Total : 0 0 0 0
- rthomas6 5y ago
  As an aside, this shows the value and reason behind double entry bookkeeping. More setup in the beginning, but ultimately much less confusing.
- Joker_vD 5y ago
  "The bellhop, who is very nice, takes $5 from the register and return $2 to each tourist, paying $1 from his pocket— the guests don’t have to fuss over uneven change that way. Now, each of the three tourists has spent $8, for a total of $24. The bellhop has spent $1, which brings the total to $25. Where did the other 5 dollars go?" "The bellhop, who is very much not honest, takes $10 from the register and return only $1 to each tourist, pocketing the remaining $7— the guests don’t have to fuss over uneven change that way. Now, each of the three tourists has spent $9, for a total of $27. The bellhop has retained $7, which brings the total to $34. Where did those other 4 dollars come from?"
- deleted 5y ago
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jccalhoun 5y ago
When I was a teenager this blew our minds and stumped us for days.
- 5y ago

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cperciva 5y ago

one might consider that, taking the marginal utility of money into account, a dollar in the hands of an Amazon employee is in fact more valuable than the same dollar in the hands of an Amazon shareholder. I'm not at all certain this is correct. Yes, Jeff Bezos owns a lot of Amazon; but so do pension funds and other institutional investors. Amazon has a lot of very wealthy employees, and I wouldn't be surprised in the slightest if the average employee is wealthier than the average beneficial owner of Amazon stock.

extra88 5y ago
I don't know about average but the median Amazon employee, including all those working in warehouses, driving trucks, etc. is unlikely to be wealthier.
- ingleswood 5y ago
  The right tail of Amazon shareholders' wealth is much longer than the right tail of Amazon employees' wealth, since it includes the richest (and 21st richest) person in the world. The best paid employee in the world probably doesn't work for Amazon, and they are also much less rich compared to the median employee than the richest person is compared to the median wealth holder.
  - extra88 5y ago
    I don't know what your point is. I was making a distinction between "average employee" which can be distorted by having vastly wealthier individuals amongst their number, and "median employee,' which is not. I hope Amazon does have a large cadre of well-paid employees but they're vastly outnumbered by the warehouse workers, delivery staff, etc. I was responding to someone speculating that because a lot of Amazon stock is presumably held by pensions and other institutional investors, the value of those stocks goes to very average people who are not wealthy (by U.S. standards). I think that even if a lot of Amazon stock is held that way, if you have a job for which you receive a pension or contribute to a retirement fund that's worth a damn, you're not wealthy but you're probably wealthier than the bottom half of Amazon employees.

ChrisLomont 5y ago

>In a typical transaction, no value is created This claim isn't true - it completely ignores producer and consumer surplus. It adds nothing to the economy, but it adds value to both sides of the transaction. Suppose A and B trade items a and b. This happens because A values item b more than B does, and B values item a more than A does. So by trading both sides have more value to them than originally. Almost zero trades happen right at the margin.

seiferteric 5y ago

> Every single dollar of compensation paid out is done transactionally: it is used to purchase labor. This is my gripe whenever I hear about my employer "covering" part of my health insurance or other benefit etc... No, I pay for EVERYTHING with my labor.

Pfhreak 5y ago
Including the profit your employer retains -- employers necessarily pay you less than the value of your labor.
- dragonwriter 5y ago
  > employers necessarily pay you less than the value of your labor. That’s not true “necessarily” unless you assume all employers are sustainable, in idealized competitive markets, and that all of their inputs are also purchased in idealized competitive markets such that they don’t have monopsony savings they can spend on surplus wages without impacting sustainability. Obviously, even with idealized market assumptions, one reason an firms fail is paying more total for inputs than the value they produce, and lots of firms fail.
  - Pfhreak 5y ago
    Ok, that's fair, I was painting with a broad brush. I acknowledge that yes, employers can pay employees more than the value they bring in, but it's likely that doing so isn't sustainable long term. And I dodged entirely around worker coops and other arrangements where the excess value is distributed back to employees.
- seiferteric 5y ago
  That part is fine and understood when you take a job with a for profit company. I just don't like it when employers think that are doing you some sort of favor.
- robocat 5y ago
  > employers necessarily pay you less than the value of your labor. Untrue. Employers aim for that but they often fail. The Credit Suisse employees that lost $5 billion due to Archegos were overpaid. Alternatively if I am the only person that can do a particular necessary job for a business, I should be able to reap the majority of the profits due to my monopoly. Finally, for some professional jobs productivity is hard to measure, yet you may employ many people because in aggregate they make a profit. At an individual level, the profit margin can vary from negative to positive.

