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I'm more than a little confused by your comment. In several areas either you or Thiel (I'm not familiar with his thinking enough to know which) are completely d

I'm more than a little confused by your comment. In several areas either you or Thiel (I'm not familiar with his thinking enough to know which) are completely disregarding some very basic economics... It seems to me that the industries most kinds of 99% businesses enter is zero-sum Um, no. Nothing in the economy is zero sum. Wealth is constantly being created and transferred. I think you are confusing this with the idea of a mature-market at an industry level, but those markets are almost non-existent because they destroy themselves like anti-matter. Unless the market these businesses are in grows, any successfully-started new business only increases competition for the others. Well, for one thing, if the market isn't growing we are in a recession, and recessions simply aren't permanent states. Recessions destroy themselves, because they are simply forced efficiency finders. Secondly, increasing competition increases pressure to become more efficient and/or innovative, which in turn drives market growth. The whole idea of helping and soliciting help in business is an act of innovation. In short, your initial point - that of a zero sum market - is flawed, and therefore all your other arguments are too. Increasing the quantity of entrepreneurs by default increases the quality, because it increases the pressure to compete, and therefore leads to the very innovation you feel is the real solution. You are arguing against the very solution you seek.

_delirium 14y ago
I don't have a problem with most of that explanation, but am somewhat skeptical of the last point. I don't think there is necessarily a linear relationship between quantity and quality that holds in all market regimes, across the whole range of possible states. Dynamical systems (such as markets) often have tipping points where things get wonky, so it'd at least require some empirical evidence that that isn't the case.
- run4yourlives 14y ago
  I'm talking about markets on the whole, not any particular business. Let's say you have 5 players selling car tires. There are 1000 cars in the area, and only one brand of tire to buy. For the most part, these 5 players compete on something other than price, since the market is mature. They have 20% of the market each. Let's introduce 3 new players into this market. They bring nothing new to the market per se, but by default they get some sales (maybe they are closer to the car owner's homes, maybe they have a hot chick at the front desk). Nothing major, let's say they share 10% of the market overall, and the 5 incumbents lose 2.5% of their sales each. The incumbents panic and look to counter this threat, and one of them happens upon the fact that if you change the formula for the tire a little, you can get a 50% increase in performance and a 20% increase in lifespan with only an extra 5% in manufacturing costs. Now everyone scrambles: Some into R&D, some into improving customer service, some into death. The overall value of this market increases, because of the 5% increase and corresponding price increase... inflation, if you will. This innovation happened completely and only because of the dreaded saturation of the market you are complaining about. The quality of the noobies is irrelevant, since the incumbent did the innovation. Point is the innovation happened, and wouldn't have happened without the new entrants creating pressure through competition.
  - _delirium 14y ago
    Sure, I understand the idealized theory; it just doesn't match what actually happens in most complex systems (take fluid flow, for example, where increasing pressure increases flow rates... until a critical threshold at which flow becomes turbulent). I don't think markets are well-understood enough to apply this idealized theory without empirical evidence that assumptions aren't violated. It's not a priori clear to me that there don't exist situations where increasing market participation leads to decreased market efficiency as friction effects or internal market dynamics start dominating.
    - run4yourlives 14y ago
      This is not a theory - it's exactly what happens. Even a case where an innovation decreased market efficiency (of this does happen - all players would love to have a monopoly), the trend is for the market to work towards increased efficiency. I'm no hard-core libertarian, but unless you have outside interference in a market - big tire 5 use government to mandate a tire-selling license that presents a barrier to entry - or one of those markets that lead itself to creating natural monopolies, this is the way things work.
      - _delirium 14y ago
        That's just an assertion based on idealized economic theory; not evidence that things work that way in particular situations. In particular, you haven't explained why there are either a priori or strong empirical reasons to believe that greater market participation never produces adverse effects. Evidence from nearly every other complex-systems discipline, ranging from hydraulics to meteorology to ecology, points in the direction that such "well-behaved" systems characterized by general relationships, valid in all regimes, are quite uncommon; and instead "phase-change" type thresholds at which behavioral regimes change are the norm.
        run4yourlives 14y ago
        >greater market participation never produces adverse effects I never said it didn't. I said greater market participation increases innovation by default, regardless of the quality of said participation. You are the only one equating the behaviour of the markets to being either "good" or "bad". The reality is that these are not concepts the market understands or cares about. Innovation can and does destroy entire markets all the time. But unless you feel innovation itself is horrible and we should be writing these arguments with typewriters and cabling them to each other, you simply have to accept the reality that innovation will occur all the time in every direction.
AznHisoka 14y ago
