Friday, August 20, 2010

Entrepreneurs Can Make a Greater Contribution to Society Through Business Than Charity

From today's WSJ editorial page "Gates and Buffett Take the Pledge" by Kimberly Dennis: 

"Bill Gates and Warren Buffett announced this month that 40 of America's richest people have agreed to sign a "Giving Pledge" to donate at least half of their wealth to charity. With a collective net worth said to total $230 billion, that promise translates to at least $115 billion. It's an impressive number. Yet some—including Messrs. Gates and Buffett—say it isn't enough. Perhaps it's actually too much: the wealthy may help humanity more as businessmen and women than as philanthropists.

Successful entrepreneurs-turned-philanthropists typically say they feel a responsibility to "give back" to society. But "giving back" implies they have taken something. What, exactly, have they taken? Yes, they have amassed great sums of wealth. But that wealth is the reward they have earned for investing their time and talent in creating products and services that others value. They haven't taken from society, but rather enriched us in ways that were previously unimaginable.

Even if Mr. Gates makes progress in achieving his ambitious philanthropic objectives—eradicating disease, reducing global poverty, and improving educational quality—these accomplishments are unlikely to match what he achieved by giving us the amazing capability we literally have at our fingertips to access and spread information. The very doctors and scientists who may develop cures for diseases like malaria will rely on the tools Microsoft supplies to conduct their research. Had Mr. Gates decided to step down from his company and turn to philanthropy sooner than he did, they might have fewer such tools.

Let's hope the philanthropy of those who do sign the Giving Pledge achieves great things. But let's not fool ourselves into thinking that businessmen are likely to achieve more by giving their money away than they have by making it in the first place."

From the NBER paper "Schumpeterian Profits in the American Economy: Theory and Measurement" by William Norhaus:

"The present study examines the importance of Schumpeterian profits in the United States economy. Schumpeterian profits are defined as those profits that arise when firms are able to appropriate the returns from innovative activity. We first show the underlying equations for Schumpeterian profits and then estimate the value of these profits for the non-farm business economy.

We conclude that only a minuscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers rather than captured by producers. For the entire postwar period and for the nonfarm business sector, innovators are able to capture about 2.2% of the total surplus from innovation."

MP: In other words, it’s very likely that the total value created for society by Bill Gates’ innovative activities, including starting Microsoft, far exceeds his own personal wealth, so he has already given back billions of dollars worth of value to society, and should feel no need to give anything more back. In fact, a stronger case could be made that consumers have exploited Bill Gates, than the opposite. If the Nordhaus analysis accurately applies to Bill Gates, almost 98% of the social returns from the value of Microsoft products have already been captured by consumers around the world, which greatly exceeds the personal fortune of Bill Gates. And the contribution to society from Bill Gates’ capitalist activities will likely far exceed the contribution to society of his charitable giving.

54 Comments:

At 8/20/2010 9:46 AM, Blogger juandos said...

Well maybe Gates and Buffet should've considered using their collective wealth in fighting off the job killing stimulus bill instead 'if' they were oh so concerned about 'giving back'...

Five job-killing stimulus projects

Maybe Gates and Buffet should've considered fighting the gulf drilling moratorium instead...

Deepwater oil drilling moratorium job-loss picture is getting clearer

 
At 8/20/2010 10:19 AM, Blogger Benjamin said...

I agree with the sentiments of this post. Gates and Buffet would be better advised to devote their wealth to entrepreneurial start-ups, rather than more charity.

As for creating jobs, the USA needs to radically scale back misallocations of capital to rural areas. welfare and the military--but this is out of Gates/Buffet's ken.

 
At 8/20/2010 10:41 AM, Blogger Dan Ferris said...

"...he has already given back billions of dollars worth of value to society, and should feel no need to give anything more back."

Thank you for saying this. I've thought for years and said so in print once or twice, that the notion of "giving back" is bankrupt.

I also agree that Buffett and Gates are well outside their circles of competence when it comes to allocating capital. Gates should allocate it to technology, Buffett to the businesses he understands. They're meddling in other people's lives, and that rarely turns out well.

 
At 8/20/2010 11:04 AM, Blogger Junkyard_hawg1985 said...

I agree his greatest contribuution to society his innovation. But, is there a reason he can't do both?

 
At 8/20/2010 11:15 AM, Blogger Jet Beagle said...

Junkyard_hawg1985,

As far as I am concerned, Gates and Buffet can do whatever they wish with their money. Few would argue that. Where I think they are wrong is in trying to make other wealthy folks feel guilty for not following their lead.

As I see it, highly productive persons such as Gates, Buffet, and others would best help humanity by continuing to do what they know best. Gates and Buffet may not see it that way, or they may be bored with doing what they know best. IMO, though, they should just stop preaching and leave everyone else alone.

 
At 8/20/2010 11:34 AM, Blogger Buddy R Pacifico said...

A couple of thoughts on Gates and Buffet on giving back:

They are giving privately rather then having their estates taxed and redistributed.

Bill and Warren want the residual passed on to their children to not be enormous.

Bill and his wife have huge plans for health iniatives but also education. I know a couple of people at the Gates foundation and their work is in education. The health work is largely outside the U.S. and education improvements in the U.S.

Entrepreneurs in a high-tech economy need a well educated work force. Bill Gates is truly an entrepreneur and he is beginning to speak out for cutting government spending in Washington state. Warren Buffet is not really an entrpreneur but rather the world's best investor.

The U.S. needs these two guys to speak out in their strongest terms about what needs to be done or not done to foster entreprenuership. They don't need to run businesses anymore to be the most effective spokesmen for a business climate that is conducive and not imperiling of U.S. business.

 
At 8/20/2010 11:38 AM, Blogger Asante Samuel said...

Please speak to the relative tax liabilities vs benefits these two butt heads will incur.

 
At 8/20/2010 1:03 PM, Blogger Hydra said...

You give hime too much credit, what he did was largely inevitable, he just got to market first.

And who knows what we missed out on, thanks to Gates. It reminds me of the cartoon of two priests in the Sistine Chapel, staring up at Michelangelo at work. One says to the other, "Too bad, fo a few hundred sisterci more, we could have had Guido."

as for things we never imagined and jobs, Gates created thousandso fo jobs for people building work-arounds for all the stuff he made that never wored as advertised.

