PG makes little effort to identify what it means to earn something. Some people consider effort the measure of whether something is earned. Some believe luck should be subtracted from result to get what is earned. Some say you cannot earn the benefits you receive from your genetics. No idea of what it means to earn something is given except for making users happy while "not cheating" (who decides what counts as cheating he doesn't say). No consideration for ideas such as economic rent, inherited advantages, or negotiating leverage are discussed.
There is no way anyone responding to him has a lazier argument than he does.
You saved $500k to buy a beautiful home. You don't know how to build a home.
I do. I take the $500k from you and then pay $450k to a bunch of employees who put in 40 hours a week. I take home $50k. I earn $50k.
Now, you like the home so much you tell all your friends about it.
I hire more employees and I take $50k profit per house but I build 20k houses and make $1B. I earn $1B.
Market forces decide how much you "earn". There are plenty of blue collar workers who work 3 jobs and live paycheck to paycheck. There are SWEs who work 20 hours a week and make the bank.
>I hire more employees and I take $50k profit per house but I build 20k houses and make $1B. I earn $1B.
This is the "rock star" fantasy. You do something that becomes wildly popular and can then walk away while still making epic amounts of cash. You didn't earn that $1B through continuous effort. It was all made by your initial idea. It just takes time for the cash to be delivered in full.
Do you deserve to profit off a good idea? Yes, and few would contest that. Do you deserve to profit so much that you never have to work another day in your life? Should the system let people retire after having one good idea? That's going to seem like a sub-optimal system to many. However, its important to note that ideas take capital to implement, and it's much more typical for rock star rewards to go to those with the capital than those with the ideas. That's a system that many more will find to be flawed.
This sub optimal system is what has (at times) led to massive growth of disruptive technologies and platforms.
People got reasonably mad at Apple’s iron fisted control of the App Store and access to its platforms.
It got to the point that there was political will to force Apple to change. (Sort of, in some circumstances)
But during the golden age of the App Store, when Angry Birds came out—-it wasn’t something people were hemming and hawing about the fairness of distribution platforms it was more like: “wow! iPhone! Check out this game! Everyone is playing this thing, Jack White is playing it. You too can have this game for a few bucks, can you believe this?”
It is only after Apple had ridden the horse a good long while and reaped what came to be outsized profits and using the thing to control competition over an extended period that something really was done about it. (Sort of)
There are many other examples of this kind of thing.
Compensated creative expression has somewhat relied on it in the form of intellectual property, which has built in albeit relatively toothless expiration.
But even IP is under greater threat than ever with gen AI. Just look at what fans are doing with the Star Wars franchise on YouTube right now.
Anyhow, I agree with the system is flawed but I mean to point out that deciding a person or company has reaped enough for their thing is something we do on a case by case basis.
It is not easy to say when to say to someone or something has been compensated “enough.”
How much profit do they deserve exactly? How exactly is it calculated, and who decides how it is calculated? These questions aren't in bad faith, I'm genuinely curious how people with your world view would answer them.
I don't have an answer, but I don't think the framing should be about what they deserve or not. It should be around how much money an individual can have/control before it becomes detrimental to society.
What’s the going rate on purchasing a law or Supreme Court decision?
It's the execution, not the idea.
> You didn't earn that $1B through continuous effort
Why does it have to be earned through continuous effort? It seems like you’re defending a sweeping assertion (that you can’t “earn” $1 billion), but retreating to a narrower position based on a very specific definition of “earn.”
Yes, you can’t become a billionaire performing fungible labor compensated on a periodic (hourly or annual) basis. But I don’t see why that’s the dividing line between “earned” and “unearned.” A lawyer charging hourly will never become a billionaire. But there’s been a couple of lawyers (Joe Jamail, Mark Lanier) who became billionaires by securing enormous verdicts for their clients. Are you saying lawyers “earn” their money only if they charge hourly, but not if they get a share of the money they recover for their client?
That seems to be a weird definition of “earned” versus “unearned.” Maybe you can say that money is unearned when it’s inherited. Or that it’s unearned when it’s just accrued interest. Or that it’s unearned if it’s through socially questionable activities like high frequency trading. But most billionaires didn’t get their money in those ways.
They are rewarded, yeah. And then they could retire, or they could take that money and put it towards more good ideas, like what Elon has done his entire life.
