It was an interesting interview, definitely more Howard Stern and less 20/20 as far as the guest and content are concerned. I really didn't need to know when and how he lost his virginity. His money management (or lack thereof), business "partnerships" (giving full server access to a kid in another country he never met before) and business ethics (scraping a competitor's site and spamming their users under the guise of direct marketing) painted a picture of a very naive entrepreneur to say the least. I think this interview is a very good example of what NOT to do.
I thought it was fairly stereotypical how it was only after he was making lots of money that he was able to find a girlfriend let alone lose his virginity. Maybe for some people this is part of the allure of being an entrepreneur.
About the business ethics though, there's a reason why the saying "behind every great fortune lies a great crime" is often said. Because the currency economy is mostly a zero-sum game in the sense of total money ownership (barring inflation), the people that have less scruples than you will often rake in more money than the more honest counterparts.
Because the currency economy is mostly a zero-sum game in the sense of total money ownership (barring inflation),
This statement is true in its literal sense but very misleading. Holding currency is close to a zero sum game, holding wealth is nowhere near that.
If someone were to, say, sell me a pound of gold for $1, he would win in terms of pure currency. He would have one more dollar, and I would have one less, but I think I would come out ahead.
Similarly, if someone sold me a tool I needed to do my job, he would clearly win in terms of money in that transaction, but I could turn around and use that tool to create new things that never existed before and create more value in the world.
This statement is true in its literal sense but very misleading. Holding currency is close to a zero sum game, holding wealth is nowhere near that.
I already understand that "value" can be generated regardless of how much currency is available. Why is everyone here on HN in a rush to ignore that currency exchange is a zero-sum game and keeps trumpting that wealth can be generated? Perhaps it is because Paul Graham wrote that article.
Wealth is a different subject from currency. You can generate all the "wealth" in the world, and if there is only $100 circulating in the world, all that "wealth" isn't magically going to expand this $100 except when you convince the government to print more money.
This has important limitations on the liquidity of your "wealth". Let's say that you've created $1 quadrillion worth of meat. You want to convert this into alternative forms of wealth such as currency and medical supplies. However, is it at all likely that you will be able to convert all this wealth before it expires? Nope. And this is one of the most important distinctions between wealth and currency.
The supply of currency is artificially limited by the government, while the supply of wealth is an arbitrary measure that people decide to assign their work and belongings.
This has important limitations on the liquidity of your "wealth". Let's say that you've created $1 quadrillion worth of meat. You want to convert this into alternative forms of wealth such as currency and medical supplies. However, is it at all likely that you will be able to convert all this wealth before it expires? Nope. And this is one of the most important distinctions between wealth and currency.
Yes, assuming you didn't try to hoarde the currency. You would sell it in large portions, buying what you needed with other things in the process. There is only a problem if you want to actually hold $1 quadrillion in currency, not at all if you want to hold $1 quadrillion in value.
The supply of currency is artificially limited by the government, while the supply of wealth is an arbitrary measure that people decide to assign their work and belongings.
Fiat currency must, by definition, be artificially limited by the government. It is created by governments and given value only because they assign it value (largely through accepting it in payment for taxes). Nonfiat currency such as gold bullion or else paper money issued back by gold is limited by the available supply of whatever commodity is being used. I believe, though I've never verified, that all currencies in major use today are fiat.
wealth creation with fixed currency causes deflation. deflation means you can now buy more products and services with the share of the currency you do have. so you're wrong.
If you think deflation is good for liquidity, you are missing econ 101 knowledge. You only have to look to Japan in the 90's for proof or the great depression!
When deflation rises, businesses start feeling uncertain about the amount of money they can pull in regularly and start laying off workers. Individuals start to save more and spend less. Instead of hiring workers to do their lawns or buying meals, they will try to do everything themselves. In this manner, the "monetary" value of "wealth" from lawn mowers and processed food producers approaches 0.
This is another fundamental difference between the wealth pool and the currency pool.
Exactly. Codexon, saving just causes another, ostensibly wiser, form of spending. If you save your money in a bank, then they will lend it out where it will be spent, usually on capital goods (whatever that means anymore, or ever meant). If you save it by buying some stock, you drive up the stock's price, making it more a better deal for the company to issue more stock (and spend the proceeds in building their business). Same thing with bonds.
Think about this. If everyone saves all their money, who is going to do the spending? How is anyone supposed to earn money?
The only people you can trust to earn money from are the people who aren't saving all their money.