 
At 8/20/2010 1:31 PM, Blogger Ron H. said...

"Gates created thousandso fo jobs for people building work-arounds for all the stuff he made that never wored as advertised."

In other words, we would now be better off if Gates hadn't existed.

"...what he did was largely inevitable, he just got to market first."

Well, not exactly first, but probably inevitable in some form. He did become the major player, and stayed in front for 30 years. Not exactly just blind luck.

If there's one thing we can regret, it's that Gates helped the development of this internet thingy, thereby enabling you to annoy a greater number with your meaningless drivel.

You haven't been working on your spelling or typing.

 
At 8/20/2010 1:45 PM, Blogger Ron H. said...

"Where I think they are wrong is in trying to make other wealthy folks feel guilty for not following their lead."

Jet, I doubt that many of those wealthy folks can be shamed out of big chunks of their wealth. :-)

You might view it as gates signing up up investors for his new enterprise.

It's possible that he can direct his innovative skills in new directions that will be just as valuable as his past accomplishments. As long as he isn't just dumping money on existing NGOs, it's possible to have a possible impact.

In any case, as you pointed out, it's his to do with as he wants.

 
At 8/20/2010 2:11 PM, Blogger Jet Beagle said...

"he just got to market first."

Which market would that be?

RadioShack and Apple microcomputers had operating systems before Gates marketed MS-DOS.

VisiCalc, SuperCalc, and Lotus 1-2-3 predate Microsoft Excel.

WordStar, Wordperfect, and Wang's Word Processor were dominant before Gates introduced Microsoft Word in 1983.

Apple's GUI interfaces for LISA and then MAC were marketed before Windows.

I'm not sure, hydra, but I don't think Microsoft has been first to the market with anything of significance.

 
At 8/20/2010 2:41 PM, Blogger Buddy R Pacifico said...

Jet Beagle, according to Microsoft Bill Gates and Paul Allen delivered the first operating system for the pc on Jan 3, 1975. This was to Altair and called Microsoft BASIC. This was an adaptation BASIC programming language specifically for small computers.

If so, then yes the very brash friends, Gates and Allen, were the first and their luck was self made.

 
At 8/20/2010 2:45 PM, Blogger Stephen said...

Very interesting, you guys want the government to end all social welfare, you argue that "more people will have money for private charity if they were taxed less". However, those that do give to private charity are "meddlers" and should shut the hell up.

Sounds exactly like the social darwinists of the 19th century. The unproductive and unlucky should be left to rot so that society isn't burdened with them, eh?

 
At 8/20/2010 2:50 PM, Blogger Jet Beagle said...

Definitions for the word "entrepreneur":

dictionary.com
"a person who organizes and manages any enterprise, esp. a business, usually with considerable initiative and risk."

Merriam-Webster Online:
"one who organizes, manages, and assumes the risks of a business or enterprise"

Warren Buffett does take a hands-off approach to managing the operations of the businesses he acquires. But Buffett makes the decisions about what to buy and about how much capital to allocate to those companies he does buy. As I see it, Buffett's organization of the holding company, management of capital allocation, and assumption of risk (through ownership) exactly meet the definition of the word "entrereneur". That's why Warren Buffett is one of the inductees into The Entrepreneur's Hall Of Fame.

 
At 8/20/2010 3:23 PM, Blogger Jet Beagle said...

Buddy R Pacifico,

I'm pretty sure that few people consider Microsoft's Basic Interpreter to have been an operating system. It was merely an interpreter. In fact, Gates did not even have an operating system when approached by IBM in the early 1980's.

From the Modern Operating Systems, by Dr. Andrew Tanenbaum

'In the early 1980s, IBM designed the IBM PC and looked around for software to run on it. People from IBM contacted Bill Gates to license his BASIC interpreter. They also asked him if he knew of an operating system to run on the PC. Gates suggested that IBM contact Digital Research, then the world's dominant operating systems company. Making what was surely the worst business decision in recorded history, Kildall refused to meet with IBM, sending a subordinate instead. To make matters worse, his lawyer even refused to sign IBM's nondisclosure agreement covering the not-yet-announced PC. Consequently, IBM went back to Gates asking if he could provide them with an operating system."

Mary Bellis, of Inventors Guide, confirms that version of Microsoft and operating systems:

"As for an operating system (OS) for the new computers, since Microsoft had never written an operating system before, Gates had suggested that IBM investigate an OS called CP/M (Control Program for Microcomputers), written by Gary Kildall of Digital Research. "

 
At 8/20/2010 3:27 PM, Blogger PeakTrader said...

"In other words, it’s very likely that the total value created for society by Bill Gates’ innovative activities, including starting Microsoft, far exceeds his own personal wealth."

Bill Gates made his money in a monopoly. There was likely much producer surplus and little consumer surplus.

Also, I may add, when someone starts a firm, works hard, and the firm fails, that capital and labor are shifted from the producer to the consumer (i.e. the consumer benefits at the expense of the producer). Most start-ups fail quickly.

 
At 8/20/2010 3:30 PM, Blogger PeakTrader said...

Moreover, Bill Gates helped make 10,000 or so Microsoft employees millionaires and a few became billionaires, because of its monopoly power.

 
At 8/20/2010 3:41 PM, OpenID Sprewell said...

I think Gates and Buffett are given too much credit for the wealth their companies created. As others have pointed out, if Gates and MicroSoft hadn't won the PC battle, somebody else would have. Maybe it would have been highly fragmented and wouldn't have progressed as much, maybe Steve Jobs would have turned the PC into the closed platform he's now trying to turn the smartphone into, but on the other hand maybe the internet would have progressed much faster as a platform rather than being stuck for the last decade, partially because Microsoft fears it will take away from their PC dominance. Ultimately, Gates doesn't take full responsibility for the failures of innovation- the incompetence of his competitors is the primary reason- but Microsoft has helped retard that process. Imagine where we could have been today if Microsoft hadn't actively retarded the technology market with their strong-arm tactics.

Similarly, Buffett invested in a lot of newspapers over the years, which he loved because of their tendencies towards monopoly, ie one-newspaper towns. However, this created a stagnant atmosphere where stupidity and laziness flourished in newspapers, so that when a new technology like the internet came along the newspaper people bred in such a backwater were completely unable to adapt. Perhaps if it had been competitive all along, most would have still failed anyway. But the fact that only two former periodicals do well online, the Economist and WSJ, is pretty damning, indicating that their monopolies bred much more incompetence than a more competitive news market would have.