"Um, no. Nothing in the economy is zero sum. Wealth is constantly being created and transferred." Created and transferred are 2 completely different things and I think OP is against innovation that simply transfers wealth (popular example is financial industries). A more cynical example is Groupon, which transfers wealth from small businesses to them. Creating wealth is making something more efficient like creating the airplane or the internet. Or improving the standard of living like creating a cure for a disease. It's actually very very hard to do it, and less than 5% of tech startups probably succeed in doing it, even the ones that are successful.
- run4yourlives 14y ago
  The transfer of wealth is in fact the creation of wealth in 99% of cases, otherwise you are talking about charity. There is no "good" wealth creation, nor is there "bad" wealth creation. It just simply is. A tornado is a horrible event, but it creates wealth. You are conflating simple wealth creation - the idea of providing value that wasn't previously there - with innovation and/or human progress. That's simply a misunderstanding of the term when used in the context of economics.
  - ef4 14y ago
    > A tornado is a horrible event, but it creates wealth. Classic broken window fallacy. A tornado doesn't create wealth. On net, it leaves the society poorer than before. It may create a windfall for a particular industry, but that's just moving wealth around. The money spent on rebuilding had to get pulled away from something else. It would have necessarily been spent or invested, and now that spending or investment will never happen. Bastiat called it the seen vs the unseen. We see the builders making money. We don't see the economic activity that would have otherwise occurred if there had been no tornado. The overall impact on economic activity is a wash, and the only net effect is the original property destruction.
    - run4yourlives 14y ago
      A tornado doesn't create wealth. Of course it does. It's a catalyst. On net, it leaves the society poorer than before. There's no basis for you to make that assertion. If a trailer park is destroyed and a regional business park is what replaces it, there's no way you can argue that there hasn't been a net growth economically. Natural disasters almost always increase GDP in the recovery phase. We don't see the economic activity that would have otherwise occurred if there had been no tornado. This is kind of irrelevant since economic activity can't be measured until it actually happens. It's like suggesting that going to the moon was a net loss for humanity because we could have reinvested those funds in going to Mars instead. We don't see the economic activity that would have otherwise occurred if there had been no tornado. Again, because said activity is completely irrelevant. The point is that there is economic activity that is a direct result of the event. Is Christmas a wealth creating event? You are suggesting it's not, after all, all the resources used for Christmas presents would have been used somewhere else, no? Using those terms, nothing is a wealth generator, and the economy is zero sum. That is completely wrong.
intellegacy 14y ago
Um, no. Nothing in the economy is zero sum. Wealth is constantly being created and transferred. Created and transferred are two different things. Created means new wealth is generated through increased efficiency or innovation. The pie gets bigger. Transferred means one player loses and the other gains (the definition of zero zum). The pie stays the same, only the relative size of each slice changes. Secondly, increasing competition increases pressure to become more efficient and/or innovative, which in turn drives market growth. The whole idea of helping and soliciting help in business is an act of innovation. You argue that increased efficiency is a kind of innovation. Your argument is that increased competition leads to increased efficiency, and by increasing efficiency in a market more resources are freed for other markets and the pie gets bigger. I may agree with you here, but you'll have to provide examples. * Increasing the quantity of entrepreneurs by default increases the quality, because it increases the pressure to compete, and therefore leads to the very innovation you feel is the real solution* Can you provide concrete examples? Several points: I can agree with your argument on a theoretical level but its still a leap to make the connection between increased quantity leading to innovation without evidence or examples. 1) One instance in which your argument could be true: If there are greater efficiencies discovered in one industry (for example, a new gizmo that doesn't require as many restaurant cooks), leading to less labor costs and subsequently lower cost of food, leading to increased money in consumer's pockets with which they could spend in other industries. But who discovered that efficiency? It could be made by a separate party and have no connection to the increase of competitors. It is a leap to draw the correlation between increased competitors and innovation. 2) One instance where it may not be true: An industry where there are little or no efficiencies to be captured. Lets say there are 10,000 software design firms competing with one another and they make their profit from software consulting projects. If they all make a profit of $1,000,000 / year and you add another 10,000 competitors, all providing the same service, two things will happen for sure: 1) some of the new competitors will gain entry to the market, leading to lower profit for everyone else. 2) some competitors will fail. It is possible that the innovations are simply not there to be found by the new entrants, even with their newfound startup wisdom. Innovation is not a matter of strictly effort. For example, I recently came back from a trip to Southeast Asia where I traveled for 3 months across many of the developing countries and witnessed the effects of increased competition there among the street hawkers. In the street-hawking industry there simply aren't many innovations to be discovered. Adding more entrepreneurs to the mix wouldn't lead to innovation, but rather a race to the bottom. Profits across the board would decrease and consumers would benefit. Also, a point about quality: increased quality does not necessarily lead to a greater pie. We may lead richer lives from 10% more delicious food but the wealth pie stays the same. (although that is valuable as well).

