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> The problem is we generally don't have a language for distinguishing between the two. There is a language for this sort of stuff, it's part of economics, the

> The problem is we generally don't have a language for distinguishing between the two. There is a language for this sort of stuff, it's part of economics, they just don't teach people much of it by default in our public school system. I think some of the terms you're looking for are productivity, rent-seeking, etc. More and more I think economics should be a bigger component of K-12 education even if it means pushing out some things to college like chemistry or calculus (or really, even CS). Basically all the wealthy first world countries are social democracies, with a large role for government spending/regulation in addition to the private sector. Getting more people to see the economy through an economic lens (as a complex series of cause-effect relationships and not a more simple story like "who are the bad people", which politics often devolves to) might help us as a country better connect the actions we need to take to the outcomes we desire.

jollybean 5y ago
Unfortunately, we don't have a language for this even in the domain of economics. The difference between zero-sum wealth capture, and 'growing the pie' is a point of discussion, yes, but it's rarely discussed and we don't do any real discrimination on it. Where is the economists lists of businesses that create the most surplus value? Imagine if we did valuation by consumer surplus, instead of stock value. None of that is part of the discussion. We generally don't even tax differently between those who extract and those who generate surpluses. Of course, it's a very difficult thing to measure.
- throwaway34241 5y ago
  I'll try to explain the terms I think apply here - I'm not an economist but I find the subject very interesting and so read about it a fair amount. I think what you call "value creation" (growing the total size of the pie) is what economists would call "productivity", and it doesn't include zero-sum wealth capture. The idea that productivity is ultimately what makes a country prosperous and not money or gold I believe dates back to Adam Smith's "An Inquiry into the Nature and Causes of the Wealth of Nations". If you look at the shortest intro to modern macroeconomics that I know of [1], productivity is still basically the first thing mentioned. The opposite of growing the pie is rent-seeking [2] - trying to get a bigger piece for yourself without growing it. Businesses that face a lot of competition have trouble just unilaterally taking a big piece of the pie, so the focus on this is businesses that are monopoly-like (or at least have a lot of market power). I think some of the courtroom arguments in the ongoing Apple vs Epic trial are essentially about value creation vs rent-seeking. But these two factors tie in to many aspects of public policy - when making projections about the effect of corporate tax rate changes on growth, economists are probably estimating what percent of profits are due to monopoly rent. The reason for doing infrastructure investment is long-run productivity growth. Some countries have implemented a land-value tax because it falls on rent instead of value-creation. The more I learn about economics, the more I feel that our (economic) problems don't really stem from a lack of effort on the part of economists to understand things - I think the obvious things have usually been considered already (although many things are hard to measure). More often the problem seems to stem from sound economic advice just getting ignored by our political processes. [1] https://www.economicprinciples.org/ https://www.economicprinciples.org/ [2] https://en.wikipedia.org/wiki/Rent-seeking https://en.wikipedia.org/wiki/Rent-seeking
  - jollybean 5y ago
    You're close. Productivity, classically i.e. 'stuff per labour input' - would be a good measure. But productivity is ultimately measured in profits. If Nike is able to capture massive surpluses by changing their logo and making it more hip, it's deemed more 'productive' effectively, even though it really isn't in the classical sense. I guess you could argue their 'cool logo' does improve people's lives but that's different than the difference between a 'good shoe' and a crap, 1960's one. And for services, which make up much of the economy? It's hard to measure. And yes, rent-seeking is the other side, but probably 'the best' companies are 'rent-seekers' in some way, using their value chain power or entrenchment to generate profits. But how much is due to their innovation vs. power is really hard to tell. Like the AppStore debacle ... what if Apple subsidized the iPhone distribution to recoup profits in their AppStore monopoly? What if if the judge rules they have to open up their AppStore to competition, thereby meaning they have to jack up iPhone prices? Would consumers win in the end? Hard to tell. (Of course, Apple makes a lot of money on iPhones, I'm just stretching reality to provide an example) One way to do it would be to measure aggregate consumer surplus, but we don't or can't do that.
    - developer93 5y ago
      You're missing that apple isn't a monopoly, there's a limit to how much people are willing to pay for an iphone.
  - ScottBurson 5y ago
    You might find Matt Stoller's blog interesting: https://mattstoller.substack.com/ https://mattstoller.substack.com/