Ultimately my point is that if you want to look at the contributions of entrepreneurs, it's better to look at the accumulated mass, not exceptions like Gates or Buffett that hit the top because of strategies that weren't necessarily that optimal for the rest of us or for the long-term and of course benefited from luck too. As for whether they should put it to use as philanthropy, that's up to them, but the alternative of giving it to their kids sounds worse. I'm skeptical that they will know how to deploy their money for philanthropy so that it's actually useful, but there's not many better alternatives: I bet Gates would make a bad VC.

btw, I notice that one of my previous comments on this blog, where I called China a "f***ing joke," has been removed. Censoring for language now?

 
At 8/20/2010 4:03 PM, Blogger Buddy R Pacifico said...

Yes, Jet Beagle, MicroSoft BASIC was not thechnically an operating system. It was the first programming language to run a personal computer. You also referenced Gary Kildall. Kildall was a genius but he and Seattle Software were not the business dynamos that MicroSoft was and is. It is interesting how much early personal computer software was created by native Seattlites.

 
At 8/20/2010 5:08 PM, Blogger Jet Beagle said...

sprewell: "I think Gates and Buffett are given too much credit for the wealth their companies created."

The two richest men in America amassed their wealth over three and five decades, not overnight. Are you saying their wealth is not the result of their own efforts? Both men had numerous opportunities to make very large wrong decisions - and, in fact, did make wrong decsions along the way - yet still managed to accumulate wealth at a level many times what anyone else accomplished.

Are you attributing the three and five decades of smart decision-making by these men to luck?

Are you criticizing Gates because the money many millions of us willingly gave to Microsoft could have benefitted us even more - if not for "the incompetence of his competitors", as you put it?

Not sure why you used the newspaper investment to try and make your point about Buffett, Sprewell. Those represented a very small portion of the wealth he amassed. His investments in See's Candy, Coca-Cola, Geico, Nebraska Furniture Mart, Scott & Fetzer, Benjamin Moore Paints, Fruit of the Loom, Wal-Mart, and Proctor & Gamble have been the decisions which brought him billions.

Gates and Buffett deserve all the credit for what they have accomplished.

 
At 8/20/2010 5:17 PM, Blogger juandos said...

"However, those that do give to private charity are "meddlers" and should shut the hell up"...

Oh yeah! I'm always an avid fan of those who publically announce stupid decisions and then brag about it...

"Sounds exactly like the social darwinists of the 19th century. The unproductive and unlucky should be left to rot so that society isn't burdened with them, eh?"...

Actually no...

I was thinking that if we round up these societal parasites and bring them to YOUR domicile than you can show us what a true humanitarian you are by spending YOUR money on them...

 
At 8/20/2010 6:24 PM, Blogger Stephen said...

This comment has been removed by the author.

 
At 8/20/2010 6:29 PM, Blogger Stephen said...

juandos,

Exactly like I thought, you do want them to be left to die and think ill of others to would prevent such.

I think it really shows what kind of person you are that you consider all children to be "societal parasites", considering that most of them are unproductive.

Thank goodness such attitudes are not endorsed by even a significant minority. The world would be a pretty hellish place if it were.

 
At 8/20/2010 6:30 PM, OpenID Sprewell said...

Jet, I'm saying that Gates's and Buffett's wealth was often created by people who worked for them, sure. I'm not discounting their unusual ability, just pointing out other factors in their off-the-charts success. Gates forced a document monopoly on his customers, by realizing the value of keeping the Word formats closed long before they did. Lauding him is similar to lauding one of the railroad tycoons from a century ago: sure they demonstrated exceptional ability but the reason they hit no. 1 was because they were willing to use arm-twisting or exploitative tactics to extract more from their customers. In Gates's case, the benefits of the PC have been vast, but the technology would have progressed practically the same without him or Microsoft. As for luck, I'm suggesting that it was a significant factor in propelling them to the top, though obviously not the only one (Bill Miller beat the market for a decade then couldn't for the next decade). If IBM hadn't chosen Gates, maybe Jobs or Kildall would be the one receiving your adulation today, because maybe Gates would have been where McNealy is today instead. ;) Yes, the money Microsoft received could have been much better used, because it's not an innovative company and mostly copied its competitors. They were good businessmen and often used questionable tactics to keep their competitors at bay.

I used newspapers as the most egregious example for Buffett, but others work too. Coke is a shit product that is mostly buoyed by advertising, you could make the argument to a lesser extent for Amex too. Funny how you critique my example of newspapers then list a much smaller business like a furniture store. :) Buffett has a huge portfolio and I'm not denying his skill as an investor, but his avowed strategy is to choose businesses with a "moat," similar to the one newspapers had. He has chosen well often, but as with newspapers, there were often medium-term strategies used that won't work for his preferred long-term cycle. Gates and Buffett deserve credit for parts of what they've accomplished, not for all of it. Better to laud other entrepreneurs who haven't also made such questionable decisions to elbow their way to the very top.

 
At 8/21/2010 3:01 AM, Blogger Ron H. said...

"Bill Gates made his money in a monopoly. There was likely much producer surplus and little consumer surplus."

"Moreover, Bill Gates helped make 10,000 or so Microsoft employees millionaires and a few became billionaires, because of its monopoly power."

Peak, you must use a different definition of monopoly than I do. I can't quite stretch 90% of the operating system market to the status of monopoly. Dominant player? Yes. Only player? No.

There have always been other operating systems and other software products available, but none have ever achieved the market share Microsoft has.

What do you mean by 'no consumer surplus'? Gates has created incalculable value to consumers. Otherwise, why have we kept forcing so many billions of dollars into his pocket?

 
At 8/21/2010 3:53 AM, Blogger Ron H. said...

"I'm saying that Gates's and Buffett's wealth was often created by people who worked for them, sure. I'm not discounting their unusual ability, just"

Sprewell, that's not much of an argument. "People who worked for them" were chosen for their abilities and directed to do the work that created the wealth. I could as easily credit the fantastic machines that work for me for creating my wealth, but they haven't had the creative ideas or made any important decisions.

"Gates forced a document monopoly on his customers, by realizing the value of keeping the Word formats closed"

What monopoly? Word has never been the only word processing program available, If people haven't been happy with the closed format they could have shunned Word, and at any time during all these years, someone could have written and marketed a better program.