ikeboy 5y ago

>The most egregious misrepresentation of value creation in the letter is the $91 billion figure that Amazon has paid out in compensation to employees. This is patently ridiculous. Every single dollar of compensation paid out is done transactionally: it is used to purchase labor. In a typical transaction, no value is created. This is just wrong. The employer gets value because they make more (in expectation) from the worker than they pay; the worker gets value because they get paid more than the the minimum they'd be willing to work for. There's surplus on both sides in most transactions. The article makes some correct points. But it's frustrating to see it combining those with nonsense.

kfarr 5y ago
I was also surprised by this assumption and the lack of discussion or validation: "in a typical transaction, no value is created" From my econ 101 high school days I remember a super simple example of 2 islands, 1 with only oranges and 1 with only pineapples. Simply by trading 1 orange for 1 pineapple (and vice versa) value is created since both parties get to experience different resources which offer them economic utility.
- fighterpilot 5y ago
  Trade almost always creates value for both consenting stakeholders. It should be the default assumption and anyone arguing the opposite is talking nonsense. In rare edge cases it can be argued that trade doesn't create value for consenting stakeholders: (1) Information asymmetries that don't rise to the level of fraud, which cause one counterparty to make an uninformed decision. (2) Trades that appeal to the dopamine system but otherwise work against the individual, e.g. with social-media doomscrolling, gambling, drugs, fast food. In this case the individual has diminished agency to make the best decision for themselves in all cases. Anything else? [I'm ignoring externalities here]
  - InitialLastName 5y ago
    I don't think TFA would dispute that transactions create value. The argument being disputed is that the value created by a transaction is meaningfully measured by the value transacted. To use the pineapples and oranges island metaphor, imagine that on island A (which has lots of oranges but no pineapples) pineapples are valued at $1.1 and oranges are valued at $1, and v.v for island b, where oranges are $1.1 and pineapples are $1. If you and I trade an orange on island A for a pineapple on island B, we both went from having $1 in fruit to having $1.1 in fruit on our islands. The value created by that transaction isn't $1, $1.1 (or $2.1 as Amazon appears to be double-counting some of the value between revenue, profit and wages), it's $0.2, which is the value we added to the fruit by moving it between islands.

chmod600 5y ago

"In a typical transaction, no value is created. If I give you an apple and you give me an orange, the total amount of fruit in the economy remains constant. We can’t create fruit by bartering with it. We can only do so by foraging or cultivating an orchard." That seems wrong. If I trade, that means I value whatever I get more than what I gave up; and likewise for the counterparty. Isn't that a net positive even though nothing was physically created?

Kalium 5y ago
It makes sense if you believe value to be an objective thing, where each good has a fixed value that is a fact. In a slightly more complicated model - or the real world - the value of a good or service is informed by things like control and location. Value is not objective, but subjective. Value can be and often is created by moving good from a location where they are values little to a location where they are valued highly.
- chmod600 5y ago
  "It makes sense if you believe value to be an objective thing" Does any serious economic philosophy actually believe that foolishness?
  - Kalium 5y ago
    In feudal times, merchants were often derided for supposedly charging a price different from the "true price" of products. So perhaps not in any serious modern economic philosophy, but people definitely arrive at this idea in naive ways.
    - anoncake 5y ago
      And rightly so. Value may be subjective, but cost – and thus the correct price of a good – is not.
aidenn0 5y ago
Shortly after that he does acknowledge that collective labor may be more valuable than individual labor. However we can all agree that Amazon doesn't create $91B of value when it buys something for $91B in cash. The entire supply chain behind creating the thing Amazon buys, plus the raw inputs, creates something of value that Amazon then consumes. You could maybe argue that in a market without Amazon, the workers may have been paid only, say, $85B, so Amazon has transferred $6B from consumers to workers. Even then, the value of transferring $6B from consumers to workers is unlikely to be $6B. If I tighten the last bolt on a car that is worth $20k, I have not created anywhere near $20k in value.

