4 ms·

Hot take: these are the kind of issues you'd expect if there is a significant amount of capital accumulation. There's always going to be dumb money doing things

Hot take: these are the kind of issues you'd expect if there is a significant amount of capital accumulation. There's always going to be dumb money doing things that make the news. How many failed railroads were made during the industrial revolution? How much money was squandered on tulip bulbs? Intelligent investments take more time to culminate than unintelligent ones take to fail, so things would look pretty bad in any savings rich economy.

jfengel 3y ago
I wonder if this has any measurable effect of reducing wealth inequality. Do the rich eventually just give their money away via stupid investments? It flows from the ignorant VC to this joker to a bunch of overpaid consultants and marketing execs to the poor schmucks who do something like actual labor? It's galling to have it work so inefficiently, and much of it just transfers from one rich yahoo to another. But maybe there's a ray of hope somewhere under all that BS?
- kortilla 3y ago
  Yes, they lose their money and make new smart people rich. 80% of millionaires are fist generation. Wealth tends to collapse over generations in an ultra wealthy family just because the kids aren’t passionate about whatever made the original money and they squander it on half-baked businesses or “bad investments”.
  - SketchySeaBeast 3y ago
    That "80% of millionaires are first generation" stat is a bit misleading - most of those millionaires are older folk who have reached that status via retirement savings and the explosion in real estate. Those people are not the people being discussed here.
    - Mezzie 3y ago
      It's also questionable how much of that will be passed on at least for Americans. My dad and step-mother are in their mid to late 60s and have ~1 million net worth but a lot of that is wrapped up in their house and retirement accounts, which will probably be taken by the state when they require care in their old age. Nursing home care will eat through all of that without blinking. There's a huge difference between 'retired with a 500k paid off house and about 1 million in net worth' and a 900 million net worth even though both are 'millionaires'.
    - rchaud 3y ago
      ...And even that is disappearing. Americans that became millionnaires by doing nothing other than chucking a bit of their paycheck into a 401K each month, are likely to have spent their working lives in a period when financial markets were growing as more and more Americans joined the labour force. The growth of your portfolio then wasn't entirely dependent on earnings and growth, like it is now. Portfolio values grew by a lot simply because more and more people were being added to pension plan contributions each month. Things were so good that pension plans used to be "defined benefit"-oriented, meaning a certain return % was guaranteed. The new generation of workers on the other hand get "Defined contribution" where the only thing guaranteed is how much of your paycheck they can take. There was an LA Times article about this that was discussed here: Article: https://archive.md/2EPal https://archive.md/2EPal HN Discussion:https://news.ycombinator.com/item?id=28140362 https://news.ycombinator.com/item?id=28140362
- urbandw311er 3y ago
  On average the VCs get it back again on exit, it’s the acquirer who is left holding the baby.
nostrademons 3y ago
A successful investment is just one that hasn't failed yet.
Ekaros 3y ago
At least the tulip mania was purely derivatives. So loss to real economy was probably rather minor. The people could have gambled that money in other ways and it just moved around. I don't think they wasted huge amount of any resources back then. Just time of people who had too much of it anyway.
itairall 3y ago
Plus people are basically spoiled brats when it comes to this question. As if the medieval peasant had it better. The average person lives the highest standard of living in the history of humanity with a life so easy that the biggest problem is being able to afford the Apple Vision Pro or not. A metaphoric society of complainers about how they only got a BMW 5 series for their sweet 16 from daddy when their friend got a 7 series! Personally, I am thankful for capital accumulation and that I have been able to live the amazing life I have instead of picking potatoes on a farm all day and then eat potatoes for breakfast,lunch, and dinner. Get married to your cousin and life is basically over at 30. That could have been anyone reading this but you basically won the life lottery instead.
quitit 3y ago
I also had this thought, but perhaps in a slightly different angle: All this spare capital to splash on vague nonsense, looks like a symptom of a worsening rich poor divide. It's a concentration of wealth in a segment that is too small to spend it wisely.
dalbasal 3y ago
There's more to it than "irrational exuberance," IMO. Take Google. Their one, core cash cow is an oil strike. If you strip away all the unrelated and unesesarry.... It's an 80% profit business that represents most of www's monetisation. Google already have all the market share. It takes >$10bn to meaningfully affect their bottom line and share price. Few of Google's many investments have an obvious chance of achieving this. Still... The market (and Google's board) consistently prefer to retain (or avoid realising) earnings. The fact that Google's growth requires almost no capital also generates an inward capital flow. Google's culture was a good fit for this. First they let a thousand flowers bloom. Then the cultivated university-like subcultures. They alway knew how to spend big on blue skies. FB is a little more awkward. They know where the bread is buttered. They invested more tightly around the core money maker, but they get to the same place as Google. Way more capital, credit and discretionary spending than they possibly need. Nothing more to invest in. Well... All this is resources that aren't spent on manufacturing, tooling, energy, construction, etc. Take chip fabrication, or computer hardware broadly... It's capital intensive. Factories change slow. Markets change fast. Prices continuously fall. It's a nightmare, comparatively. I say "capital" but the real shortage is risk. Google/FB/etc are "hoarding" all the risk allowance. Where they can invest in highly speculative projects because the money is just there, analogue businesses are still backed by banks, bonds, specialised investment firms and tightly controlled payback schedules... Not an easy world to innovate in. The modern system now reaches bedrock very quickly. When we can dig no longer we start depleting all our resources trying to dig anyway. Reality is that were not getting more out of Google no matter how much resources they draw. That's what capital is to firm, resources. Over resources X and under resourced Y.
- neerajsi 3y ago
  It looks like the article could have been divided into two separate theses. The Adam Neumann problem is general unproductive investment of savings. The Google/Meta problem is different: the challenge of investing in the context of an individual corporate identity and its configuration of human and intellectual capital. Amazon would be a nice contrast to the companies mentioned here. It's a good marriage of the more ephemeral and short term tech capital and traditional physical capital that can have bigger and more stable long term yields. Apparently it sucks to work in most orgs there :/.

