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I was posting about returns on investment, not entrepreneurship. Some entrepreneurs really are takings significant risks, beyond the risk that the huge numbers

I was posting about returns on investment, not entrepreneurship. Some entrepreneurs really are takings significant risks, beyond the risk that the huge numbers in their accounts become somewhat less huge. Some are even taking more risk than their employees. Investors generally are not—again, their most-likely failure state is still being rich and in the absolute worst-case they lose enough that they have to actually work for their income... like everyone else. Their absolute worst (but unlikely) case looks suspiciously similar to most folks' best (likely) case: a well-paid, fairly well-respected (among we mere plebs, anyway) job. They are taking on a great deal of risk in one sense, but are hardly taking on any in another, arguably more meaningful, sense. I've repeatedly seen people use risk to justify returns on capital in relation to wages—but the risk is all bullshit, in many cases. Again, I'm not claiming that investment shouldn't yield returns, but I've seen the "risk" argument used to justify income inequality, while the actual real-world risk workers & capital are exposed to are the inverse of what that would imply. Mine is essentially an argument for the marginal dis-utility of risk, I guess. "Capital deserves a huge up-side for the moral reason that investors take great risk" is a BS argument, IMO, yet one that crops up from time to time. I don't think "deserves" has anything to do with it, and I don't think that framing holds up to any amount of scrutiny. The reason this was relevant is that you see similar arguments for why CEOs are so well-compensated—"if things go poorly, they'll see the consequences for it!" Except the "consequences" (short of actually criminal activity, and even then, see e.g. Wells Fargo) look an awful lot like what would be a life-changing-for-generations windfall for normal folks. Their worst day, after all of the shit has hit all of the fans, would be 99+% of people's best day of their life. So... is that, meaningfully, risk that justifies crazy-high compensation? My objection isn't even that the compensation is high, but the way supposed risk is used to justify it. Their compensation is, for a bunch of reasons, a fact, but I don't think "it's fair because they take on so much risk" is even a little valid. More likely is that it's not, by many folks' reckoning, anywhere near "fair", and that's just how the system, and perhaps life, is. Investment is, largely, similar, once you're past the smallest of small-fry investors, or people investing in their own small business ventures. [EDIT] To be clear, I'm not arguing that investors (and certainly not arguing that entrepreneurs, in general) do not expose themselves to risk. Of course they do. Lots of it, by some entirely-reasonable reckoning. Rather, I think the kind of risk makes trying to use that as some kind of moral justification for their returns, to be blunt, extremely dumb.