If we don't have a system for that, then how would you incentivize people to take on bigger risks, bigger projects, etc?
Also, should the lottery not be a thing? What exactly are you advocating by this line of reasoning?
Consider what happens in academia.
Imagine that making a ground-breaking discovery in physics came with a prize of a billion dollars. One good idea, and you can retire. Would that not harm science? Many scientists would keep working after their first prize because it's what they love to do. Some would accuse them with being greedy after they've made a few more discoveries. "Hey, leave some money for the rest of us!"
What I'm trying to get at is that the rewards for certain things are badly out of whack with what is necessary to keep people both rewarded and motivated. At least, in terms of what is healthy for society and progress. In general, the closer people are to the money the more unreasonable the rewards are. Perhaps people who are further from the money but who contribute just as much (or more) to society are right to be concerned.
P.S. Musk bought companies with people who had a lot of good ideas and convinced governments (mainly the U.S. government) to pay for it. He's always been a capital guy, not an idea guy. He desperately wants to be in idea guy, but his ideas are things like re-branding Twitter to X and the Cybertruck.
> P.S. Musk bought companies with people who had a lot of good ideas and convinced governments (mainly the U.S. government) to pay for it. He's always been a capital guy, not an idea guy. He desperately wants to be in idea guy, but his ideas are things like re-branding Twitter to X and the Cybertruck.
Personally speaking, I am sympathetic to the idea that billionaires (especially Musk) are often created more by government policy than market forces. Although for some reason the push to stop governments minting billionaires by fiat seems rather weak, which makes me think a lot of people are being disingenuous on the topic. Or maybe just haven't thought about it much. There is a bizarre zeitgeist where first the government has to give a man billions of dollars because something needs to happen ASAP, then they have to take the billions away because nobody thought the thing needed to happen all that urgently.
There is an overlap in the vibe between the people who are unhappy that the government rewarded Musk and the people who, at the time, were clamouring that the rewards for things Musk was doing were too low. 10, 20 years ago it was all "there isn't enough funding for electric vehicles", "world is literally ending from climate change" and "who is going to put money into batteries".
I'm not saying capital guys have no place. Should they be rewarded to the tune of a trillion dollars though, especially if most of it ultimately came from government coffers? That seems extreme to me.
The people closest to the money are the people who have the most control over how and who its allotted to. We really ought to watch them more carefully.
So how much should they be rewarded? You suggest a cap? What prevents someone that's more poor than you deciding that you nobody needs to make more money than them, so now you should make less money?
Your narrative is self contradictory. In your own theory of what happened, Musk was the idea guy, not the capital guy! You said the government provided the capital. Why did the government provide the capital to Musk rather than GM or Boeing or Rockwell? Because he was the one who could actually develop what the government wanted to support.
It’s rewriting history to call Musk a “capital guy.” Tesla and SpaceX entered markets with huge, established competitors. Those companies had access to virtually unlimited capital. But EVs and commercial space travel were pipe dreams before Musk got involved. I graduated with a degree in aerospace engineering pre-SpaceX and the field was moribund. Your options were going to Boeing to make airliners 1% more efficient every decade or going to Lockheed or Rockwell to design better missiles for blowing up brown people. The idea that SpaceX was just about a “capital guy” coming in is 100% hindsight bullshit.
You’re also just completely factually wrong about “most of” anything “coming out of government coffers.” The government gave Tesla a $485 million loan that was fully repaid. SpaceX received about $500 million in grants. In both cases, that was a small fraction of the money invested into the companies. Tesla’s cumulative net loss was $6 billion before profitability. SpaceX’s cumulative net loss is $42 billion.
At most you have a fair argument that the government should take equity in companies instead of providing grants with no strings attached. But that would just mean that maybe the government should have a 10% share of SpaceX or whatever.
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This is a great example of why you can't earn a billion dollars without doing something immoral.
First of all, you don't know how to build a house, you have some vague idea of it, maybe even some innovative one, and hire people who actually know how to implement that idea to do it for you, but you pocket some of the money because they don't know the exact worth, and because they need to live and no one else is paying them.
