6 ms·

>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 p

by 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.
    - fighterpilot 5y ago
      The general way to measure value creation would be to sum the difference between what both parties would be willing to transact for something with what they actually transact for it. In your example, the value creation is $0.2 ($0.1+$0.1) due to the existence of a perfect substitute. In other cases the value creation may be 10x the turnover or higher. For example, if there's a single surgeon that can give me a life saving procedure that costs me $50k when I would've happily paid $500k, then the value creation for me is $450k and perhaps $20k for the surgeon. In the case of Amazon, their numbers are probably an exaggeration, yes. They've assumed that the turnover = value creation, which is false reasoning, as we both recognize. It might be higher or lower. The real number might be 0.4x of what they stated, if I was to hazard a guess. But since the whole idea of value creation flies over the heads of so many people (and this misunderstanding of basic economics has profound policy implications), Amazon's exaggeration here is not a point I wish to focus on.
      - InitialLastName 5y ago
        ... Isn't TFA entirely about Amazon exaggerating their value creation and abusing the fact that said concept flies over many peoples' heads?
        5y ago
zajio1am 5y ago
Exactly. This is just a level of ignorance that for me makes whole article not worth reading.
- intergalplan 5y ago
  Which part's ignorant? If I pay $10,000 for land and $50,000 in materials and pay $90,000 in labor to produce a building that I sell for $200,000, did I create $50,000 in value? $140,000 because for some reason my labor costs count as value creation? $200,000 because all costs count as value creation? [EDIT] Ah, I think I see, you don't like their assigning zero value to changes in distribution of goods. That makes sense.
  - zajio1am 5y ago
    > Which part's ignorant? Statements like: "In a typical transaction, no value is created." > If I pay $10,000 for land and $50,000 in materials and pay $90,000 in labor to produce a building that I sell for $200,000, did I create $50,000 in value? $140,000 because for some reason my labor costs count as value creation? In terms of production (value creation), we consider separately short-term inputs (e.g. materials) compared to long-term resources (capital, labor). In this example i would say that organization as a whole created $140000 in value using its capital and labour and used $90000 to compensate its labor (some other part to compensate capital, pay taxes and so on). This is essentially how GDP is computed, and also how VAT (value-added tax) is taxed.
simonh 5y ago
Even the fruit analogy is laughably wrong. If I have a basket of oranges and you have a string of sausages, and we swap some of each, there are no more sausages or oranges but the diet and nutrition of both of us has significantly improved. That's why merchants create value, buying from people with a surplus and selling to people with a need. You can kind of understand why medieval nobles didn't understand this, but in this day and age it's not exactly rocket science. He gives his socialist credentials away later with the art example, only a worker making something can possibly add any value. It's the classic theory that managers and investors are all parasites and only workers create value. Again, value can absolutely be created by identifying an imbalance in supply (labour) and demand (products and services) and then working out how to resolve it. Somebody has to do it. I'm not saying Bezos' sums are credible or accurate or even mean anything, but this critique is crazily off base.
- albatruss 5y ago
  I don't know if the author is a socialist but Marx himself would certainly agree with your first paragraph. In his own words: https://www.marxists.org/archive/marx/works/1867-c1/ch05.htm#1a https://www.marxists.org/archive/marx/works/1867-c1/ch05.htm...
  - simonh 5y ago
    I’m not sure how you can think that if you read Marx. He’s explicit that merchants are parasitic because he makes an artificial distinction between use value and exchange value. From your link: “ If equivalents are exchanged, no surplus-value results, and if non-equivalents are exchanged, still no surplus-value. Circulation, or the exchange of commodities, begets no value.” He makes the distinction so that he can special privilege the value of labour as productive “use value”, but the value of all goods derive from their use. The job of a merchant is to buy something from someone who has no or little use for it, and sell it to someone who has greater use for it. In the same text he claims that no value can be created by converting a currency note into change, but this is trivially not true. With coins I can buy things from people who can’t change a note. I can also buy things from a vending machine that won’t accept notes. In some circumstances coins are more useful, in others notes are. That’s why people expend time and effort to go to banks to exchange one for the other. Marx cannot accept any of this though, because if he does his entire economic analysis of capitalism comes crashing down. For Marx distribution of goods creates no value. Seriously, read the text. He had no answer to the question why anyone would ever pay to transport a product from a factory to a purchaser. No value can possible be created by doing this. Really.
kixiQu 5y ago
There is a directly following paragraph about how this exchange is not exactly zero-sum, but so far from being representable by the dollar value changing hands that it doesn't matter for the purposes of identifying the value as $91 billion.
intergalplan 5y ago
How's it nonsense? If I buy $499 dollars at face-value and sell them for $500 there's no possible justification for the claim that I created $500 of value. Perhaps I created $1. Paying for labor is absolutely as transactional as paying for other inputs to your business. Because you (hopefully) create marginal value on top of that comp doesn't mean the total comp is your value creation. You can't just add total employee comp to your "value created" pile. There's maybe some marginal value creation you could kind-of claim in that your presence increased employee comp over some hypothetical world where you didn't exist—but that's getting well into bullshit territory, since there's no way to know some competitor you crushed wouldn't have ended up creating more total value and paying their employees even more. It's pure fantasy.
- ikeboy 5y ago
  To be clear, I object to this sentence as nonsensical: >In a typical transaction, no value is created. As I explained, in typical transactions value is created for both parties.
  - antisthenes 5y ago
    > As I explained, in typical transactions value is created for both parties. The value created in a transaction is orthogonal to the total sum of money exchanged in the transaction. That was the meaning of the criticism. You are correct though in that the author worded it very unfortunately, which undermined the critique.
mckeed 5y ago
The value the employer gets is double-counted later as part of the profit. The value to employees is tricky. Without Amazon they might make more from a competitor with less market power. Without the industry, they might make more selling or transporting things directly.
JKCalhoun 5y ago
> the worker gets value because they get paid more than the the minimum they'd be willing to work for I can't find technical fault with your comment, but I think we should be clear, very desperate people will work for nearly nothing.
ezrast 5y ago
I'm sorry for being frustrating! This criticism is valid, and I've edited the article to clarify that I meant market value. I hope that makes it less nonsensical.
- sriram_malhar 5y ago
  I think it might cause less confusion if you moved the end-note to the beginning.
anigbrowl 5y ago
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. The worker does not get value in that arrangement. The employer is (often but not always) a price maker, the worker is (often but not always) a price taker. This can change depending on whether there are inelasticities of supply or demand.
- ikeboy 5y ago
  Price takers still get value, since the price they're taking is above their reservation price. The employer may capture more of the total surplus if they have market power.
  - anigbrowl 5y ago
    I don't regard that as value; your reservation price is what you can't afford to go below, not what you want.
    - ikeboy 5y ago
      Of course you don't want the reservation price; a transaction at that price provides no value to you by definition. You prefer a transaction at a higher price to one at the reservation price. Satisfying that preference is valuable.