Comparison to railroads isn't valid. Railroads owned the only set of tracks available, but no one has a monopoly on innovation in software.

"...but on the other hand maybe the internet would have progressed much faster as a platform rather than being stuck for the last decade..."

Microsoft doesn't control the internet, as before, anyone could develop applications for an internet platform.

"Yes, the money Microsoft received could have been much better used..."

What can you possibly mean by that? The fact that Microsoft has been so very successful and made tons of profit indicates they are making the best use of their resources, whereas their competitors have not. How would you see it differently?

"...it's better to look at the accumulated mass, not exceptions like Gates or Buffett that hit the top because of strategies that weren't necessarily that optimal for the rest of us or for the long-term..."

If what they do is isn't optimal for the rest of us, why do we keep throwing so much money at them?

Give market forces a little more credit.

 
At 8/21/2010 5:25 AM, Blogger juandos said...

"Exactly like I thought, you do want them to be left to die and think ill of others to would prevent such"...

Gee! What a suprise! Long on talk but short on walk...

"I think it really shows what kind of person you are that you consider all children to be "societal parasites", considering that most of them are unproductive"...

Ahhh yet no mention of the adults who spawned them and their responsibility for said larvae...

"Thank goodness such attitudes are not endorsed by even a significant minority"...

So you approve of such cluelessness, eh?

"The world would be a pretty hellish place if it were"...

Hmmm, open your eyes and take a good look at the world...

 
At 8/21/2010 1:39 PM, Blogger PeakTrader said...

Ron, if it was a competitive market, the price would likely be lower and the quality higher, i.e. more consumer surplus and less producer surplus (for investors, employees, etc.).

 
At 8/21/2010 3:42 PM, Blogger Ron H. said...

Peak, I agree that if it were a MORE competitive market, the price would likely be lower and the quality better.

There are, and have been, several better operating systems than windows, but none, except perhaps Mac OS are as user friendly. Most require some level of technical expertise of the user.

I suspect that Microsoft has found an optimum mix of price, quality, and user friendliness that maximizes market share.

BTW in the early years I expected Apple to become the dominant player, as they marketed aggressively to schools. Many students spent their school years using Macs. They might be expected to buy and use them in adulthood as something familiar, but it hasn't worked out that way. Go Figure.

Barriers to entry in this field are extremely high, but I still can't use the word monopoly.

 
At 8/21/2010 5:18 PM, OpenID Sprewell said...

Ron, while your machines could create wealth too, Microsoft employees actually did come up with creative ideas and made important decisions. When a founder amasses massive wealth like Gates did, he no doubt earned a large portion of it but part of it is just how much he was able to negotiate away from other employees, which is a fairly arbitrary number. Gates could have left more on the table for his co-workers and then have ended up with less than Ellison. Part of the problem is that the way companies are structured today is fairly biased towards rewarding founders, not as much for co-workers who may have made the good decisions and did the actual work, for example Pierre Omidyar becoming a billionaire off eBay. Gates did more than Omidyar of course but he also benefited from this founder windfall, just pointing that out.

Competitive railroads could have built their own tracks too, just would have been very hard, sort of like fighting a de facto document standard when it's closed. ;) Word is pretty much a monopoly given their market share. If you could only use that word when only one company exists, then there are no monopolies. ;) Of course people could have avoided Word early on: as I noted, Microsoft realized the value of a closed document format before their customers did and for many of those places it soon was too late, since they had vast document stores using a closed document format. Microsoft doesn't control the internet, they control the PC and have used strong-arm tactics to kill off the first internet app platform that tried to take root on their platform, ie Mozilla and their XUL stuff, which of course acts as a deterrent for those who would try that today. As I noted however, the main reason it hasn't been done is the incompetence of their competitors.

As for how the money could have been better used, the internet is still a backwater partially because Microsoft did what they did. Microsoft made "the best use of their resources" by locking people into their platforms technically/legally and extracting monopoly rents, not sure how you don't see that. There are always degenerate cases in any market, like how a bunch of supposedly smart investors and hedge funds thought it a good idea to invest with Madoff. Microsoft is not a scam like Madoff, but it was built on strong-arm tactics that similarly waste resources. People kept throwing money at Madoff too, till he went under. ;) You cannot be so simple to think that everyone in a market always allocates resources to the best end, we wouldn't have had a housing bubble if that were the case. ;) I give market forces a lot of credit, as they impose discipline on a bunch of very stupid people. But if you think the market is always "efficient," in that it doesn't contain waste too (much less than govt, but still a fair amount), I think you're looking at the market with rose-colored glasses.

 
At 8/21/2010 8:04 PM, Blogger Ron H. said...

This comment has been removed by the author.

 
At 8/21/2010 8:06 PM, Blogger Ron H. said...

sprewell -

Where to begin:

"...but part of it is just how much he [Gates]was able to negotiate away from other employees..."

As the founder, he didn't need to negotiate anything "away" from his employees. They accepted packages they liked.

WHAT is a "fairly arbitrary number"? Is it just your writing style I'm having trouble with?

"Part of the problem is that the way companies are structured today is fairly biased towards rewarding founders..."

I'm at a loss. What could your point be here? Since founders likely do the structuring, something they favor is to be expected. No one is forced to accept unfavorable employment conditions.

"...benefited from this founder windfall..."

A windfall is something one doesn't have to work for, something unexpected, and perhaps undeserved. Is that what you mean to say here?

"Competitive railroads could have built their own tracks too, just would have been very hard..."

No they couldn't. That's a silly suggestion and you know it. Based on that idea, local water companies could run water pipes to my house to compete with my current (monopoly) provider.

"Word is pretty much a monopoly given their market share."

And it's gained that market share by providing something we as customers prefer to the other products. Why would any profit making company use open standards, thereby giving away the fruits of their labor?

"If you could only use that word when only one company exists, then there are no monopolies."

That's right. Notice the first part of that word is "mono". That means "one", right?

I defy you to find a pure monopoly past or present that isn't created by government. Think USPS, Federal Reserve, and utility companies like the previously mentioned water company. You can't just call any dominant player a monopoly. You will find that most antitrust cases involve complaints from unsuccessful competitors.