Then, what happens next is that some competitor springs up, and they want to poach your people by offering to pay them $475k and only keeping $25k in profits for themselves. You can't have that, so you start paying off government officials to deny or delay their building approvals, paying off mafia thugs to sabotage their construction or threaten workers who try to leave, you sue them for breaching worker non-competes or IP rights on the construction methods, etc.
All of these are part of how the construction industry actually operates, it is well known as one of the most corrupt industries around. Let's also not forget that the value of real estate is location location location - house and business prices are hugely determined by where the plot of land is, much more so than any differences in construction prowess, if we disregard the very top of the most complex projects ever made (of which there are way fewer than 20k).
None of the other workers know how to build a house. The electrician doesn't know how to build a house. The carpenter doesn't know how to build a house. The guy hanging drywall doesn't know how to build a house.
They know how to do one piece and finding and coordinating all those people (something else they don't know how to do) is work on its own that is valuable.
> I hire more employees and I take $50k profit per house but I build 20k houses and make $1B. I earn $1B.
This hypothetical isn't possible. There's no way you can directly manage the construction of 20k houses in a human lifetime.
In this example, someone has come up with a way to build houses $50k more efficient than someone else. Otherwise, they wouldn't be at a competitive price that includes a $50k *profit* per house. (profit = the price of efficiency).
So a person figuring out how to scale their homebuilding methodology by teaching others and providing the *capital* with which they can implement that methodology isn't worth anything to you? I can't imagine a society that could work without these features -- we'd all be re-learning best practices every generation because there'd be no incentive to scale up ideas that work.
So if someone invents a cure for all cancer that costs $1 to make, and they sell it for $2, in your world the value created by the inventor is only the profit from the vaccines that person *personally* manufactures themself? That's an insane and backward world that I'm glad we don't live in.
Hot take but people should be paid for working instead of ripping off people with cancer because they got to call dibs on intellectual "property".
They have places like that. It’s called my dad’s village in Bangladesh. The only way to make money is through labor, just like you want. But it turns out that, without capital, the only labor there is to do is farming rice.
"Ripping people off"? I think you'd enjoy living in the Soviet Union which existed in exactly this kind of backwardness.
At what level do you think a business stops experiencing market forces and starts dictating them, to the detriment of competition, consumers, and employees?
Because I don't think you can build a billion dollar home construction empire where you profit $50k per home in perpetuity. You will have to lower your margins, cut others in on your profits to stop them from competing with you, or manipulate markets to never make a loss on a project.
>You don't know how to build a home. >I do.
Do you? Sound like the people you hired built the home. Do you know how to do what they did? Did you do it? What did you do to earn that $50k?
Why would that matter? Are you getting confused by thinking that the "labor theory of value" is a real thing?
Of all the billionaires in the world, what percent of them did something like this, vs the percent who reached that number from investments (and by investments I mean assets they possessed which ballooned in value)?
I'm betting it is a tiny fraction. Most modern "wealth" is all based on investment games.
> You don't know how to build a home. I do.
Sweet, how do you build a house?
> I take the $500k from you and then pay $450k to a bunch of employees
Oh. You don’t know how to build a house. You know people that know how to build a house.
Picking a thing that you literally don’t know how to do as your example of a thing that you know how to do is amazing. You could’ve picked a blanket fort or a spreadsheet that tracks other people’s work or a LinkedIn post but those aren’t really things people pay for
I know doctors but I don’t go around posting that I know how to treat eczema lmao
Without making any value judgement, there’s a very clear distinction between earning wages as compensation for labor (even very high wages) and increasing your net worth through ownership of a company. That’s a valid distinction no matter how hard the second person works.
I have no idea if this is what AOC meant, but it’s clearly not possible to earn $1B via wages in compensation for labor.
Depends on what you mean by wages. Floyd Mayweather Jr.‘s career earnings are over 1 billion. Celebrities can get extremely high compensation packages especially when you adjust for inflation without an ownership stake in anything. Finance can be similarly well compensated at the very top.
Often very high compensation packages happen to include shares, but that’s just the form of compensation not an inherent requirement. Of course all paths to a billion dollars are so unlikely it’s really not a reasonable target unless you have already passed most significant hurdles.
> I have no idea if this is what AOC meant, but it’s clearly not possible to earn $1B via wages in compensation for labor.
Non-founders CEOs have done this, like Tim Cook. Also, Taylor Swift.