jollybean 5y ago

Unfortunately, we don't have a language for this even in the domain of economics. The difference between zero-sum wealth capture, and 'growing the pie' is a point of discussion, yes, but it's rarely discussed and we don't do any real discrimination on it. Where is the economists lists of businesses that create the most surplus value? Imagine if we did valuation by consumer surplus, instead of stock value. None of that is part of the discussion. We generally don't even tax differently between those who extract and those who generate surpluses. Of course, it's a very difficult thing to measure.

throwaway34241 5y ago
I'll try to explain the terms I think apply here - I'm not an economist but I find the subject very interesting and so read about it a fair amount. I think what you call "value creation" (growing the total size of the pie) is what economists would call "productivity", and it doesn't include zero-sum wealth capture. The idea that productivity is ultimately what makes a country prosperous and not money or gold I believe dates back to Adam Smith's "An Inquiry into the Nature and Causes of the Wealth of Nations". If you look at the shortest intro to modern macroeconomics that I know of [1], productivity is still basically the first thing mentioned. The opposite of growing the pie is rent-seeking [2] - trying to get a bigger piece for yourself without growing it. Businesses that face a lot of competition have trouble just unilaterally taking a big piece of the pie, so the focus on this is businesses that are monopoly-like (or at least have a lot of market power). I think some of the courtroom arguments in the ongoing Apple vs Epic trial are essentially about value creation vs rent-seeking. But these two factors tie in to many aspects of public policy - when making projections about the effect of corporate tax rate changes on growth, economists are probably estimating what percent of profits are due to monopoly rent. The reason for doing infrastructure investment is long-run productivity growth. Some countries have implemented a land-value tax because it falls on rent instead of value-creation. The more I learn about economics, the more I feel that our (economic) problems don't really stem from a lack of effort on the part of economists to understand things - I think the obvious things have usually been considered already (although many things are hard to measure). More often the problem seems to stem from sound economic advice just getting ignored by our political processes. [1] https://www.economicprinciples.org/ https://www.economicprinciples.org/ [2] https://en.wikipedia.org/wiki/Rent-seeking https://en.wikipedia.org/wiki/Rent-seeking
- jollybean 5y ago
  You're close. Productivity, classically i.e. 'stuff per labour input' - would be a good measure. But productivity is ultimately measured in profits. If Nike is able to capture massive surpluses by changing their logo and making it more hip, it's deemed more 'productive' effectively, even though it really isn't in the classical sense. I guess you could argue their 'cool logo' does improve people's lives but that's different than the difference between a 'good shoe' and a crap, 1960's one. And for services, which make up much of the economy? It's hard to measure. And yes, rent-seeking is the other side, but probably 'the best' companies are 'rent-seekers' in some way, using their value chain power or entrenchment to generate profits. But how much is due to their innovation vs. power is really hard to tell. Like the AppStore debacle ... what if Apple subsidized the iPhone distribution to recoup profits in their AppStore monopoly? What if if the judge rules they have to open up their AppStore to competition, thereby meaning they have to jack up iPhone prices? Would consumers win in the end? Hard to tell. (Of course, Apple makes a lot of money on iPhones, I'm just stretching reality to provide an example) One way to do it would be to measure aggregate consumer surplus, but we don't or can't do that.
  - developer93 5y ago
    You're missing that apple isn't a monopoly, there's a limit to how much people are willing to pay for an iphone.
- ScottBurson 5y ago
  You might find Matt Stoller's blog interesting: https://mattstoller.substack.com/ https://mattstoller.substack.com/