jfengel 3y ago

I wonder if this has any measurable effect of reducing wealth inequality. Do the rich eventually just give their money away via stupid investments? It flows from the ignorant VC to this joker to a bunch of overpaid consultants and marketing execs to the poor schmucks who do something like actual labor? It's galling to have it work so inefficiently, and much of it just transfers from one rich yahoo to another. But maybe there's a ray of hope somewhere under all that BS?

kortilla 3y ago
Yes, they lose their money and make new smart people rich. 80% of millionaires are fist generation. Wealth tends to collapse over generations in an ultra wealthy family just because the kids aren’t passionate about whatever made the original money and they squander it on half-baked businesses or “bad investments”.
- SketchySeaBeast 3y ago
  That "80% of millionaires are first generation" stat is a bit misleading - most of those millionaires are older folk who have reached that status via retirement savings and the explosion in real estate. Those people are not the people being discussed here.
  - Mezzie 3y ago
    It's also questionable how much of that will be passed on at least for Americans. My dad and step-mother are in their mid to late 60s and have ~1 million net worth but a lot of that is wrapped up in their house and retirement accounts, which will probably be taken by the state when they require care in their old age. Nursing home care will eat through all of that without blinking. There's a huge difference between 'retired with a 500k paid off house and about 1 million in net worth' and a 900 million net worth even though both are 'millionaires'.
  - rchaud 3y ago
    ...And even that is disappearing. Americans that became millionnaires by doing nothing other than chucking a bit of their paycheck into a 401K each month, are likely to have spent their working lives in a period when financial markets were growing as more and more Americans joined the labour force. The growth of your portfolio then wasn't entirely dependent on earnings and growth, like it is now. Portfolio values grew by a lot simply because more and more people were being added to pension plan contributions each month. Things were so good that pension plans used to be "defined benefit"-oriented, meaning a certain return % was guaranteed. The new generation of workers on the other hand get "Defined contribution" where the only thing guaranteed is how much of your paycheck they can take. There was an LA Times article about this that was discussed here: Article: https://archive.md/2EPal https://archive.md/2EPal HN Discussion:https://news.ycombinator.com/item?id=28140362 https://news.ycombinator.com/item?id=28140362
urbandw311er 3y ago
On average the VCs get it back again on exit, it’s the acquirer who is left holding the baby.