"As for how the money could have been better used, the internet is still a backwater partially because Microsoft did what they did. Microsoft made "the best use of their resources" by locking people into their platforms technically/legally and extracting monopoly rents, not sure how you don't see that."

Specifically how do you envision the money being spent better?

Monopoly rents? For example...what? It seems to me that prices have stayed pretty reasonable over time. More function, same price.

The issue of companies having a huge investment in Word documents sounds like a great opportunity for someone to develop a conversion program. Do you think enough people are really concerned about this to make it worthwhile? Word seems to meet their needs.

Just to be clear, I don't like the dependence on Word either, but I understand the business case.

"They control the PC..."

Well, 90% of the PCs.

"...and have used strong-arm tactics to kill off the first internet app platform that tried to take root on their platform, ie Mozilla and their XUL..."

Do those strong arm tactics include asking government to use force? If so, then that should be the focus of your complaint. Most companies beg for regulation and government involvement against their competitors.

(continued)

 
At 8/21/2010 8:10 PM, Blogger Ron H. said...

(continued)

"You cannot be so simple to think that everyone in a market always allocates resources to the best end..."

Well of course not. If that were the case nobody would ever go out of business. The most efficient thrive, and the least efficient go out of business and someone else gets a shot at using those resources more efficiently. A measure of this efficiency is the amount of profit generated.

BTW by efficient I mean the use of resources that maximizes output of goods and services at the least cost.

"...we wouldn't have had a housing bubble if that were the case."

Perverse incentives and pressures from government caused the housing bubble. People and businesses made rational decisions based on those distortions of the market.

"But if you think the market is always "efficient," in that it doesn't contain waste too..."

Of course it does. Hopefully the wasters are soon out of business so others can attempt to make =better use of the resources.

 
At 8/22/2010 7:56 AM, Blogger juandos said...

PT says: "Ron, if it was a competitive market, the price would likely be lower and the quality higher, i.e. more consumer surplus and less producer surplus"...

Hmmm, PT wouldn't also be a 'more competitive market' if the consumer was a little smarter with regards to computer technology?

jet beagle notes: "I'm not sure, hydra, but I don't think Microsoft has been first to the market with anything of significance"....

Exactly!

"Bill and his wife have huge plans for health iniatives but also education. I know a couple of people at the Gates foundation and their work is in education. The health work is largely outside the U.S. and education improvements in the U.S"...

Well Buddy R Pacifico it might be a questionable proposition for Gates to be involved in education...

Those who are willing to accept Gates' money better find out if they have to accept Gates' lunatic ideas with said monetary help...

 
At 8/22/2010 4:26 PM, OpenID Sprewell said...

Ron, I don't think it's my writing style that's the problem, perhaps your reading comprehension and apparent ignorance of how negotation works. I made two interlocking points: the first was that within a certain range, executive compensation is a fairly arbitrary number. Some companies might pay their CEO 7% of profits, others 9% for similar results, it all depends on what they negotiated. Since CEO compensation is a thinly traded market that is difficult to properly value, mistakes abound. I specifically underlined this by pointing out that Gates could have left more on the table for his co-workers, not sure why this is hard for you to understand.

The second point is that founders have a superior bargaining position because of the way these companies are structured, which can lead to a founder windfall if they're successful. Founders don't do the structuring as they're fairly ignorant of such business/legal issues most of the time: there's an established legal/VC structure for that that is biased towards founders, because just like retail investors get stars in their eyes over certain stocks like Google or Apple, investors do the same with founders. You see this all the time in sports, where owners routinely overpay star athletes, because they fantasize that if they can just get the right "superstar" everything else will magically fall into place. I notice that you simply ignored my example of Omidyar. :) A windfall doesn't have to be unexpected, it could just be unearned, perhaps you need to look it up? ;) Nobody said the co-workers were forced into anything, just pointing out how the current business environment leads to successful founders getting a disproportionate share. I'm sure that, like all inefficiencies, it'll be competed away over time. :)

Yes, competitive railroads and water pipes could have been built, you obviously have never seen places where similar stuff has been done. Word was not "preferred," it was forced on people to be able to read others' Word documents. Haha, why would anyone use open standards? You do realize that much of the technology market, from the internet on up, is built on open standards these days? I have no problem with de facto standards, so long as you don't go around threatening patent lawsuits on competitors, particularly since most of those patents should never have been granted in the first place.

 
At 8/22/2010 4:32 PM, OpenID Sprewell said...

Yes, mono means one, you do realize that means nothing in the real world, right? It doesn't because under your crazy platonic definition, none of your examples are monopolies either. Did anyone ever deliver mail by hand? The USPS wasn't a monopoly! Did anyone ever use pesos to make a single purchase in the US? The Fed wasn't a monopoly! (it isn't one because of fractional-reserve banking anyway, but I can see our previous discussion about that went over your head). The same for bottled water companies. It is generally accepted to call anyone with around 90% market share a monopoly. I don't believe in antitrust law to counteract monopolies, not sure why you brought that up, but that doesn't mean monopolies haven't existed with little to no govt help (in this particular case, depending on how much you rate the Microsoft patents as govt interference).

As for how the money should have been spent better, isn't it obvious? I think internet application platforms like XUL or what people are finally trying to do today with HTML 5 or JavaFX or Silverlight could and should have happened a long time ago. You are really ignorant of Microsoft's monopoly rents? I point you to their outsized revenues of $60 billion/year along with unprecedented 30% net margins. If you really think Microsoft's prices are "reasonable," not sure what fantasy world you're living in. ;) I'm sure someone has tried to create a Word convertor, not sure what stopped them but I bet patents were involved. Using the govt on your competitors is A strong-arm tactic, it's not the only one. In this case, whether there was govt involvement may depend on whether you're against software patents or not. ;) It is not only the most efficient who thrive, it can also be those who exploit the ignorance of their co-workers or customers: the lefties get that part right. Where they go horribly wrong is in imagining govt is a "solution" to this problem (particularly since they don't trust that same govt to wage war or regulate social issues), the real solution is awareness through private agents like Consumer Reports, but that doesn't mean the problem doesn't exist. In Microsoft's case, their monopoly was derived from a combination of efficiency and exploitation, which apparently doesn't exist in your simplistic world. ;)

 
At 8/22/2010 4:36 PM, OpenID Sprewell said...