by ikeboy 5y ago

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.
  - fighterpilot 5y ago
    The general way to measure value creation would be to sum the difference between what both parties would be willing to transact for something with what they actually transact for it. In your example, the value creation is $0.2 ($0.1+$0.1) due to the existence of a perfect substitute. In other cases the value creation may be 10x the turnover or higher. For example, if there's a single surgeon that can give me a life saving procedure that costs me $50k when I would've happily paid $500k, then the value creation for me is $450k and perhaps $20k for the surgeon. In the case of Amazon, their numbers are probably an exaggeration, yes. They've assumed that the turnover = value creation, which is false reasoning, as we both recognize. It might be higher or lower. The real number might be 0.4x of what they stated, if I was to hazard a guess. But since the whole idea of value creation flies over the heads of so many people (and this misunderstanding of basic economics has profound policy implications), Amazon's exaggeration here is not a point I wish to focus on.
    - InitialLastName 5y ago
      ... Isn't TFA entirely about Amazon exaggerating their value creation and abusing the fact that said concept flies over many peoples' heads?
      - 5y ago

zajio1am 5y ago

Exactly. This is just a level of ignorance that for me makes whole article not worth reading.

intergalplan 5y ago
Which part's ignorant? If I pay $10,000 for land and $50,000 in materials and pay $90,000 in labor to produce a building that I sell for $200,000, did I create $50,000 in value? $140,000 because for some reason my labor costs count as value creation? $200,000 because all costs count as value creation? [EDIT] Ah, I think I see, you don't like their assigning zero value to changes in distribution of goods. That makes sense.
- zajio1am 5y ago
  > Which part's ignorant? Statements like: "In a typical transaction, no value is created." > If I pay $10,000 for land and $50,000 in materials and pay $90,000 in labor to produce a building that I sell for $200,000, did I create $50,000 in value? $140,000 because for some reason my labor costs count as value creation? In terms of production (value creation), we consider separately short-term inputs (e.g. materials) compared to long-term resources (capital, labor). In this example i would say that organization as a whole created $140000 in value using its capital and labour and used $90000 to compensate its labor (some other part to compensate capital, pay taxes and so on). This is essentially how GDP is computed, and also how VAT (value-added tax) is taxed.