nostrademons 3y ago

A successful investment is just one that hasn't failed yet.

Ekaros 3y ago

At least the tulip mania was purely derivatives. So loss to real economy was probably rather minor. The people could have gambled that money in other ways and it just moved around. I don't think they wasted huge amount of any resources back then. Just time of people who had too much of it anyway.

itairall 3y ago

Plus people are basically spoiled brats when it comes to this question. As if the medieval peasant had it better. The average person lives the highest standard of living in the history of humanity with a life so easy that the biggest problem is being able to afford the Apple Vision Pro or not. A metaphoric society of complainers about how they only got a BMW 5 series for their sweet 16 from daddy when their friend got a 7 series! Personally, I am thankful for capital accumulation and that I have been able to live the amazing life I have instead of picking potatoes on a farm all day and then eat potatoes for breakfast,lunch, and dinner. Get married to your cousin and life is basically over at 30. That could have been anyone reading this but you basically won the life lottery instead.

quitit 3y ago

I also had this thought, but perhaps in a slightly different angle: All this spare capital to splash on vague nonsense, looks like a symptom of a worsening rich poor divide. It's a concentration of wealth in a segment that is too small to spend it wisely.

dalbasal 3y ago

There's more to it than "irrational exuberance," IMO. Take Google. Their one, core cash cow is an oil strike. If you strip away all the unrelated and unesesarry.... It's an 80% profit business that represents most of www's monetisation. Google already have all the market share. It takes >$10bn to meaningfully affect their bottom line and share price. Few of Google's many investments have an obvious chance of achieving this. Still... The market (and Google's board) consistently prefer to retain (or avoid realising) earnings. The fact that Google's growth requires almost no capital also generates an inward capital flow. Google's culture was a good fit for this. First they let a thousand flowers bloom. Then the cultivated university-like subcultures. They alway knew how to spend big on blue skies. FB is a little more awkward. They know where the bread is buttered. They invested more tightly around the core money maker, but they get to the same place as Google. Way more capital, credit and discretionary spending than they possibly need. Nothing more to invest in. Well... All this is resources that aren't spent on manufacturing, tooling, energy, construction, etc. Take chip fabrication, or computer hardware broadly... It's capital intensive. Factories change slow. Markets change fast. Prices continuously fall. It's a nightmare, comparatively. I say "capital" but the real shortage is risk. Google/FB/etc are "hoarding" all the risk allowance. Where they can invest in highly speculative projects because the money is just there, analogue businesses are still backed by banks, bonds, specialised investment firms and tightly controlled payback schedules... Not an easy world to innovate in. The modern system now reaches bedrock very quickly. When we can dig no longer we start depleting all our resources trying to dig anyway. Reality is that were not getting more out of Google no matter how much resources they draw. That's what capital is to firm, resources. Over resources X and under resourced Y.

neerajsi 3y ago
It looks like the article could have been divided into two separate theses. The Adam Neumann problem is general unproductive investment of savings. The Google/Meta problem is different: the challenge of investing in the context of an individual corporate identity and its configuration of human and intellectual capital. Amazon would be a nice contrast to the companies mentioned here. It's a good marriage of the more ephemeral and short term tech capital and traditional physical capital that can have bigger and more stable long term yields. Apparently it sucks to work in most orgs there :/.