btilly 5y ago

The one figure that this didn't quibble with is also wrong. Net profit definitely adds to shareholder value. But suppose that I make $30 billion, reinvest $20 billion, and create something that is worth $90 billion. My net profit is now $10 billion. But I actually added $100 billion in shareholder value! Jeff Bezos knows this, and knows this well. For many years Amazon ran at a net profit around $0 because it was reinvesting all of its profits in new businesses. So it was adding shareholder value like crazy! (And people who didn't understand this were walking around saying, "Why is Amazon worth so much? They don't even make a profit!") Of course doing this calculation correctly includes estimating the present value of the thing I created. And that is notoriously hard. So the proxy used in the real world is market cap. However market cap is volatile and subject to change based on the emotions of speculators. Certainly Amazon's actions last year are not the whole story for why they added $600 billion in market cap! So while net profit is the wrong measure, there is no measure that can be used which really is right for "added to shareholder value".

hinkley 5y ago
The CEO class is still mostly old enough to remember corporate raiders, and of course we have the modern equivalent where groups buy companies, saddle them with debt, and exfiltrate the money long before the company goes bankrupt. Having enough liquid assets to prevent a hostile takeover is not the most profitable thing short-term but it does protect you. Amazon is so big it doesn't have that problem. It's simply too big for anyone to get their teeth around. I think this is another case of "you are not a FAANG, if you act like one it won't turn out the same for you."
- adventured 5y ago
  The ownership position that Bezos had through most of its history was enough to make a hostile acquisition nearly impossible. That's how they survived the bad years post dotcom bubble without being acquired for relatively cheap. It's very hard to pull off a successful hostile takeover if you have prominent insiders with ~25-35% of the company and they don't want to sell. Certainly after they began reporting AWS results and the stock skyrocketed that was the end of any serious hostile acquisition risk (in the few years prior to the AWS numbers they were a $100-$175 billion market cap company, which eg Walmart could have afforded had regulators allowed it and insiders not made it nearly impossible).

838812052807016 5y ago

I wonder if you could apply similar reasoning to critique "carbon neutrality".

iudqnolq 5y ago

I found this a very good point. You can almost make a point that Amazon should get credit for the entire value created by every business on AWS, even if it's almost certainly technically wrong. If you then add on the money they paid you, it becomes absurd. They paid you the value (to them) of the thing they bought. > The point is, when you purchase a service from Amazon, the future value created by your usage of the service belongs to you, not to Amazon. Even if it seems like Amazon should get some credit, there’s no reasonable way to measure such things, no scheme for attributing “value creation” fairly between the producers of every good and service you may have consumed on your way to running a business. Anyway, Amazon has already been credited for providing those services since they made money off the deal. Every business relying on Amazon contributes to that $21 billion in profit Amazon made.

Grimm1 5y ago

We use the exchange of money to approximate value. You won't pay me $1,000 dollars for my mousepad, because you don't value it at that. Someone around here used a bad example of rigging art prices, but the reality is, that painting is now valued at whatever 10's of millions of dollars it is regardless of personal feelings of mediocrity. Money is of course not value, and I'm sorry, but that is a completely basic statement that I'm surprised to see so many people it's just dawning on them now, but it is the tool we use to approximate actual value in our transactions, whether that be for labor purchase, value passed on to share holders etc. Of course it's an approximation with issues, someone define value for me? You can't because value is different to everyone but we use money to express the value we perceive something to have in matters of business. The writer here doesn't seem to understand basic economics and money as a proxy for value, again in business, which seems likely and they should probably stay in their lane just like we tell other people who write things they know nothing about. This standard proxy of value is true in every purchase you make, your salary, his stock value etc. and it's the standard we use, and is it perfect, hell no, but it's worked since the concept of exchanging coins in place of cows and barrels of spice came around and we haven't seen anything supplant it yet. The fact the author is quibbling over semantics to me means there is not much of an actual argument being made and everyone here just ate it up.