You don't just make the thing. The founder didn't become a billionaire simply because users loved her product. You market it and you distribute it and you do all the things normally associated with business. Your ability to do those things "well" has lots of room to cheat. Hasn't Uber and Lyft skirted a bunch of laws? Aren't there still a ton of drivers who feel cheated? Aren't there a bunch of share bikes and scooters lying around cities and landfills? Isn't it fairly standard to throw tons of investor money at your CAC to buy "love" and sabotage competitors? He mentioned Facebook, isn't its origin story connoted with theft? I can see angles where these don't count as cheating for some. I can see slivers where there's only so many degrees of separation you hold the billionaire responsible for what happens downstream. Even if not done intentionally, the accumulated wealth still resulted from some cheating though, no?
And there's the stock market. If he means the stock price when he's talking about things people want, then I might agree. You need to manage the thing people love, and by "the thing people love" I mean your product, and by your "product" I mean your stock price. Most of the billionaires became so because of their equity. We're well down normalizing that your product doesn't need to be profitable (where people love it enough to pay more than it costs to make) for the stock price to soar.
It doesn't count as engaging with the argument if he doesn't engage with it. I'm almost surprised he bothered to respond.
Edit: Interesting downvote situation going on throughout the comments.
Yeah this analysis (Not yours - PG's) is pretty poor tbh either he is intentionally glossing over the tactics and strategy necessary for one to acquire such wealth - or - he really lacks the fundamentals that is value (of equity) is a function of free cash flows to equity, growth and risk. And guess what, immense cash flow potential doesn't fall out the sky. It requires doing certain things. Such things can be considered dirty by many people.
Anywho, I was really unimpressed with the post.
You're not really engaging with PG's argument so much as nitpicking around the edges. Are people becoming billionaires primarily by cheating and stealing, or by making something people want? That's the core argument. Were GitLab, Dropbox and Stripe primarily cheating or offering a service people liked? Rather than cherry-picking one or two examples of what you deem the worst offenses, show that "you can't earn a billion dollars" without cheating or abusing others. PG isn't arguing that startups never do anything bad. He's just arguing that they can sometimes earn a billion dollars without cheating.
My argument was that he wasn't engaging with the topic. I didn't make a particularly heavy case (as you note) for billionaires as cheaters—part of the reason for that is that there are a few low hanging arguments and examples for it and I'd think a counterargument should address them.
I think you're reframing his argument as something softer. Not whether they cheat or exploit, but whether they're primarily doing it. Is the cheating low enough or outweighed by the tremendous love for the product? I'm not sure he would agree that's what he's trying to say, but I would count that as cheating. At best, there is cheating, but it's worth it (for them and, I don't know, maybe/hopefully even for society).
You're also nudging it towards whether some billionaires are sometimes able to do it without cheating. It's hard to make a strong assertion whether the senator or PG's claims are meant strictly all or nothing. Both have language of this type. I couldn't say which one means it, though I think it's fair to judge hyperbole. I alluded to this in the prior comment, but I think it's fairly easy for CEOs to benefit from cheating happening downstream. Did Dropbox spam users' contact lists to grow? Did their PM or PMMs abuse push notifications for marketing? Again, I can see versions where this doesn't count as cheating for some. Or it does, just low enough level or normalized such that people redefine cheating. I think there's a lot of (often low level) cheating just built into business and it's mostly a matter of whether anyone will take you to task for it.
> I feel like you're also doing something weird—sorta strawmanning and sorta being conveniently inconsistent. You're reframing his argument as something much softer.
I'm going to firmly push back on this. A reasonable, straightforward interpretation of AOC's quote is that "you can't earn a billion dollars" without cheating or abusing others. I'm can believe she may have meant that as hyperbole, but even if she did, PG believes "What she meant was that it's impossible to get that rich without doing something bad — without cheating in some way." He's not doing mental gymnastics to get there; it's a straightforward reading of "you can break rules, you can abuse labor laws, you can pay people less than what they’re worth, but you can’t earn that."
That makes PG very much not strawmanning. He's arguing directly against her stated position. He doesn't steelman her argument (create a stronger or more generous version of her argument and argue against that), which could have made his argument stronger.
That also means I'm not strawmanning. PG's position is exactly what I said: that it's not impossible to become a billionaire without doing something bad. He is quite clear on that. Nowhere does PG use language implying all billionaires don't cheat. Only AOC does that, if you take her words literally.