_delirium 14y ago

I don't have a problem with most of that explanation, but am somewhat skeptical of the last point. I don't think there is necessarily a linear relationship between quantity and quality that holds in all market regimes, across the whole range of possible states. Dynamical systems (such as markets) often have tipping points where things get wonky, so it'd at least require some empirical evidence that that isn't the case.

run4yourlives 14y ago
I'm talking about markets on the whole, not any particular business. Let's say you have 5 players selling car tires. There are 1000 cars in the area, and only one brand of tire to buy. For the most part, these 5 players compete on something other than price, since the market is mature. They have 20% of the market each. Let's introduce 3 new players into this market. They bring nothing new to the market per se, but by default they get some sales (maybe they are closer to the car owner's homes, maybe they have a hot chick at the front desk). Nothing major, let's say they share 10% of the market overall, and the 5 incumbents lose 2.5% of their sales each. The incumbents panic and look to counter this threat, and one of them happens upon the fact that if you change the formula for the tire a little, you can get a 50% increase in performance and a 20% increase in lifespan with only an extra 5% in manufacturing costs. Now everyone scrambles: Some into R&D, some into improving customer service, some into death. The overall value of this market increases, because of the 5% increase and corresponding price increase... inflation, if you will. This innovation happened completely and only because of the dreaded saturation of the market you are complaining about. The quality of the noobies is irrelevant, since the incumbent did the innovation. Point is the innovation happened, and wouldn't have happened without the new entrants creating pressure through competition.
- _delirium 14y ago
  Sure, I understand the idealized theory; it just doesn't match what actually happens in most complex systems (take fluid flow, for example, where increasing pressure increases flow rates... until a critical threshold at which flow becomes turbulent). I don't think markets are well-understood enough to apply this idealized theory without empirical evidence that assumptions aren't violated. It's not a priori clear to me that there don't exist situations where increasing market participation leads to decreased market efficiency as friction effects or internal market dynamics start dominating.
  - run4yourlives 14y ago
    This is not a theory - it's exactly what happens. Even a case where an innovation decreased market efficiency (of this does happen - all players would love to have a monopoly), the trend is for the market to work towards increased efficiency. I'm no hard-core libertarian, but unless you have outside interference in a market - big tire 5 use government to mandate a tire-selling license that presents a barrier to entry - or one of those markets that lead itself to creating natural monopolies, this is the way things work.
    - _delirium 14y ago
      That's just an assertion based on idealized economic theory; not evidence that things work that way in particular situations. In particular, you haven't explained why there are either a priori or strong empirical reasons to believe that greater market participation never produces adverse effects. Evidence from nearly every other complex-systems discipline, ranging from hydraulics to meteorology to ecology, points in the direction that such "well-behaved" systems characterized by general relationships, valid in all regimes, are quite uncommon; and instead "phase-change" type thresholds at which behavioral regimes change are the norm.
      - run4yourlives 14y ago
        >greater market participation never produces adverse effects I never said it didn't. I said greater market participation increases innovation by default, regardless of the quality of said participation. You are the only one equating the behaviour of the markets to being either "good" or "bad". The reality is that these are not concepts the market understands or cares about. Innovation can and does destroy entire markets all the time. But unless you feel innovation itself is horrible and we should be writing these arguments with typewriters and cabling them to each other, you simply have to accept the reality that innovation will occur all the time in every direction.

