[ben_w]

> one where you can comfortably afford living, fun, saving, etc I think is most people's interpretations

My understanding is that most people's understanding of "middle class" is "about 20% richer than me", and that this remains true regardless of how rich one is.

Most people, for most of the years since Joseph Marie Jacquard realised he could control a loom with punched cards, the Red Queen race of automation has given us more stuff and experiences per hour of labour — if you wanted to live the 1820s idea of a middle class life, you can retire as soon as you get around €$£ 25-50k of savings (just don't start a family, the rest of society considers this standard to be unacceptable for that, what with no electricity).

If this improvement in living standards is despite, or because of, each business trying to maximise revenue, is basically the entire disagreement between Adam Smith and Karl Marx; though it's worth also noting that neither liked rent-seeking, and if you have a completely efficient market then nobody can extract any profits because competition drives margins to zero… but also since then we've had research show that complex markets aren't and can't be efficient: https://arxiv.org/abs/1002.2284

[smallmancontrov]

> "middle class" is "about 20% richer than me"

There are better definitions.

> Karl Marx

You said Voldemort's name! Now he will surely haunt us.

In any case, your objective function dramatically changes when you own things for a living rather than work for a living. Many people would call someone with a 1MM retirement portfolio rich, but 4% returns on a 1MM portfolio is $40k/yr and probably isn't going to replace a job, not for someone who managed to amass 1MM in the first place. However, 4% returns on a 10MM portfolio is $400k/yr, and it might. 4% on $100MM is $4MM/yr, and it probably will. So the composition of incentives switches from worker-like to owner-like somewhere around $10MM net worth, and this is worth noting.

If you ever saw old timey movies from the 50s or 60s where "millionaire" was said with reverence, note that $1MM in 60s dollars is $10MM in 2024 dollars. They were aware of the class divide back then in a way that people generally are not today.

[ben_w]

> There are better definitions.

I'm a linguistic descriptivist, not a prescriptivist. This is how I think most use the term, even if there's a more useful term of art in economics or in politics.

> You said Voldemort's name! Now he will surely haunt us

One might even say that a spectre is haunting Europe… ;P

> So the composition of incentives switches from worker-like to owner-like somewhere around $10MM net worth, and this is worth noting.

In a sense, sure. This is also close to what I'm told is the actuarial value of a human life in the USA, and that's not a mere coincidence.

But also, at that level you most likely only got the money by having a very different objective function to begin with, as it comes from starting a successful business. (Other options are "inherit" and "win big on lottery" and both groups have differently bad reputations to the kind of bad reputation that successful businesses people get; I can't possibly comment how accurate any of these reputations are).

[smallmancontrov]

Sure, and I see the wisdom in it: everyone gains 50 IQ points when they place a bet, so private ownership of the economy means that every section of the economy is owned by a responsible skin-in-the-game party incentivized to maximize value. A few simple rules create distributed intelligence. Cool!

But I also see the dark side. The economic notion of "value" being maximized is actually "wealth weighted value," a tiny but enormously consequential difference. Creating value isn't about doing what people want, it's about doing what rich people want, and rich people mostly want to get paid for being rich. Competition is supposed to keep this in check, but we police competition with the vigor and enthusiasm of a decaffeinated sloth, because that's what the people who own the economy want. When suits brag openly about anticompetitive strategy -- network effects, platform effects, last-mile and two-sided-market dynamics -- and regulators snooze more loudly every day, it's pretty clear that the system is captured.

Not that tech is unique, in fact we are pretty good all things considered. We still provide more value for less money every year. Many sectors have been doing the opposite for decades. Real estate is probably the stinkiest sector, where the incumbents are perpetually voting for dysfunction to pump the value of their own properties. Health care has similarly been squeezing its own training pipeline for the explicit, stated-out-loud purpose of pumping salaries, and now that boomers are aging this is going to get spectacularly ripe. None of this is wise stewardship, but it follows directly from incentives and power. Anyone who wants to claim that capitalism produces systematically good incentives had better have a really good answer for this cartel shit, because it rules the economy.

It's not just the economy, though. Capital interests are in the driver's seat in government as well. The extent to which tax policy has been pushed away from the capital gains loop and towards the wage-labor loop is almost comical. We brought women into the workforce without "meeting in the middle" on aggregate hours so now the average couple isn't allowed to raise a baby which shockingly produced a fertility crisis. Our trade policy has been re-geared so heavily to pump assets and dump exports that Alexander Hamilton is spinning in his grave next to the 30 year old opioid addict who is in his own grave because said policy changes sent his job overseas so that rich people could benefit from the higher stock returns.