I think you're basically doing what you accused me of doing here: greatly softening AOC's position. Did Dropbox spam users' contact lists to grow? (They didn't, AFAIK, though they did have a referral program to invite friends.) This is a huge downgrade in accusation of wrongdoing compared to breaking rules and abusing labor laws.
If you soften your definition of cheating to this level, it's no longer a billionaire thing. It's an everyone thing. Does my gardener report all his cash income? Has a friend ever streamed a TV show less than legitimately? AOC isn't trying to nitpick the smallest infractions. She's trying to paint becoming a billionaire as substantially corrupt.
What he does for hyperbole is say that all one needs to become a billionaire is make something people want. It’s that simple. There are of course many non-billionaires who make food or write code that people love. There is more than one path to a billion, but many of them involve employing the people making loved products and services and putting one or many layers in between. The billion is largely not possible from just making it. The layers attract cheating. Some might also argue it's wrong to say the billionaire's path involved the making of the thing people love anyway.
This is not unlike a sibling commenter who hypothesizes earning a $50k margin building a home and all you need to do is do it 20k times. There’s a lot in between doing it once and 20k times. The path has many places where cheating will make things easier and possibly required. If the leader avoids the temptation, their employees may not, society may not. If their competitors cheat and they don't, we should applaud them, but they might not be a billionaire then and we can't count them. I'd guess this is a common way potential billionaires do not become billionaires. It probably catches lots of people getting to a million and then more at ten million and then more.
There's a certain amount of "in theory you could make a billion", that's different than whether we have billionaires that didn't cheat. I think it’s worth noting that you are engaging with the issue in a way that he didn’t. This was the primary argument I was making.
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FWIW It may well be an everyone thing. As an argument though, if everyone cheats, billionaires cheat. It's not absolving the billionaires. That lots of people do it is the normalization and redefining bit. And everyone wasn't necessarily doing it at the point anyway. People don’t have to count dark patterns as exploiting, but there's a difference between considering it light cheating and moving it to not cheating.also his argument relies on consumers being in a stable situation. desperate people 'want' a lot of things which makes them easier to exploit
The responses to PG were remarkably substantive and specific, in the direction you point out and others! The high-horse complaint about "negativity" was easily the laziest and least specific thing in this thread.
I don’t agree. You may agree with them but your agreement is not the same as substantive.
The allegations of PG ducking AOC's definition of "earn," the allegations of missing externalities, all the specific controversies -- you have made no post over 20 words, no explanation of why you find any of this criticism substance free. If you have something to say, say it.
This is quite a lazy argument.
I think we can clearly say that capital gains are not earned.
Someone who lays bricks, "earns" their income; someone who's wealth increases as a bricklaying company's value increases, does not.
In this sense, it is indeed impossible to "earn" a billion dollars...
So if I'm a brick layer and I decide to innovate and build a machine that can lay bricks faster and cheaper, and I hire people to help me do that, suddenly I've not actually earned anything? If I'm a farmer and I use a horse and a plow to plow my field instead of with my bare hands then I've not earned anything? Putting your capital towards these things is absolutely "earning" and the modern economy is just a generalization of that which enables capital and need to find each other more readily.
We should all go back to being hunter-gatherers? Or how do you propose this is going to work?
You gave examples of creating and inventing things and employing and leading people. Those are value creation.
I don't think I fully agree with it, but OPs point wasn't about any of that and instead said capital gains (and clarified further - fungible, uninvolved capital without any other contribution). That's really different. If you want to attack that maybe use an example of passive index investors or pension funds allocating capital to a vc.
Capital doesn't just magically increase for no reason. It increases to the degree the business produces more value for its customers. Most business fail to do this, which is why most companies fail. Other succeed, and attract investors who want to put more capital into the business to help it grow more.
Starting a company that becomes worth $1M by creating $1M in value is a literally a capital gain of $1M for whoever owns that business.
Maybe the person who started that business wants to sell. 10 people buy $100k each in shares. Now they own the business. They hire a manager to grow the business and expand and create more value. Now the business is worth $2M. Those new investors created another $1M in value by hiring the right manager and making good decisions. This is another capital gain.