AznHisoka 14y ago

"Um, no. Nothing in the economy is zero sum. Wealth is constantly being created and transferred." Created and transferred are 2 completely different things and I think OP is against innovation that simply transfers wealth (popular example is financial industries). A more cynical example is Groupon, which transfers wealth from small businesses to them. Creating wealth is making something more efficient like creating the airplane or the internet. Or improving the standard of living like creating a cure for a disease. It's actually very very hard to do it, and less than 5% of tech startups probably succeed in doing it, even the ones that are successful.

run4yourlives 14y ago
The transfer of wealth is in fact the creation of wealth in 99% of cases, otherwise you are talking about charity. There is no "good" wealth creation, nor is there "bad" wealth creation. It just simply is. A tornado is a horrible event, but it creates wealth. You are conflating simple wealth creation - the idea of providing value that wasn't previously there - with innovation and/or human progress. That's simply a misunderstanding of the term when used in the context of economics.
- ef4 14y ago
  > A tornado is a horrible event, but it creates wealth. Classic broken window fallacy. A tornado doesn't create wealth. On net, it leaves the society poorer than before. It may create a windfall for a particular industry, but that's just moving wealth around. The money spent on rebuilding had to get pulled away from something else. It would have necessarily been spent or invested, and now that spending or investment will never happen. Bastiat called it the seen vs the unseen. We see the builders making money. We don't see the economic activity that would have otherwise occurred if there had been no tornado. The overall impact on economic activity is a wash, and the only net effect is the original property destruction.
  - run4yourlives 14y ago
    A tornado doesn't create wealth. Of course it does. It's a catalyst. On net, it leaves the society poorer than before. There's no basis for you to make that assertion. If a trailer park is destroyed and a regional business park is what replaces it, there's no way you can argue that there hasn't been a net growth economically. Natural disasters almost always increase GDP in the recovery phase. We don't see the economic activity that would have otherwise occurred if there had been no tornado. This is kind of irrelevant since economic activity can't be measured until it actually happens. It's like suggesting that going to the moon was a net loss for humanity because we could have reinvested those funds in going to Mars instead. We don't see the economic activity that would have otherwise occurred if there had been no tornado. Again, because said activity is completely irrelevant. The point is that there is economic activity that is a direct result of the event. Is Christmas a wealth creating event? You are suggesting it's not, after all, all the resources used for Christmas presents would have been used somewhere else, no? Using those terms, nothing is a wealth generator, and the economy is zero sum. That is completely wrong.

intellegacy 14y ago

Um, no. Nothing in the economy is zero sum. Wealth is constantly being created and transferred. Created and transferred are two different things. Created means new wealth is generated through increased efficiency or innovation. The pie gets bigger. Transferred means one player loses and the other gains (the definition of zero zum). The pie stays the same, only the relative size of each slice changes. Secondly, increasing competition increases pressure to become more efficient and/or innovative, which in turn drives market growth. The whole idea of helping and soliciting help in business is an act of innovation. You argue that increased efficiency is a kind of innovation. Your argument is that increased competition leads to increased efficiency, and by increasing efficiency in a market more resources are freed for other markets and the pie gets bigger. I may agree with you here, but you'll have to provide examples. * Increasing the quantity of entrepreneurs by default increases the quality, because it increases the pressure to compete, and therefore leads to the very innovation you feel is the real solution* Can you provide concrete examples? Several points: I can agree with your argument on a theoretical level but its still a leap to make the connection between increased quantity leading to innovation without evidence or examples. 1) One instance in which your argument could be true: If there are greater efficiencies discovered in one industry (for example, a new gizmo that doesn't require as many restaurant cooks), leading to less labor costs and subsequently lower cost of food, leading to increased money in consumer's pockets with which they could spend in other industries. But who discovered that efficiency? It could be made by a separate party and have no connection to the increase of competitors. It is a leap to draw the correlation between increased competitors and innovation. 2) One instance where it may not be true: An industry where there are little or no efficiencies to be captured. Lets say there are 10,000 software design firms competing with one another and they make their profit from software consulting projects. If they all make a profit of $1,000,000 / year and you add another 10,000 competitors, all providing the same service, two things will happen for sure: 1) some of the new competitors will gain entry to the market, leading to lower profit for everyone else. 2) some competitors will fail. It is possible that the innovations are simply not there to be found by the new entrants, even with their newfound startup wisdom. Innovation is not a matter of strictly effort. For example, I recently came back from a trip to Southeast Asia where I traveled for 3 months across many of the developing countries and witnessed the effects of increased competition there among the street hawkers. In the street-hawking industry there simply aren't many innovations to be discovered. Adding more entrepreneurs to the mix wouldn't lead to innovation, but rather a race to the bottom. Profits across the board would decrease and consumers would benefit. Also, a point about quality: increased quality does not necessarily lead to a greater pie. We may lead richer lives from 10% more delicious food but the wealth pie stays the same. (although that is valuable as well).