seoaeu 5y ago
The author directly acknowledges that money can be used to measure value: > I’m going to tacitly accept [...] that “value” can meaningfully be expressed in terms of United States dollars That doesn't mean you can just sum up a bunch of dollar figures and have the total make any logical sense. Doubly so when you are arguing that the sum represents value you created and not just the values of things you interacted with. Like if a bank teller takes $5000 dollars and deposits it into a customer's account, they haven't created anywhere close to $5000 because the owner already had it when they walked through the doors of the bank. And if you add that number to the bank teller's wages and the price of a safe deposit box at the bank down the street, you haven't discovered the value of the transaction... all you've got is nonsense.

seoaeu 5y ago

Amusing that the original letter from Jeff Bezos doesn't list taxes paid as counting towards value provided to others. For a more 'normal' company that would be high on the list of ways they're contributing to society. But of course that doesn't work nearly as well when you're not actually paying much in taxes...

theonlybutlet 5y ago

In reality, the only measurable value wrt Amazon is it's retained net profit. For its shareholders, it is the net capital gain on their investment and dividends. Edit: Were it not for the above, assuming an efficient market, the resources would be allocated elsewhere and therefore they cannot lay claim to others profits and value add, considered a cost in their results.

animex 5y ago

This reminds me of Tesla's pricing page which shows your future gas savings deducted from the total cost of the car...

mensetmanusman 5y ago

Value is never created in a vacuum. If you could implement an idea that leverages 0.01$ of value from 500,000,000 people, you have yourself at least a $1,000,000 company.

lifeisstillgood 5y ago

>>> If I give you an apple and you give me an orange, the total amount of fruit in the economy remains constant. We can’t create fruit by bartering with it. We can only do so by foraging or cultivating an orchard. Isn't this principle the entire Financial industry?

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modeless 5y ago

> I’m going to tacitly accept some of Bezos’ underlying assumptions [...] I’m just meeting the claims on their own terms [...] > In a typical transaction, no value is created. If I give you an apple and you give me an orange, the total amount of fruit in the economy remains constant. Right here he has already failed to abide by his assertions in the previous paragraph. The transaction in fruit does create value because it transfers fruit from people who want it less to people who want it more. Improving the distribution of fruit in the world is valuable even when the total amount of fruit does not change. The value Bezos is talking about is not the same idea of "value" that this guy has in his head. Sure, maybe Bezos is overcounting his value. But arguments like the above are just missing the point.

JKCalhoun 5y ago
I thought Bezos was attaching a monetary amount ($) to that value though — so pointing out that a fruit swap is zero-sum, monetarily, seems on point.
- modeless 5y ago
  It's common to quantify value in units of dollars. It doesn't literally mean that money was printed.
greatgib 5y ago
I think that you did not grasp the concept of "value" that is used in the article. There is a difference between the general "value" and an amount of money that pre-exist anyway. In the same way, the "monay value you give to something" is not the "value" of the thing. For example, if you buy 10$ a stock that has a financial value of 100$, you had a good deal btut the stock value is still 100$. In the case of the apple transaction, if the price you got the apple is 10$, and now the product and conditions are the same, but because of the demand some people are ready to buy it 20$ from you. It was not 10$ of value created but just transferred. Someone got a bigger part of money and the other one has less money remaining. But the total amount of money stays the same globally.
- 5y ago

Trias11 5y ago

It's easy, depending how to ask question: Checks and Balances CSV: ============================================== Tourists,Cash Register,Bell guy 30,0,0 0,30,0 3,25,2

paxys 5y ago

Didn't see Bezos's original comments, but yeah they seem weird. He simply added up a bunch of random numbers from Amazon's balance sheet and said "see we created exactly this much value".

goldenkey 5y ago

To elucidate the bellhop problem, the $2 the bellhop has, should be subtracted from the $27 that the patrons paid. This leaves you with $25, which is the correct amount the hotel has after refunding $5.

bartimus 5y ago

> If I give you an apple and you give me an orange, the total amount of fruit in the economy remains constant. That's not entirely correct. The economy isn't a zero sum game. If person A has 2 apples and person B has 2 oranges. They trade 1 apple for 1 orange. Now they both have an apple and an orange. The value is increased for both parties.