None of this is accidental or magical. Businesses that do well produce capital gains, and most businesses fail, and produce no capital gians.
Clearly my example didn't resonate but in my mind there is no difference between me using my capital in my business and me using my capital in other people's business. A passive index investment is me using my capital in the broader economy. So I am a bricklayer. I take my capital. I give it someone to design a brick laying machine. Or I am a bricklayer. I take my capital. I invest in the S&P 500. When I have the brick laying design I go to someone with more money and negotiate them funding my brick laying machine company. Those are all capital gains. Where is that imaginary line? pg specifically talked about startup founders.
Capitalism isn't perfect but it's the best system we have. We need to educate people better about how it works and we need to regulate it so it's not abused. But capital gains, or interest, are "earned". They are also taxed, and when those taxes are used for the right goals by the government, result in improving things for everyone.
> capital gains, or interest, are "earned"
According to the IRS, "unearned income" is money received from sources other than employment, such as interest, dividends, rental income, and pensions.
We tax it at a vastly lower rate than ordinary income, and we tax it not at all for the purposes of exponential compounding, which is the application in which it is most problematic. What fraction of Elon's capital gains do you think have ever been realized?
I am almost certain (not sure how we can check) that Elon is paying a lot more taxes than the average person. He doesn't get more services for that money. The top 1% income earners pay something like 50% of the total individual's taxes + their companies pay a lot of taxes. He's basically subsidizing any service you're getting from the government.
We tax capital gains less because we want people to invest their money in companies. As I said, we can debate the tax rates, some might argue we should lower the tax on capital gains (double taxation?) some might argue we should raise it. We should absolutely have an evidence based rational discussion on these topics.
Elon has about 10 million times the wealth of the median American, with expected passive income well over a million times that of the median American. He'll pay tax on almost none of it, as a fraction. But probably more than 1/1,000,000th, so it's ok? That's your argument?
Why should someone richer pay more tax? We all get the same services from the state. So in practice he's probably paying x100 the median but you're saying he should pay x10,000,000. If you include the taxes his companies are paying then it's probably more like x5,000. It's not a given at all why he should be paying that much in the first place. And in fact, it didn't even used to be like that. Capital gains tax is a relatively new concept and even income tax isn't that old.
There's a good podcast about the evolution of US income tax: https://99percentinvisible.org/episode/624-tax/
EDIT: So supposedly in 2021 Musk paid $12B in taxes (which was an anomaly) and in most years he pays around 455 million federal taxes. There was one year where he took no income and paid no taxes. So the average American probably pays ~10K I would imagine.
> We all get the same services from the state.
I agree with your intuition, but this is often contested based on the idea that one of the state's services is protecting property, which scales up in cost in some way with the amount of property.
For example, if you have a 10-story building, the cost of protecting it against fire is greater than the cost of protecting a small shack against fire (the kinds of fires it can be involved in and the means of accessing it to fight them are greater).
Or, if you have valuable jewels, the cost of protecting them against theft is greater than the cost of protecting a few items of clothing (more sophisticated attackers like organized crime and otherwise professional criminals may try to steal them using more sophisticated means and resources).
Or, if you own corporations, the cost of protecting your ownership interest against fraudulent transfers may be greater than the cost of protecting someone's ownership interest in a house against such fraud, again because of more sophisticated attackers and also because the rules permitting transfers of the corporate ownership interest may be more complex to formulate and apply.
However, it's likely that the cost of protecting most kinds of property scales sublinearly with the economic value of the property rather than superlinearly, so if people were merely being charged for the increased cost of actually providing them state services that they use or directly benefit from, this would still not justify tax rates increasing with wealth or with income.
$0.5B in taxes on $200B/yr in capital gains, for a tax rate of 0.25%
I wish I could pay taxes at a rate of 0.25%! What tax rate did you pay last year?
I didn't pay any capital gains on stock I did not sell.
You paid a lot more than 0.25% in tax. As did I.
>Someone who lays bricks, "earns" their income; someone who's wealth increases as a bricklaying company's value increases, does not.
How does this follow? Is the management effort in organising a brick laying company not count as work? Does the RND effort of a bricklaying company not count as work?
I would have used housing speculation as my example tbh.
The parent post is not talking about managers, they receive a salary and are taxed at regular income rates. It's taking about shareholders. Someone who makes money by owning a stock should be taxed more aggressively that someone earning a salary, IMO.