nostrademons 5y ago
I'm speaking of causality, not justice. I agree that talking in terms of what people "deserve" isn't particularly helpful. The way I look at it, capitalism is a big super-organism and we're just cells that make it up. Do you shed a tear when your skin cells slough off or your gut microbiome comes out in your shit? Similarly, capitalism as a system is incapable of caring what happens to the individual workers that make it up. And then my interest is primarily in understanding why does the system function the way it does and secondarily which organ should I try to occupy myself, given how it functions. Questions about why people choose (not) to occupy various roles or what's holding them back this are very germane. Up-thread, I listed a bunch of CEO-like or investor-like roles that people can occupy without any particular connections or cultural capital, merely by looking the part. Why don't more people go for them? After all, another property of capitalism is that lucrative positions attract competition, and in the absence of barriers to entry, the profit gets competed away. Why hasn't this happened with CEOs? Arguably, it is happening - more people are starting startups or micro-businesses and playing the CEO role than in the 80s/90s, and we're posting this on the forum of an accelerator devoted to helping people with this trend. I've played both the founder/CEO role and the lowly-engineer role, and currently am back in the lowly-engineer role because I realized I enjoy it a whole lot more (and hence am more effective in it). So there's some personal experience backing it up, in both the pleb and the capitalist role.
- handrous 5y ago
  OK, I think we probably at least mostly agree on the particular thing I was originally posting about—the risk of investments, to the investor class, representing a kind of risk that's incommensurate with the risks ordinary workers face in their situation, being a whole other kind of thing, and not justifying in any kind of moral "ought" sense returns on investment (or, following similar arguments, very high CEO comp) in relation to worker pay. These arguments do see some use, and IMO they're simply terrible, both for explanatory power and for the actual moral content of the argument. > Why don't more people go for them? This is definitely an interesting area to explore, and I think it does partly relate to the rest of our discussion: if the key to winning big is to keep taking shots until you score (this seems to be the most-commonly-advanced route to success in entrepreneurship and investing, both), the kind of risk that "taking shots" entails makes a huge difference. If it means the second-from-the-left number in your net worth dropping by one, but nothing else about your life changing, well, that's not so bad. Might go right out and take another "shot" immediately. Hell, do two or three at once. You could make several attempts before deciding maybe you're just not cut out for this, without much risk to your everyday life. If it means: leaving your job and losing all stable income because you're not yet high enough in the hierarchy to be permitted multiple well-paid simultaneous jobs and are subject to far-reaching non-competes, exclusivity, or IP clauses; having to deal with marketplace health insurance & costs at the same time that's happening (maybe for a family!); dropping more money on projecting an image of success or of being the right kind of person for investors to "believe in" and on networking; all that before before you even get to the part where you put the bulk of your savings into the company & product itself; and with the most likely outcome being really bad and leaving you needing years to recover for another shot, assuming you ever do—I'd say that's at least part of why people don't bother. I do not think this is the only reason people who aren't already quite well-off don't "shoot for the stars", but it's a not-insignificant part of it. Background and family also advantage people in business just like anything else (see also: Hollywood dynasties) by providing not just good connections for networking, but direct, inside knowledge about how things work in fact, not just on paper. There are, truly, lots of people who just haven't a clue how to, say, start a business, seek investment, et c., so much so that it wouldn't even occur to them as a possible course of action even if a great opportunity were handed to them on a platter. Their understanding of the space is so weak, as they've had so little exposure to it, that they don't know what's possible, so don't know what they could try, even if they were willing to go figure out the "how" (which willingness is, admittedly, far from a given). It's a widespread case of don't-know-what-they-don't-know for practically the entire body of knowledge required to launch a business, and it's the state most people live their whole lives in. Some do find their way out of it. Others are simply born to the right circumstances to learn all about this with little effort, and may not even realize how uncommon are the thousands of little pieces of info they picked up by existing around the right people during their formative years. I'd add, as an aside, that founder-CEOs may very well not be in the capitalist class, really. Founder-CEOs who don't start with lots of capital may in fact be taking both the risk-in-a-finance-sense that (say) an angel investor does, measured in cold dollar terms, plus the totally different, actual, can-I-put-food-on-the-table-next-month risk common to ordinary workers. That's the subset of the "job creator" category, if you will, that really is taking on meaningful risk, and doing hard work besides. > After all, another property of capitalism is that lucrative positions attract competition, and in the absence of barriers to entry, the profit gets competed away. Why hasn't this happened with CEOs? Eh, that's a property of ideal markets, not of capitalism, which shouldn't get the credit for everything that markets do. In practice (I'm sure this isn't news to you–I'm just structuring a line of reasoning here) things are much messier, and IMO sky-high executive compensation is all tied up in out-of-control principal agent problems and just-enough-removed-you-can't-prosecute self-dealing that's widespread at the highest levels of our economy, to the point of practically being the defining feature of its operation. One of the major barriers to entry, in this case, is having something to offer—personally, or (better) via family & friends connections, or through control you can exert over businesses you're already involved in—to the people selecting for CEO roles or board seats, even if it's only the future potential of doing a few favors for the right folks, and nothing's ever even implied out loud. Happily for the corrupt, the same traits that make these kinds of arrangements and mutual-aid-for-the-rich environments possible can also be justified for business reasons—well, having high-level personal and family connections with several other businesses will help with sales, right? And having already made money is a sign that this candidate is good at business (never mind the family money & connections that put these endeavors on easy-mode). So we'd better hire the Yale MBA who comes from money, has a cousin in congress, and could already, at least, pay their kids through prep school and college without working another day in their life. Down in mid-size company territory, even, you see similar stuff, thought pedigrees are (of course) a bit less impressive. Kids groomed to inherit a CEO position, grandkids shipped off to start in a high-level management position at some golfing buddy's other mid-sized company to lever them up to CEO candidacy at a smallish publicly-traded company later, that kind of thing. At all levels, companies performing acquisitions to bail out friends, family, and business allies (who'll return the favor later). I have a sense this has gotten worse over the past decades, but have not done the legwork to prove it. This is part of a broader (also very much "gut") sense I have that we, as in humanity as a whole, are getting better at playing games and at identifying them in larger systems, in a game-theoretical sense, to the detriment of anything that's not aligned with those games, while we're also getting worse at discouraging people (using means outside the strict ruleset) from playing these to the letter of the rules rather than in the spirit of the rules.

nostrademons 5y ago

I'm speaking of causality, not justice. I agree that talking in terms of what people "deserve" isn't particularly helpful. The way I look at it, capitalism is a big super-organism and we're just cells that make it up. Do you shed a tear when your skin cells slough off or your gut microbiome comes out in your shit? Similarly, capitalism as a system is incapable of caring what happens to the individual workers that make it up. And then my interest is primarily in understanding why does the system function the way it does and secondarily which organ should I try to occupy myself, given how it functions. Questions about why people choose (not) to occupy various roles or what's holding them back this are very germane. Up-thread, I listed a bunch of CEO-like or investor-like roles that people can occupy without any particular connections or cultural capital, merely by looking the part. Why don't more people go for them? After all, another property of capitalism is that lucrative positions attract competition, and in the absence of barriers to entry, the profit gets competed away. Why hasn't this happened with CEOs? Arguably, it is happening - more people are starting startups or micro-businesses and playing the CEO role than in the 80s/90s, and we're posting this on the forum of an accelerator devoted to helping people with this trend. I've played both the founder/CEO role and the lowly-engineer role, and currently am back in the lowly-engineer role because I realized I enjoy it a whole lot more (and hence am more effective in it). So there's some personal experience backing it up, in both the pleb and the capitalist role.