simonh 5y ago

Even the fruit analogy is laughably wrong. If I have a basket of oranges and you have a string of sausages, and we swap some of each, there are no more sausages or oranges but the diet and nutrition of both of us has significantly improved. That's why merchants create value, buying from people with a surplus and selling to people with a need. You can kind of understand why medieval nobles didn't understand this, but in this day and age it's not exactly rocket science. He gives his socialist credentials away later with the art example, only a worker making something can possibly add any value. It's the classic theory that managers and investors are all parasites and only workers create value. Again, value can absolutely be created by identifying an imbalance in supply (labour) and demand (products and services) and then working out how to resolve it. Somebody has to do it. I'm not saying Bezos' sums are credible or accurate or even mean anything, but this critique is crazily off base.

albatruss 5y ago
I don't know if the author is a socialist but Marx himself would certainly agree with your first paragraph. In his own words: https://www.marxists.org/archive/marx/works/1867-c1/ch05.htm#1a https://www.marxists.org/archive/marx/works/1867-c1/ch05.htm...
- simonh 5y ago
  I’m not sure how you can think that if you read Marx. He’s explicit that merchants are parasitic because he makes an artificial distinction between use value and exchange value. From your link: “ If equivalents are exchanged, no surplus-value results, and if non-equivalents are exchanged, still no surplus-value. Circulation, or the exchange of commodities, begets no value.” He makes the distinction so that he can special privilege the value of labour as productive “use value”, but the value of all goods derive from their use. The job of a merchant is to buy something from someone who has no or little use for it, and sell it to someone who has greater use for it. In the same text he claims that no value can be created by converting a currency note into change, but this is trivially not true. With coins I can buy things from people who can’t change a note. I can also buy things from a vending machine that won’t accept notes. In some circumstances coins are more useful, in others notes are. That’s why people expend time and effort to go to banks to exchange one for the other. Marx cannot accept any of this though, because if he does his entire economic analysis of capitalism comes crashing down. For Marx distribution of goods creates no value. Seriously, read the text. He had no answer to the question why anyone would ever pay to transport a product from a factory to a purchaser. No value can possible be created by doing this. Really.

kixiQu 5y ago

There is a directly following paragraph about how this exchange is not exactly zero-sum, but so far from being representable by the dollar value changing hands that it doesn't matter for the purposes of identifying the value as $91 billion.

intergalplan 5y ago

How's it nonsense? If I buy $499 dollars at face-value and sell them for $500 there's no possible justification for the claim that I created $500 of value. Perhaps I created $1. Paying for labor is absolutely as transactional as paying for other inputs to your business. Because you (hopefully) create marginal value on top of that comp doesn't mean the total comp is your value creation. You can't just add total employee comp to your "value created" pile. There's maybe some marginal value creation you could kind-of claim in that your presence increased employee comp over some hypothetical world where you didn't exist—but that's getting well into bullshit territory, since there's no way to know some competitor you crushed wouldn't have ended up creating more total value and paying their employees even more. It's pure fantasy.

ikeboy 5y ago
To be clear, I object to this sentence as nonsensical: >In a typical transaction, no value is created. As I explained, in typical transactions value is created for both parties.
- antisthenes 5y ago
  > As I explained, in typical transactions value is created for both parties. The value created in a transaction is orthogonal to the total sum of money exchanged in the transaction. That was the meaning of the criticism. You are correct though in that the author worded it very unfortunately, which undermined the critique.

mckeed 5y ago

The value the employer gets is double-counted later as part of the profit. The value to employees is tricky. Without Amazon they might make more from a competitor with less market power. Without the industry, they might make more selling or transporting things directly.

JKCalhoun 5y ago

> the worker gets value because they get paid more than the the minimum they'd be willing to work for I can't find technical fault with your comment, but I think we should be clear, very desperate people will work for nearly nothing.

ezrast 5y ago

I'm sorry for being frustrating! This criticism is valid, and I've edited the article to clarify that I meant market value. I hope that makes it less nonsensical.

sriram_malhar 5y ago
I think it might cause less confusion if you moved the end-note to the beginning.

anigbrowl 5y ago

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. The worker does not get value in that arrangement. The employer is (often but not always) a price maker, the worker is (often but not always) a price taker. This can change depending on whether there are inelasticities of supply or demand.

ikeboy 5y ago
Price takers still get value, since the price they're taking is above their reservation price. The employer may capture more of the total surplus if they have market power.
- anigbrowl 5y ago
  I don't regard that as value; your reservation price is what you can't afford to go below, not what you want.
  - ikeboy 5y ago
    Of course you don't want the reservation price; a transaction at that price provides no value to you by definition. You prefer a transaction at a higher price to one at the reservation price. Satisfying that preference is valuable.