But a company director is usually both? And often forgoes salary for ownership.
The parent post is not saying that some forms of shareholding do not earn, but they are excluding any form of owning a bricklaying firm is definitively not earning. So any arrangement that involves owning a bricklaying firm is within scope. Sole Trader or Partnership for instance.
also, the bricks ARE capital.
Wrong.
The house is the capital. Bricks are an intermediate good.
Yes, in a house, they form only part of the house. But before that, someone has to own the land and equipment that gets those bricks out of the ground, and the kiln that fires them, etc. And the materials for the kiln have to be sourced and built.
The point is, the bricks do not materialize out of thin air. The act of laying the bricks is not the only labor or capital involved in laying bricks.
> I think we can clearly say that capital gains are not earned.
No, we can't say that at all, because most businesses are small businesses, owned by the people who run them, and capital gains are the owners' income from running the business.
The money startup founders make, from building something as PG describes, is also capital gains. So again, no, we can't say at all that capital gains are unearned.
That's simply not true. No CEO is going to accept zero salary, just because the value of his stocks will increase - especially not with small companies which aren't publicly traded.
In fact, in some countries not paying yourself a fair-market-value salary is illegal!
> No CEO is going to accept zero salary, just because the value of his stocks will increase
Maybe not zero, but PG's "ramen profitable" basically means the only "salary" the founders take is enough to cover their living expenses, which are kept minimal. So the vast majority of the money they make (remember we're talking about a billion dollars here) is capital gains, not salary.
Of course CEOs of large established companies (not startups) take large salaries--and then usually get stock options and own a considerable amount of company stock, so they get compensated three different ways. Which arguably gets into "unearned" territory--but at that point the company is way past being a startup.
> especially not with small companies which aren't publicly traded
Privately owned companies can still be sold, and the profits from the sale are capital gains. But I agree that in this case that's not the primary way the owners of, say, a mom and pop restaurant get compensation. I should have been more specific that I was talking about startups.
> no, we can't say at all that capital gains are unearned.
Yes, we can say this. The IRS classifies capital gains as unearned income.
The way the IRS uses technical terms has nothing to do with the ordinary lay person's concept of what is earned and what is not. (The main function of the IRS definition of "unearned income" is to define what kinds of income don't have to have payroll tax withheld.)
What happens to the person who earns their income laying bricks when an automatic bricklaying machine is built? Is it unethical for them to earn that income because they are operating the machine? What about the person who finds them people who need bricks laid because the person who lays bricks finds it hard to get good clients who aren't a pain?
I really wish people weren't so easily seduced by the labor theory of value.
I think you are arguing against a strawman. I've never heard someone suggest that the machine operator shouldn't be paid. Same for the other example who would clearly be doing labor.
No, we can’t clearly say that. If we could, they wouldn’t be taxable.
Yes, we can clearly say that capital gains is unearned. Unearned income can also be taxable.
All production requires labor AND capital.
Your labor alone without materials, without tools, or a farm, or a factory, is just you flailing your arms in the air and producing nothing. Capital is as valuable an input to production as labor. You cannot have one without the other.
It's so funny to see people on HN who have clearly overdosed on Marx but have never read Das Kapital, where even the man himself acknowledges the critical role capital plays in production.
Typical ownership heavy replies, which want to equate other people's effort to their own...
100%
A lot of comments seem to not assume that ownership is equivalent to 'earning'. Why does capital need to pretend their wealth growth is equivalent to the effort of labour.
Effort is irrelevant. If it takes me ten years to grow one apple, should I get paid the same as someone who can produce 1M apples? Productivity is what matters, not effort.
People are more productive when they have tractors and seed and fertilizer and all the other requisite capital inputs for growing apples. In fact, one can hardly think of anything productive one can do with zero capital inputs.
You do not live on an island. There is trillions of dollars worth of both capital and labor at work underneath your every waking moment that supports your life. Your level of effort means nothing to anybody.
That's half my point. Because what you said might be true, and yet, the argument by Capital is often that they are working HARDER THAN EVERYONE else to get their wealth and everyone else is lazy. Which is a) both irrelevant as you state, and b) a sign they need the validation that they are putting in effort / more effort to justify what they are extracting from everyone else.