The housing bubble was abetted by govt stupidity but govt was not the primary reason. There is plenty of blame to go around: dumb investors who swallowed a line that "housing never goes down," dumb bankers looking for a short-term score, dumb house owners who thought real estate appreciation magically appeared from nowhere and they could just flip the house in a year or two. Combine all of those and govt was a minority factor, ie less than 50%, compared to the occasional speculative frenzies and madness of crowds that have long predated govt. Yes, we finally agree: Microsoft will soon be out of business so others can do a better job. ;)

juandos, yeah, it's that kind of dumb impulse on Gates's part which is why I said he probably wouldn't know how to best give away his money. However, it's his money to do with as he likes and the alternatives aren't any better.

 
At 8/22/2010 8:56 PM, Blogger Ron H. said...

Sprewell,

You may have a clear understanding of what you intend to say, but by the time the words appear here, they don't necessarily make sense.

Do you wonder why so few people respond to your comments here? I think they give up trying to figure out what you really mean.

As before, in your latest comment you haven't directly addressed my points, but have turned aside into slightly different discussions.

Your reference to running your own last mile of fiber isn't comparable to running several railroad tracks or multiple water supplies. The article didn't address competition at all. How many providers were involved? Who owns the rest of the network other than the last mile? The article doesn't say. Try to pick better support for your assertions.

I ignored your reference to Omidyar because I'm not familiar with him, and didn't want to look him up. I can't respond to everything you write as your comments are long and rambling. If you have an important point to make about Omidyar please present it again with more detail.

"A windfall doesn't have to be unexpected, it could just be unearned, perhaps you need to look it up?"

I use the following definition for windfall. If you prefer another one, let me know. Business pundits and news writers usually use this word in a context that implies 'undeserved'.

"...leads to successful founders getting a disproportionate share."

Disproportionate to what? Such a subjective value judgment isn't helpful. Did you mean 'much larger share'? Your comments contain many "what if"s and "should have been"s.

USPS isn't a monopoly? Fed isn't a monopoly? Either you really missed my point, or you are being deliberately obtuse and argumentative.

I DID err in using the term "open standards". I meant to write "open format" as that was the subject at hand. Sorry. If you wish, reread my comment and substitute that term.

I DO remember our previous discussion now. You have some nutty idea about a moneyless economy in which everyone trades what they have for what they want in some gigantic online exchange. The passage of time hasn't made it sound any more reasonable.

sprewell, I have to move on to something else now. It seems we may be speaking different languages, and in any case, have very different views. I could spend a great deal more time on the housing bubble issue, but I doubt it would be productive.

 
At 8/22/2010 8:58 PM, Blogger juandos said...

"However, it's his money to do with as he likes and the alternatives aren't any better"...

Alternatives Sprewell?

What do you mean?

BTW you might find this amusing and maybe a bit silly: 40 billionaires hide behind charity foundations to fund The Cause

 
At 8/22/2010 9:45 PM, OpenID Sprewell said...

juandos, the alternatives I mentioned in my first comment in this thread: Gates giving it to his kids or becoming a VC. :) As for their emphasis on overpopulation, I think like the Muslim mosque, population is a complete non-issue. It might go up or down, having free markets so that what population we have can advance the most is the real issue. For example, getting rid of govt involvement in medicine and education would do far more to benefit society.

 
At 8/23/2010 10:06 AM, Blogger juandos said...

"For example, getting rid of govt involvement in medicine and education would do far more to benefit society"...

Well you won't get an argument from on this sprewell...

Maybe we should consider getting government out of housing also...

From the AEI Journal:

When Economic Policy Became Social Policy

Also you might find this Arnold Kling commentary from the same source to be of interest considering our present situation:

When Labor Is Capital: The Limits of Keynesian Policy

 
At 8/24/2010 1:35 AM, OpenID Sprewell said...

Ron, my words make perfect sense to anyone with a basic grasp of the english language, basic knowledge of the economic/legal/technical concepts under discussion, and a willingness to engage in actual discussion. You obviously fail all three criteria. :) I never wondered why there were so few responses because it's obvious why: I write considered comments that are backed up with tons of specific examples and links, that only a fool would try to contradict. Haha, I'm turning to different discussions? That's rich coming from you, all you do is change the subject, while I'm anything but meandering, dogged more likely. :) Why is running fiber different from running pipes for water? Why does it matter exactly how much competition there was, who the providers were, or who owned the rest of the network? Your assertion was that you couldn't lay multiple tracks or pipes, I pointed out it has been done with fiber. Try not to change the subject to deflect from the fact that you're wrong. I see, so you're entirely ignorant of the founder of eBay and his windfall and yet feel qualifed to talk about founder windfalls? Please learn something about the topics at hand before you spout off about how they supposedly work.

Let me quote your preferred definition of windfall, "an unexpected, unearned, or sudden gain or advantage," ie it could be unexpected or it could be expected: do I need to explain the meaning of "or" to you? ;) Undeserved is exactly the meaning I used or is that another thing you were confused by? ;) Founders often get a disproportionate share compared to the work they put in, particularly when compared to how much work their co-workers put in. Isn't that obvious? Do you really need it explained to you? My comments contain some speculative thoughts, because that's the only way to talk about how things could have been better. You, on the other hand, choose to speculate about "what if" the govt hadn't interfered in housing or the money supply, how we'd all be living in utopia then, yet apparently don't see the contradiction in critiquing my use of "what ifs." :) I used your deliberately obtuse and argumentative definition of a monopoly to point out that neither the USPS, the Fed, or the water company would meet that definition. If such simple logic is lost on you, it is pretty obvious why the rest of my comments fly over your head. Substituting open standards with open formats changes nothing substantive about what was said, not sure why you think it does.

 
At 8/24/2010 1:42 AM, OpenID Sprewell said...

