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Notes -
Investments re: Amazon
People today invest in Amazon with the expectation (or desire) to gain around 10% of their investment annually. Bezos early on thought something like, “I could cash in my ownership for a few million, or I can continue to invest until I make 100,000,000% of my potential to cash out (or original salary)”. This is any investor’s dream; no, it’s more than that, frankly an unthinkable fantasy. So if Bezos had to pay his employees more, what would happen? Amazon would lose some of its profit evaluation, so some of the money that Bezos expected to one day earn (via stock) goes to his employees. Does this necessarily mean that Amazon would have to “size down” or grow at a smaller rate? Not at all, (1) investors would be more than happy to buy the stock at a lower price, which spreads the eventual return to less wealthy parties; (2) Amazon could have paid employees in stock options; (3) Amazon could have taken a loan, like most businesses (this year it obtained an 8bil loan).
We can see then that this is simply making our analysis more complicated but not changing the fundamental wealth exchange going on. Considering my coconut example, I could have lowered my yearly salary in exchange for stock and instead anticipated the return in some years. Any profitable business that grows can do this. But if I chose to receive a salary from my coconut business and still grow, there are a number of ways to do this as listed above.
Now who would make money investing in Amazon? Top of the line financial firms pay their starting employees as much as $600,000 excluding bonuses. Out of charity? No, but because the labor pool of worthy applicants is smaller. Were we to constrict it even more, they would be paid even more. Were we to add in investing immigrants, they would all be paid less. But in any case you can see that investors make too much money, and that if we constricted the labor pool for Amazon as an example, the employees make the money that would have gone to wealthy investors and speculators.
Tipping
You have to consider the specific things I’m saying though, otherwise how could you understand my point? I was discussing fine dining tipping, the places mostly frequented by the very wealthy. “So, then, you would expect wait staff to want to leave, as it's a worse deal” would not apply for fine dining; they would just accept lowered earnings because it’s still a good job for ordinarily middle class people. I’m not making a grand claim about all restaurants, I’m saying that we can see in fine dining restaurants that lowered efficiency can help more people.
Who would buy overpriced coconuts?
As detailed in my Starbucks comments, there’s strong evidence that consumers are unwilling to buy things when they feel ripped off. Wealthy people go to Starbucks, not Rich Coffee Co. Starbucks can charge a premium but this premium exists with a ceiling, because why else would Starbucks be the location of choice for those who make 20x more than the median Starbucks consumers? If coconuts get too expensive, they may switch to different fruit. But let’s say all foods get equally expensive? The labor costs of supplying coconuts on the road will lead consumers to opt of the convenience and instead buy coconuts from the store. Any roadside coconut seller would simply have to make less money or leave the industry.
But I think to steelman the argument, “let’s say you own a grocery store. Grocers already compete against each other, yet the corporate owners still make lots of money. If employees had to be paid more, wouldn’t this just increase the baseline of goods, and they would still charge something on top to make profit?” I’d say yes, but paying grocery employees more increases the wages of all the workers who directly or indirectly compete with those employees. The ones who wind up paying more without a concomitant increase in wages would be the top 5-10% of Americans who are already quite wealthy but are too far away from the competition of grocery store workers.
Small businesses acted as a middle man between producers/sellers and customers. Each small business had his own miniature Jeff Bezos, a hundred thousand CEOs who made maybe 160k a year rather than Bezos billions in earnings. (You can fit one million people making 160k a year within the Bezos net worth). Centralization will always split resources between fewer people. There are then some obscure factors that an economist would never guess, like how these small businesses lived within close proximity to their employees and knew them personally and hired among families/friends, meaning they have to see the humanity in the person they are either benefiting or screwing in pay. Call this the “fine dining tipping effect”: when wealthy people see the reality of another human being, they are morally coerced into pay them more, for fear of losing face face-to-face.
Everyone in the lower/middle class competes in a way with the owners of these small businesses. A worker when deciding their career path would say something like, “I can open up a video rental store or I could become an accountant; I could become an accountant or I could open up a coffee shop…” And then of course, the employer knows this, and to retain employees must pay them more, because they can leave and go elsewhere.
The ones with high wealth inequality, I do.