In terms of the capital/labor pendulum, we've actually been here before, after the industrial revolution failed to net trickle down. I don't think we need glorious *ist revolution, but I do think we need another Roosevelt.

[ben_w]

> But I also see the dark side.

Indeed; if there were no dark side, Marx would have had nothing to write about.

The difference between "money" and "value" can also be found in the difference between what is measurable and what is important is noted in Goodhart's law, which was originally specifically about two different measures of money and why putting pressure on them specifically for economic reasons was not having the anticipated result: https://en.wikipedia.org/wiki/Goodhart%27s_law

I hope that the successor to Smith and Marx will account both for Goodhart and for Nash equilibria/game theory, both of which were developed and formalised over a century after the Communist Manifesto and around two centuries after The Wealth of Nations.

[username332211]

> and if you have a completely efficient market then nobody can extract any profits because competition drives margins to zero…

That's nonsense. It's not just businessmen that compete for consumer's money. Consumers compete for businessmen's money as well.

Suppose a widget-making enterprise made 3% profit on it's capital. What's the sensible thing a widget maker should do? Obviously, fire his employees, sell or scuttle his machines, turn everything into cash and turn the cash into 4.313% treasury bonds.

And the destruction of widget-making machines and enterprises shall continue until widgets sell at a margin that justifies their existence. And if nobody can afford widgets at the that price, there shall be no more widgets.

I find it amazing how people can talk about capitalism, without any understanding of the concept of capital, it's formation and destruction.

[ben_w]

> That's nonsense. It's not just businessmen that compete for consumer's money. Consumers compete for businessmen's money as well.

I wrote "if", and then provided a citation that the clause is false.

> Suppose a widget-making enterprise made 3% profit on it's capital. What's the sensible thing a widget maker should do? Obviously, fire his employees, sell or scuttle his machines, turn everything into cash and turn the cash into 4.313% treasury bonds.

This seems to be even more of a flawed toy model as the words of mine which your complaining about.

Even assuming that's the same period so these are equivalent (3% per sale but you make a widget in 4 hours and sell them just as fast is much more than 4.313% per year): Why does a treasury bond earn interest in the first place? How does the government cover this cost?

The usual answer to the latter is "the bond is to raise money for a thing the government wants to do, in order to boost the economic output of the country, thus future taxes pay for it". If they set the interest rate so high that everyone laid off all their workers, this would not be effective, so a government would not do it.

You also suggest they may sell their machines: to whom? If everyone is doing this, there is no market to sell to.

--

Now consider: an investor has investment opportunities of 2% and 3% return. The economic choice is 3%, you are a widget maker promising this, they invest in your business.

Your competitor knows your profit margin and your costs, they know that if they can make widgets at the same cost then they can charge 3% and get a share of the same customers… except that both producers have fixed costs as well as per-widget costs, and the market size is not in their power to change.

The competitor's options:

1) Continue to compete at the same profit margin

2) Undercut your prices: if all the customers are perfectly rational spheres in a vacuum, then they will immediately switch supplier even with an infinitesimal price reduction, significantly increasing their sales at the cost of yours

3) Increase their prices in order to promise a higher return on investment to their investors — but they know that if they do this, homo-economicus customers will all reject their widgets in favour of yours, and that their business will therefore earn nothing, and they know that their investors know this too

4) Leave the market entirely, potentially allowing you to become a monopoly and raise your profit margin (to maximise their options within the supply/demand curve limits)

Option 2 is the game theoretic choice on any given round, but it's not a one-shot game and you as the original widget company get to respond before running out of money. The whole thing is symmetric, so you tend towards no profit even though you'd like to collude because it's a prisoner's dilemma payoff matrix.

This is also symmetric with regard to different industries, so switching from widgets to gadgets in order to boost return on investment merely changes the players and not the, ah, game.

What slows this process down includes, but is not limited to (because I'm not an economist):

1) Customers aren't perfect spheres of economic rationality

2) People don't know all their price options

3) People are lazy

4) Your costs aren't likely to be exactly the same as your competitor's costs

These[0] reasons are why markets aren't efficient.

[0] and I would hope many other things, because otherwise this topic is simpler than I expected