Haha, I pointed to our previous discussion about how private banks mint a majority of the money supply, which is why the Fed is not a monopoly, but of course you change the subject to the online exchange idea I also mentioned because the discussion of our current money supply flew over your head. You have to move on to something else from making crazy statements and then changing the subject? All you do is move on to something else. :) We're not speaking different languages: it's clear your grasp of the English language is not as good as mine. And since I'm an anarchocapitalist, I suspect you are closer to my views than 99% of the populace, so that's not it either. I doubt you could spend a great deal more time discussing much of anything, because you have been fairly ignorant in your comments so far. Your MO appears to be to make doctrinaire and highly general comments about market efficiency and then change the subject and run scurrying away when faced with someone who actually has a realistic and specific understanding of how the market works. It's been fun trying to educate you on how your simplistic caricature of a market worldview is painfully deficient, but unfortunately, I guess it didn't take. ;)

juandos, normally I like your links but that first one was pretty boilerplate stuff. Kling is usually good, even when explaining well-known stuff he brings a special thoughtfulness and clarity to it, but nothing new there either. I still have one of your Wayne Crews links from an earlier thread open, don't know when I'll finish that long piece though. :)

 
At 8/24/2010 1:55 AM, OpenID Sprewell said...

Hmm, this shitty blog software ate the first half of my comment, reposting in two pieces:

Ron, my words make perfect sense to anyone with a basic grasp of the english language, basic knowledge of the economic/legal/technical concepts under discussion, and a willingness to engage in actual discussion. You obviously fail all three criteria. :) I never wondered why there were so few responses because it's obvious why: I write considered comments that are backed up with tons of specific examples and links, that only a fool would try to contradict. Haha, I'm turning to different discussions? That's rich coming from you, all you do is change the subject, while I'm anything but meandering, dogged more likely. :) Why is running fiber different from running pipes for water? Why does it matter exactly how much competition there was, who the providers were, or who owned the rest of the network? Your assertion was that you couldn't lay multiple tracks or pipes, I pointed out it has been done with fiber. Try not to change the subject to deflect from the fact that you're wrong. I see, so you're entirely ignorant of the founder of eBay and his windfall and yet feel qualifed to talk about founder windfalls? Please learn something about the topics at hand before you spout off about how they supposedly work.

 
At 8/24/2010 1:56 AM, OpenID Sprewell said...

Let me quote your preferred definition of windfall, "an unexpected, unearned, or sudden gain or advantage," ie it could be unexpected or it could be expected: do I need to explain the meaning of "or" to you? ;) Undeserved is exactly the meaning I used or is that another thing you were confused by? ;) Founders often get a disproportionate share compared to the work they put in, particularly when compared to how much work their co-workers put in. Isn't that obvious? Do you really need it explained to you? My comments contain some speculative thoughts, because that's the only way to talk about how things could have been better. You, on the other hand, choose to speculate about "what if" the govt hadn't interfered in housing or the money supply, how we'd all be living in utopia then, yet apparently don't see the contradiction in critiquing my use of "what ifs." :) I used your deliberately obtuse and argumentative definition of a monopoly to point out that neither the USPS, the Fed, or the water company would meet that definition. If such simple logic is lost on you, it is pretty obvious why the rest of my comments fly over your head. Substituting open standards with open formats changes nothing substantive about what was said, not sure why you think it does.

 
At 8/24/2010 2:07 AM, OpenID Sprewell said...

Hmm, apparently this shitty blogger system eats comments based on certain words, so now my comments are posted in reverse order: :)

Ron, my words make perfect sense to anyone with a basic grasp of the english language, basic knowledge of the economic/legal/technical concepts under discussion, and a willingness to engage in actual discussion. You obviously fail all three criteria. :) I never wondered why there were so few responses because it's obvious why: I write considered comments that are backed up with tons of specific examples and links, that only a f**l would try to contradict. Haha, I'm turning to different discussions? That's rich coming from you, all you do is change the subject, while I'm anything but meandering, dogged more likely. :) Why is running fiber different from running pipes for water? Why does it matter exactly how much competition there was, who the providers were, or who owned the rest of the network? Your assertion was that you couldn't lay multiple tracks or pipes, I pointed out it has been done with fiber. Try not to change the subject to deflect from the fact that you're wrong. I see, so you're entirely ignorant of the founder of eBay and his windfall and yet feel qualifed to talk about founder windfalls? Please learn something about the topics at hand before you spout off about how they supposedly work.

 
At 8/24/2010 3:24 PM, Blogger Ron H. said...

Sprewell

Good, I was afraid you would miss my last comment as it didn't show up on this thread for over 24hrs.

I's apparent that your extremely high opinion of yourself keeps you from learning or having meaningful discussions with others, and your careless use of words obscures your meaning. Sad.

What you ascribe to ignorance is in fact someone asking you to explain yourself better so your comments make better sense, but you don't seem to get it.

Just a couple of examples:

When we first talked of founders, you suddenly used the words "fairly arbitrary number". It turns out you were referring to CEO compensation. Who could have known? Such a change of subject! Do you ever go back to reread what you've written to see if it might be unclear? I suspect not. Your unwarranted high opinion of your self wouldn't allow any such doubt.

Windfall:

"Let me quote your preferred definition of windfall, "an unexpected, unearned, or sudden gain or advantage," ie it could be unexpected or it could be expected:"

Read your own quote to your self several times. Do you see the word "expected" in there anywhere? I didn't think so. That's not one of the choices. If something is EXPECTED it isn't a WINDFALL. Get it?

Try this: If you are mining for gold, and you find a big nugget, that is NOT a windfall. If you are just walking along and you trip on a big nugget, THAT is a windfall. It's unplanned for.

Why would a large reward to a company founder be undeserved? Why do you think some athletes are overpaid? That sounds like class envy to me. Are you sure you're an anarchocapitalist?

In our previous discussion I wasn't interested in discussing fractional banking or the role of the Fed with you, I was intrigued by your idea for a moneyless system, but you never explained it very well, so I gave up.

You misquote me. I didn't claim to be "totally ignorant" of Omidyar, I said I wasn't familiar with him. I know who he is, I just didn't see how he added to the point you thought you were making, so I didn't want to discuss him.

I couldn't possibly respond to everything you write, as you blather on so much.

And this final problem:

"Why is running fiber different from running pipes for water?"

We were discussing monopoly, remember? It is either physically impossible or highly undesirable to have multiple railroads laying track to a single point, so a monopoly may result. No community would tolerate multiple water companies digging up the streets to install competing water supplies to houses, so a monopoly is granted to one. are you on board so far? Your fiber example describes running last mile fiber from what we might assume is one source - the article doesn't say - to multiple endpoints. Exactly the opposite of my examples. Why don't you understand that?

 
At 8/24/2010 3:54 PM, Blogger Michael said...