handrous 5y ago
OK, I think we probably at least mostly agree on the particular thing I was originally posting about—the risk of investments, to the investor class, representing a kind of risk that's incommensurate with the risks ordinary workers face in their situation, being a whole other kind of thing, and not justifying in any kind of moral "ought" sense returns on investment (or, following similar arguments, very high CEO comp) in relation to worker pay. These arguments do see some use, and IMO they're simply terrible, both for explanatory power and for the actual moral content of the argument. > Why don't more people go for them? This is definitely an interesting area to explore, and I think it does partly relate to the rest of our discussion: if the key to winning big is to keep taking shots until you score (this seems to be the most-commonly-advanced route to success in entrepreneurship and investing, both), the kind of risk that "taking shots" entails makes a huge difference. If it means the second-from-the-left number in your net worth dropping by one, but nothing else about your life changing, well, that's not so bad. Might go right out and take another "shot" immediately. Hell, do two or three at once. You could make several attempts before deciding maybe you're just not cut out for this, without much risk to your everyday life. If it means: leaving your job and losing all stable income because you're not yet high enough in the hierarchy to be permitted multiple well-paid simultaneous jobs and are subject to far-reaching non-competes, exclusivity, or IP clauses; having to deal with marketplace health insurance & costs at the same time that's happening (maybe for a family!); dropping more money on projecting an image of success or of being the right kind of person for investors to "believe in" and on networking; all that before before you even get to the part where you put the bulk of your savings into the company & product itself; and with the most likely outcome being really bad and leaving you needing years to recover for another shot, assuming you ever do—I'd say that's at least part of why people don't bother. I do not think this is the only reason people who aren't already quite well-off don't "shoot for the stars", but it's a not-insignificant part of it. Background and family also advantage people in business just like anything else (see also: Hollywood dynasties) by providing not just good connections for networking, but direct, inside knowledge about how things work in fact, not just on paper. There are, truly, lots of people who just haven't a clue how to, say, start a business, seek investment, et c., so much so that it wouldn't even occur to them as a possible course of action even if a great opportunity were handed to them on a platter. Their understanding of the space is so weak, as they've had so little exposure to it, that they don't know what's possible, so don't know what they could try, even if they were willing to go figure out the "how" (which willingness is, admittedly, far from a given). It's a widespread case of don't-know-what-they-don't-know for practically the entire body of knowledge required to launch a business, and it's the state most people live their whole lives in. Some do find their way out of it. Others are simply born to the right circumstances to learn all about this with little effort, and may not even realize how uncommon are the thousands of little pieces of info they picked up by existing around the right people during their formative years. I'd add, as an aside, that founder-CEOs may very well not be in the capitalist class, really. Founder-CEOs who don't start with lots of capital may in fact be taking both the risk-in-a-finance-sense that (say) an angel investor does, measured in cold dollar terms, plus the totally different, actual, can-I-put-food-on-the-table-next-month risk common to ordinary workers. That's the subset of the "job creator" category, if you will, that really is taking on meaningful risk, and doing hard work besides. > After all, another property of capitalism is that lucrative positions attract competition, and in the absence of barriers to entry, the profit gets competed away. Why hasn't this happened with CEOs? Eh, that's a property of ideal markets, not of capitalism, which shouldn't get the credit for everything that markets do. In practice (I'm sure this isn't news to you–I'm just structuring a line of reasoning here) things are much messier, and IMO sky-high executive compensation is all tied up in out-of-control principal agent problems and just-enough-removed-you-can't-prosecute self-dealing that's widespread at the highest levels of our economy, to the point of practically being the defining feature of its operation. One of the major barriers to entry, in this case, is having something to offer—personally, or (better) via family & friends connections, or through control you can exert over businesses you're already involved in—to the people selecting for CEO roles or board seats, even if it's only the future potential of doing a few favors for the right folks, and nothing's ever even implied out loud. Happily for the corrupt, the same traits that make these kinds of arrangements and mutual-aid-for-the-rich environments possible can also be justified for business reasons—well, having high-level personal and family connections with several other businesses will help with sales, right? And having already made money is a sign that this candidate is good at business (never mind the family money & connections that put these endeavors on easy-mode). So we'd better hire the Yale MBA who comes from money, has a cousin in congress, and could already, at least, pay their kids through prep school and college without working another day in their life. Down in mid-size company territory, even, you see similar stuff, thought pedigrees are (of course) a bit less impressive. Kids groomed to inherit a CEO position, grandkids shipped off to start in a high-level management position at some golfing buddy's other mid-sized company to lever them up to CEO candidacy at a smallish publicly-traded company later, that kind of thing. At all levels, companies performing acquisitions to bail out friends, family, and business allies (who'll return the favor later). I have a sense this has gotten worse over the past decades, but have not done the legwork to prove it. This is part of a broader (also very much "gut") sense I have that we, as in humanity as a whole, are getting better at playing games and at identifying them in larger systems, in a game-theoretical sense, to the detriment of anything that's not aligned with those games, while we're also getting worse at discouraging people (using means outside the strict ruleset) from playing these to the letter of the rules rather than in the spirit of the rules.