A_non_e-moose 5y ago

Reminds me of the more adult 100$ debt riddle. Found it at econlib.org by David Henderson, but I've heard multiple variations before, so I have no idea where the original comes from. "It’s a slow day in some little town…….. The sun is hot….the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit. On this particular day a rich tourist from back west is driving thru town. He stops at the motel and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs in order to pick one to spend the night. As soon as the man walks upstairs, the owner grabs the bill and runs next door to pay his debt to the butcher. The butcher takes the $100 and runs down the street to retire his debt to the pig farmer. The pig farmer takes the $100 and heads off to pay his bill at the feed store. The guy at the Farmer’s Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her services on credit. She, in a flash rushes to the motel and pays off her room bill with the motel owner. The motel proprietor now places the $100 back on the counter so the rich traveler will not suspect anything. At that moment the traveler comes down the stairs, picks up the $100 bill, states that the rooms are not satisfactory, pockets the money & leaves. NOW,… no one produced anything…and no one earned anything…however the whole town is out of debt and is looking to the future with much optimism."

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Sniffnoy 5y ago
Link to the actual post: https://www.econlib.org/archives/2012/01/an_answer_to_a.html https://www.econlib.org/archives/2012/01/an_answer_to_a.html
bartkappenburg 5y ago
Hence the existence of a clearing house in the stockmarket: cross off debt and credit in the whole market. Every one in your story has 100 credit and 100 debt which makes them worth 0. Aligning that in the right way makes a lot of sense :-)
- cgb223 5y ago

maerF0x0 5y ago

> Money and labor are both more abstract than fruit, so there is a little bit of leeway to interpret employment transactions as being non-zero-sum. This paragraph gets into something i've been pondering about GDP/societal wealth. Imagine we have a carpenter and a plumber both sitting idle and who needs eachothers' services. If they cannot agree upon an exchange or price then the system loses out on the potential productivity. The system as a whole is made poorer by actors being disagreeable. I have often wondered how rich life could be if we were more agreeable to give to the other the gifts of our marginally unused productivity (rather than giving it to netflix, facebook, instagram, and tik-tok...)? Would poverty be erased, or other desirable things be achievable? Now look at the ideas of a minimum wage or of being frugal. Both are a kind of refusal to participate in the economy leaving behind marginal potential value creation. If we refuse to spend our money it doesnt fund development of projects, if we refuse to work at a certain rate we lose out on the goods that could have been built. Anyways that's a musing I was reminded of by this piece.

mdoms 5y ago
> I have often wondered how rich life could be if we were more agreeable to give to the other the gifts of our marginally unused productivity (rather than giving it to netflix, facebook, instagram, and tik-tok...)? You think life would be better if we all never stopped working and simply 'did our part' 16 hours a day without compensation?
- maerF0x0 5y ago
  that is approximately the most negative spin you could have made on my point. The point is that if the trade doesn't occur, both parties lose out on what good could be and sometimes we cannot actually see the good but could value the good of the other. I'm not saying everyone should go work for bezos for free because his utility will rise. But more like in normal community interpersonal relationships. Say a small business owner wants to use some services, but cannot afford an expensive experienced person like a large business could (Say a high priced contract engineer) during a quiet period the resource goes idle and the business loses out, when both could have had some value if one would be more agreeable and say "look, I'm not working right now and sure I'll work for X% off for that reason and because I like you" And where it fits with the commentary on minimum wage is that it technically would be illegal if that percent off dropped below minimum wage, then no trade could happen leading to vicious cycles rather than virtuous ones. The business that got its website built can make more sales and can pay more for high priced engineers. Whereas the business that cannot get a website built loses out on sales and cannot give any future work to the engineer. There's a sort of symbiosis in the health of the actors in the system and their ability to pay for generally good things.