Investments Re:Amazon
Okay, let's examine each of those possibilities. For (3), this can't keep happening indefinitely, without loss of growth; you're borrowing against the future. Short term? It's fine. Long term? It's harmful. For (2) and (1), this also shouldn't be things happening in perpetuity. If your way of making money is by selling future prospects, forever, you're a ponzi scheme. Further, repeatedly selling stock dilutes the value of everyone who you've sold stock to, including those you paid before. These are fine temporarily, but not as your business model.
Wait, why?
Of course, not all the investors are wealthy; you too can buy stocks. But they majority are. Okay, why is that bad? When they first buy the stock from the owners, they are providing funds with which to operate their business before it is profitable or needs extra money, which is clearly a good thing (Look! Wealthy people helping the common man!), and their return is compensation for that. Are you opposed to venture capital, for example, existing? It's clearly wealthy people investing, and equally clearly is putting that wealth towards the benefit of mankind.
Afterward, when companies are buying or selling stock that they think are more or less profitable between themselves, or between the owner, I see no reason why that should harm the worker. (I imagine there also must be arguments for why that helps economic efficiency, but they are not immediately coming to mind, and I've put enough effort into this already.)
Tipping
Ah, you're right. I hadn't taken into enough account that it was fine dining, and there's a limited supply of dining positions to go around, and the business can't just pay them less, as that's on the patrons.
Who would buy overpriced coconuts?
Yes, people do substitute, or buy elsewhere. I paid inadequate attention to the fact that roadside selling of coconuts did have the alternative of the store. It should be the case, though, that you can raise the prices a little—if you're selling your ultra-cheap coconuts vs your market value coconuts, vs your slightly higher than market value coconuts, you may get fewer people buying them, but you may be able to get some customers, as long as there's a cost to going to the store, or they don't know what the price at the store is.
But back to the example, let's reanalyze. Okay, so the price of labor is higher, so we will need to pay workers more. I was acting under the assumption that our profit is near zero, because there is roughly no barrier to entry to roadside coconut vendors—if it were too lucrative, others would join. Then, as we have near zero profit, we are forced to have fewer workers, or exit the market. If we have fewer workers, we aren't trying to sell quite as many coconuts. As fewer people are buying coconuts, the people who are buying it are the ones who want the roadside coconuts a little more than the marginal buyers before did. So the price is able to be a little higher. (I really ought to look as well at how this works with the competition.)
But what matters most isn't whether there's an increase in wages and costs, but what they are in relation to each other. Increasing pay and costs is just inflation. What we care about are real wages, not nominal wages. And I think this is a poor example for that, because grocery costs are regressive. Someone making a thousand times the money does not spend a thousand times as much on groceries. Suppose that groceries double relative to income, for everyone. It is those who have the largest share spent on groceries, that is, the poorest, with the most mouths to feed, who suffer most.
But this whole time you've acted in contempt of the petit bourgeois as well. You, for some reason, want the roadside coconut seller to lose money.
Nevertheless, what you said is correct. Now, why is it bad? Amazon provides more value than those small businesses did.
What is "screwing in pay"?
Are they paying at or above market value? Then there's no better anywhere else. Are they paying below market value? Then those workers should be able to leave for better opportunities.
Or are you saying that there's some just price for labor, above what the market pays? What is it?
Minimum wages, when binding, lead to unemployment, but that seems not to be what you are suggesting; you would rather there be fewer workers. (Oh, yes. Why do you want higher TFR again, then?) But on the whole, I don't know that that works. The prosperity that we live in now is built by the labor of humanity; removing people concentrates the spoils, but decreases them.
And of course, lower costs of labor allows businesses that otherwise couldn't to prosper.
So if I understand you rightly, what you are saying is that Amazon leads to a drop in wages, because there is now no longer another option of making a small business. So yes, the effect of decreasing the amount of small business does depress wages; of course, the direct employment has the opposite effect.
But again, does this mean it is bad? Let's suppose that there were a free, instant teleportation device. This is far better than Amazon—zero cost, 1 minute shipping. Would you really want this banned? It's not like people don't have other sectors that they can work in. (And if you think they might not be able to switch professions, why is using less efficient means of technology better than the other options, like private charity or government welfare?) (If you've never read Bastiat's Candlemaker's Petition, it's amusing.)
Okay, so the problem is not insofar as they harm competitors, right? You see the problem to be that they increase inequality.
But why is that bad? In particular, why is that so bad that it outweighs all the good they do?
Further, is there a limit? How much inequality is okay? Surely they shouldn't distribute it all?
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