The price mechanisms under which Gates and others made billions value the lives of the billions of people who make less than $2/day at essentially nothing. If this seems intuitively correct to you, then the conclusions of this post are for you. If it seems intuitively wrong, suggesting a limit to the pricing mechanisms ability to signal real value to you, then you agree with Gates and Buffett and others who support the Gates Foundation.

 
At 8/24/2010 4:57 PM, OpenID Sprewell said...

Michael, I've got to go with the price mechanism we've got. It's not infallible, as I've pointed out with how it overvalues founders, but it's far better than any alternative system proposed, ie socialism or whatever mixed system you prefer. There are reasons those people make $2/day: they have almost no skills and their ancestors and their society didn't put in the work that Gates and his ancestors' society did. We can try to help them get out of that poverty, but the best way to do that is to suggest that they use the same free markets we used to get out of poverty, not charitable contributions from guys like Gates, who are much more likely to donate to the wrong causes. So yes the pricing mechanism is mostly correct, with a bit of leeway for the remaining inefficiencies in the market.

 
At 8/24/2010 7:18 PM, OpenID Sprewell said...

Ron, it is obvious that you are incapable of learning- what would I have to learn from you? You are incapable of making specific points or backing them up with a single concrete example that actually applies, as evidenced by your nonsensical "monopoly" examples- and that you do not even understand basic language or logic. I'm sorry but I'm not going to sit here and rewrite my comments in high-school english for you, please bust out a dictionary. If you were confused whether I was talking about CEO compensation in my first comment, please suggest what other subject I could have been talking about in that context. You don't because you can't: the context is clear to anyone who isn't willfully obtuse like you. Haha, now you don't even understand that expected is the antonym of unexpected and what "or" means? I can see why it is so hard for you to understand what people write, the English language must be a minefield for a simpleton such as yourself. Lol, yes, class envy is the only possible reason for accusations of unequal returns in your simplistic and doctrinaire mindset, of course. :) Do you even know what an anarchocapitalist is? Considering you don't even understand simple words like "unexpected" or "or," I bet you don't. :)

Haha, yes, yet again when I point out how I explained that the Fed isn't a monopoly, you bring it back to my moneyless idea and exhibit your constant evasion yet again, perfect. :) Oh, I see, you've heard of Omidyar but not enough to relate him to this discussion: sorry I didn't read your mind, that's normally how you communicate with people, right? ;) It must be since you are constantly befuddled by what you read. :D You couldn't possibly respond to what I write because you are ignorant of reality and actual issues and simply mouth "the market knows best" all the time. I suppose that's better than the alternative, mouthing "govt knows best" all the time, but is brain-damaged in its own way. In the fiber example, people are physically stringing multiple fiber lines to the same area rather than sharing fewer fibers: this is exactly analagous to laying multiple tracks rather than sharing one track or laying multiple water pipes rather than sharing one.

The very fact that you would argue such a basic point shows you have nothing to contribute to this discussion, which is why you make up crazy statements like a monopoly only existing if there's a single provider. You have repeatedly tried to discuss high-level concepts with me but have constantly failed, apparently because of your seeming inability to even understand basic concepts. Then you attempt to deflect from your constant failure by making nonsensical statements about basic underlying concepts. You can keep trying if you like, but it's fairly obvious you have nothing that's even halfway cogent to bring to this discussion.

 
At 8/25/2010 3:00 AM, OpenID Sprewell said...

Hmm, strange how this blog will randomly eat comments, reposting my last comment, which I'm sure will magically reappear as a double-posted comment tomorrow:

Ron, it is obvious that you are incapable of learning- what would I have to learn from you? You are incapable of making specific points or backing them up with a single concrete example that actually applies, as evidenced by your nonsensical "monopoly" examples- and that you do not even understand basic language or logic. I'm sorry but I'm not going to sit here and rewrite my comments in high-school english for you, please bust out a dictionary. If you were confused whether I was talking about CEO compensation in my first comment, please suggest what other subject I could have been talking about in that context. You don't because you can't: the context is clear to anyone who isn't willfully obtuse like you. Haha, now you don't even understand that expected is the antonym of unexpected and what "or" means? I can see why it is so hard for you to understand what people write, the English language must be a minefield for a simpleton such as yourself. Lol, yes, class envy is the only possible reason for accusations of unequal returns in your simplistic and doctrinaire mindset, of course. :) Do you even know what an anarchocapitalist is? Considering you don't even understand simple words like "unexpected" or "or," I bet you don't. :)

 
At 8/25/2010 3:01 AM, OpenID Sprewell said...

Haha, yes, yet again when I point out how I explained that the Fed isn't a monopoly, you bring it back to my moneyless idea and exhibit your constant evasion yet again, perfect. :) Oh, I see, you've heard of Omidyar but not enough to relate him to this discussion: sorry I didn't read your mind, that's normally how you communicate with people, right? ;) It must be since you are constantly befuddled by what you read. :D You couldn't possibly respond to what I write because you are ignorant of reality and actual issues and simply mouth "the market knows best" all the time. I suppose that's better than the alternative, mouthing "govt knows best" all the time, but is brain-damaged in its own way. In the fiber example, people are physically stringing multiple fiber lines to the same area rather than sharing fewer fibers: this is exactly analagous to laying multiple tracks rather than sharing one track or laying multiple water pipes rather than sharing one.

The very fact that you would argue such a basic point shows you have nothing to contribute to this discussion, which is why you make up crazy statements like a monopoly only existing if there's a single provider. You have repeatedly tried to discuss high-level concepts with me but have constantly failed, apparently because of your seeming inability to even understand basic concepts. Then you attempt to deflect from your constant failure by making nonsensical statements about basic underlying concepts. You can keep trying if you like, but it's fairly obvious you have nothing that's even halfway cogent to bring to this discussion.

 
At 8/25/2010 6:33 PM, Blogger Ron H. said...

Ah, Sprewell, you've got to let it go, bud, you're down into the noise level here.

Your enormous ego doesn't allow you to know when you're being made fun of.

How long will you keep checking this thread to see if you need to respond?

Just let it go.

 
At 8/25/2010 8:07 PM, OpenID Sprewell said...

Ron, who has the enormous ego here: someone like you who can't admit that you're wrong so you make up these dumb arguments, or someone like me volunteering my time to educate you? ;) So far I only see me making fun of you. :) Haha, so you're not checking this thread to respond? We both are, no matter how much noise you're emitting.

 

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