gshulegaard 5y ago

This is an interesting article but it starts off on the wrong foot for me: > This is patently ridiculous. Every single dollar of compensation paid out is done transactionally: it is used to purchase labor. In a typical transaction, no value is created. This, as I understand it in a limited fashion, is not true. There is a concept of the velocity of money in which more value than the initial transaction is created: https://en.wikipedia.org/wiki/Velocity_of_money https://en.wikipedia.org/wiki/Velocity_of_money This is, in part I believe, why a nation's GDP can exceed it's nominal cash in circulation. In particular, the Great Depression was a period of low monetary velocity and yet staggering inflation; the term "stagflation" (stagnation + inflation) was coined to describe this phenomena. https://en.wikipedia.org/wiki/Stagflation https://en.wikipedia.org/wiki/Stagflation Which in turn calls into question the following criticism: > But however you look at it, taking full credit for every single dollar of compensation as value creation— as if Amazon, and not the US Mint, created those dollars, and as if the many, many millions of hours of labor consumed by the company in return were valueless— is a ghastly overstatement. While I would never want to make it seem like Amazon is some sort of altruistic entity who simply makes the lives of those on it's payroll better, it is not as ghastly an overstatement as claimed. There is a reason recovery from the Great Depression involved job creation through The New Deal and war-time production and not simply the US Treasury "creating those dollars". These kinds of economic inconsistencies continue throughout the post. In particular there seems to be a pervasive belief that Monetary Supply is finite/controlled by the Federal Reserve and therefore cannot be used to measure value creation: > But the value you created isn’t the money. The money already existed and was floating around the economy long before you picked up the brush. The value you created was in the art, which is now in someone else’s hands. This is a false premise. Dollar-value estimations of created value like GDP are often imperfect measurements, but they do exist; furthermore, they often exceed the nominal amount of financial notes in circulation. There also certainly is additional value that isn't captured by a dollar value, such as the value an owner places on a created piece of art, but that is not the same as no monetary value created. I don't know who the author is, but even my limited grasp of economic theory makes me question the main thrust of their arguments. But I also know my grasp of economic theory is threadbare at best, so perhaps I am completely off base.

ezrast 5y ago

kixiQu 5y ago

"Employees' contribution to Amazon is literally zero; they should be appreciative of all this Value we generate for them by giving them money" is a pretty rough thing to read in that shareholder letter, not gonna lie. That insulting of an implication could only make it into a final draft in such an obvious state if it really reflects how the top people think, and that's... rough.

necovek 5y ago

Heh, also reminds me of all the "piracy lost us this much" statements from Microsoft back in the day, and movie and music industry until recently (it's now "streaming nets us too little" instead). As if there would have been a guaranteed transaction at sticker prices for each and every illegally copied unit.

ShroudedNight 5y ago
Ah yes, the insidious cost of ringtone piracy: https://youtu.be/GZadCj8O1-0 https://youtu.be/GZadCj8O1-0

Animats 5y ago

This is why you always scroll down to the end for the GAAP financial statements. (Has anyone ever see an "adjustments to income" item which decreased reported profits?)

eruci 5y ago

The other dollar is included in the three dollars they got back. 9x3 + 2 = $30.

baryphonic 5y ago

This article is a complete mess from top to bottom and the author is literally doing the sham accounting from the brain teaser that he (erroneously) attributes to Bezos. I could go at length about everything wrong with it, but I'll take aim at one particular analogy he uses: the artist's painting. > Bezos claims that Amazon made $21 billion in net income for the year, and counts that as value created for shareholders. [...] If you spend $50 on art supplies and turn them into a painting worth $500, you have created $450 worth of value. And when you sell the painting, you end up with net $450 that you didn’t have before, because that’s the difference in values between what you consumed and what you produced. What!? No! Literally just before this paragraph is a passage claiming Amazon values its employees' time at $0. Now the author himself literally does this: in the story, the artist's labor is entirely unaccounted for. Where did the labor that produced the painting come from? Is it worth literally nothing? Did magical faeries come in the night and produce it? In reality, we have "opportunity costs": what we give up in order to get things we want. When we trade our labor, we give up not only the labor itself, but also the alternative uses of our time, namely leisure or maybe labor that is more enjoyable. The most valuable thing (subjectively to us) we give up is the "opportunity cost" of our labor. Certainly the artist's leisure is worth more than $0. > In this way, the amount of money you made is equal to the value you produced (we are assuming, like good little capitalists, that markets are efficient and that externalities don’t exist and all that). Externalities? Dafuq? Is this "art" an ugly billboard or something? Maybe the paint is quite pungent and makes the artist's roommates angry? Is the author just cargo culting from an anti-capitalist word bank without any clue about what the words mean? I think so. > But the value you created isn’t the money. The money already existed and was floating around the economy long before you picked up the brush. Oh, Christ, money supply is not the same as currency in circulation. We have M1 and M2, for instance. This "money" is more than just dollar bills, but includes checking accounts, savings accounts, even things like CDs. > The value you created was in the art, which is now in someone else’s hands. So while Amazon shareholders may be $21 billion richer than they were before, it’s not meaningful to say that value was created “for the shareholders”. It doesn’t matter whom value was created for— the shareholders would be the ones getting rich regardless. Okay, let's use an analogy that properly maps to what Amazon is doing. Let's consider someone who commissions an artist to produce an artwork which the commissioner intends to sell. The "total value" produced for the commissioner (using the admittedly obnoxious "profit in dollars" meaning above) would be the sale price of the art less the cost of supplies and the compensation for the artist. But this is literally how Amazon is using the meaning here! What value did the commissioner get? Well, he tied up his money in art supplies and an artist, and took the risk that he'd never get any of it back. Moreover, if we change this scenario back into the version the author himself presented, where the artist and commissioner are the same person, then the artist captures all of the value less cost of supplies. Isn't this exactly what Bezos is doing? I think it would be a much richer conversation to question whether the sainted Amazon Shareholders or the Archangel Bezos himself are engaging in much risk-taking these days, or just exploiting monopoly profits and political connections for returns beyond a risk-adjusted level, and whether this allows Amazon to give labor and "human capital" short shrift, but alas, this seems to elude our author. Regardless, shareholders are tying up their money in something illiquid, and so should be compensated at least a little bit for their trouble. The rest of the article is just as incoherent, sloppy and tendentious as this excerpt. And while the author is correct to criticize the concept of value as invoked by Bezos (and finance people in general), he accepts it for the sake of argument early on. So even the lone valid criticism is muddled and involves goalpost shifting.

SamvitJ 5y ago

This article starts of well, but quickly goes south. > In a typical transaction, no market value is created. If I give you an apple and you give me an orange, the total amount of fruit in the economy remains constant. We can’t create fruit by bartering with it. We can only do so by foraging or cultivating an orchard. Economics 101 begs to differ. Surprised at the level of economic illiteracy in this article (the author should read up on concepts like consumer surplus, labor markets, comparative advantage, economies of scale), given the interesting riddle it began with.

simongr3dal 5y ago
I'm pretty sure Marx would disagree with you on that. A transaction creates no extra value by itself. Just because we end up with a bigger use value through transactions doesn't mean any extra value was added to the world. Funnily enough that was the point of the article, Jeff Bezos letter was conflating different types of values and adding them together because they could all be measured in the same unit, dollars.
cmeacham98 5y ago
Read the associated footnote for that line.

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yossarian1408 5y ago

Good accounting, bad economics >In a typical transaction, no market value is created.[1] If I give you an apple and you give me an orange, the total amount of fruit in the economy remains constant. We can’t create fruit by bartering with it. We can only do so by foraging or cultivating an orchard. This is egregious. We no longer live in a world where trade is a zero sum game. Market value is created in every transaction. If I have an apple tree, and my neighbour has an orange tree, and I want to eat oranges and my neighbour wants to eat apples, we might: A) Forage for the seeds of the respective tree we want, cultivate an area to grow it, spend a significant amount of time looking after it while it grows, and all this for the risk of it dying or being eaten by bugs before it fruits, or B) Trade surplus fruit of our respective trees for the respective fruit we want to consume. While yes, in accounting terms we have traded 1 fruit for 1 fruit, in economic terms we have traded 1 fruit for 1 fruit as well as the time/effort/cost associated with option A. This is because how economists see value is different to how accountants see value. This is represented in the concept of 'opportunity cost'. >But however you look at it, taking full credit for every single dollar of compensation as value creation— as if Amazon, and not the US Mint, created those dollars, and as if the many, many millions of hours of labor consumed by the company in return were valueless— is a ghastly overstatement. Amazon didn't create the money. They created the value. And this isn't to say that the millions of hours of labour spent were valueless, but it is a fact that if someone is working for Amazon, it is because it is the best value-per-hour they could get. Yes, in the absence of Amazon these people would probably all have other jobs, but the fact that they are working at Amazon and not these other jobs is evidence that Amazon is creating value in these people's lives above what would exist in the absence of Amazon existing. >It doesn’t matter whom value was created for— the shareholders would be the ones getting rich regardless. >And to be clear, using profit to measure value created is also fraught. Except this is exactly the point of capitalism. It absolutely matters to whom the value is created for. The shareholders will only get rich if value is created for society. No rational person would make a purchase at their own expense, and the circumstances where the marginal value of utility is 1 to 1 are extremely rare, if possible at all. Outside of monopoly or oligarchy markets, value necessitates a profit-incentive. > These are three completely different measurements: one is profit, one is savings, and one is time. They cannot be added together to anything meaningful. They are all measurements of value, and the dollar figure attached is the dollar figure of this added value. The author has done the same thing that he claims Bezos is doing, and as illustrated in the opening scenario. Juxtaposition of accounting, mathematics and economics so as to suit the purposes of getting to an answer that the author envisions. Except this time the aim isn't to educate but to mislead.

riantogo 5y ago

I arrive at a village. I see 100 villagers with $1 each. I extract $1 from all, pocket $20, give $80 to one villager. Resume: Made a villager extremely wealthy ($80 value created). Fucked up the whole village.

perryizgr8 5y ago

The whole point of any trade is that I give you something that I value less, but you value more. I have 10,000 apples just lying around. You have $10,000 in your bank account. So you pay me a dollar and I give you an apple. To you, $1 was more than fair for the apple, because you were hungry for apples. To me, 1 less apple for 1 more dollar was also more than fair, because I want to buy other things. So when Amazon pays 100k to an engineer, it is not a zero sum transaction. To the engineer, 100k was worth more than his time. To Amazon, the work done by the engineer in that time was worth more than 100k. Value was created. How much value? I don't know, but definitely greater than zero.

badhabit 5y ago

10+10+10 = 30 = 25+5 = 25 + 2 + (1+1+1) 9+9+9 = 25+2

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lucideer 5y ago

> The most egregious misrepresentation of value creation in the letter is [...] compensation to employees. This is patently ridiculous. Every single dollar of compensation paid out is done transactionally: it is used to purchase labor. In a typical transaction, no market value is created. [...] > Money and labor are both more abstract than fruit, so there is a little bit of leeway to interpret employment transactions as being non-zero-sum. [...] But however you look at it, taking full credit for every single dollar of compensation as value creation— as if Amazon, and not the US Mint, created those dollars, and as if the many, many millions of hours of labor consumed by the company in return were valueless— is a ghastly overstatement. It's obviously sensible for the author to focus on Amazon & Bezos' letter in the blogpost instead of casting a broad non-specific net, but I feel like this very argument is the main one used by various government ministers / congressmen / economists / etc. ad nauseum to justify various support & investments in large multinationals and the so-called "job creation"/"value creation" they offer national economies throughout the world. Time. And. Time. Again. And it has never made any sense to me for these exact reasons. It also strikes me as a pretty basic fallacy that should not hold up to any scrutiny when used by high-profile decision-makers like this.*