If you save your money in a bank, how are you and the bank supposed to make interest if everyone starts saving and no one takes out a loan??? Your savings rate will drop towards 0 in a situation like this. If companies act in the same manner, why should they issue any stock??? What is the benefit for them if they prefer to save up and use their own cash instead of share holder cash?
What happens in a situation like this is that the stock prices don't grow at all as you can see here in Japan for nearly 20 years:
Deflation is a good thing. It means the cost of living goes down.
As long as you have a fungible currency - a liquid currency - deflation is a boon.
Everything should be getting cheaper as technology advances. The only reason it doesn't is because of the influence that codexon has been trying to explain. The currency game is zero-sum. It was designed that way. It's one giant pyramid with the BIS at the capstone.
I never said deflation was a bad thing. although I agree that the current fiat monetary policy is fucked, calling it a pyramid scheme is naive at best.
Money is just a generally accepted means of transferring wealth from one place to another. Currency is a subset of all money. Lots of things can take the place of money, as long as they have the right attributes (mutual trust, fungible, not easily debased or forged, transportable, etc.)
Money is not a "zero-sum game", and in particular, wealth has almost no relationship with money. Money is just the "working capital" in various ongoing wealth exchanges, the water in the pipes, as it were, if the economy was viewed as an interlocking system of flows. And currency, the printed stuff from a central bank, is not the total sum of this money.
Please read more carefully. I'm talking about possession of currency which is zero-sum except when the Fed prints out more bills.
You can make a billion pretty trinkets with glass and aluminum, and it won't get you any dollars if no one with dollars wants to trade you dollars, and the Fed is not printing extra.
but moving currency between people, for "trinkets" is called "trade". trade is not a zero sum process. it creates wealth.
so, i buy something from you for $20. then you buy something from me for $20. although the currency comes out equal, we're both ahead. there's no scam here, no incentive or advantage for low scruples, no problem at all.
You'll have to scroll up to see his point. It was related to how the title of article was aiming at the possession of currency rather than the possession of wealth.
Yes it's quite sad how I had to repeat myself 3 times. At least you understand :)
What I don't understand is why when anyone here sees the word "zero-sum" they rush in to talk about Paul Graham's explanation of wealth creation regardless of what the subject is.
And sadly I've since then lost 5 karma from people who like to jump on this "wealth is not a zero-sum game" bandwagon.
No, what I am saying is that trading currency for goods, like stocks, is a zero-sum game. The pool of money stays the same (barring the fed printing more). Why is this so hard for you to understand?
If you have a billion pretty trinkets, and by pretty I mean that other people desire to have them at some positive price, you only need one single dollar in the system - or other agreed form of money - and you can sell every single one of those trinkets, albeit slowly. And because what you really need is money, rather than currency, you do not require a central bank.
All you need is trust in the value of whatever you choose as money - it could be debt backed by a legal system - and that the money has sufficient money-like attributes. If your trinkets are small and durable enough, they might even do as money directly.
In reality there is not a fixed amount of currency, there is a printing press pumping out more dollars and the dollars are given to someone who then lends them at interest to someone else who then uses them to buy a trinket.
As the printing press makes more dollars, the value of each goes down, and so the wealth of everyone in system doesn't actually depend on how much currency they hold but rather the order in which they receive the more recently printed currency. The wealthiest are defined by those who receive it first. It is a pecking order. Whoever receives it last actually doesn't have enough to buy food because by the time he receives the currency, it is already too worthless to be used to compel food from the other members. He either abandons the system and lives off the grid, or starves to death.
So while in theory currency does not have to be a zero-sum game, our modern implementation of currency is indeed a zero-sum game.
And I say currency specifically because, as everyone loves to point out, basically anything is technically "money" as soon as it is traded.
P.S. Note that both pg and this fellow had the same people signing the checks - Yahoo. Yahoo is pretty high on the pecking order because it has always had excellent access to investment bankers who in turn have excellent access to banks who in turn have excellent access to central banks who printed the new batches of money. The closer you are to the central bank, the richer you'll be.
Since when is HN new-world-order-conspiracy-central?
We live in an economy with a certain amount of economic activity and overall wealth, which tend to go up over time (barring recession). To facilitate trade, the central banks of nations issue currency, which acts as a "dual" of the economy (or more precisely, a piece of it - there aren't enough dollars circulating to buy every good and service in the US simultaneously), a pure trade good with fiat value. If the economy kept growing and the supply of currency stayed constant, deflation would result, as previously noted. However, by Keynesian theory (which is not absolutely proven be right, but has worked pretty well over the past 75 years), inflation (at reasonable levels) is more conductive to investment and consumption and overall economic vitality than deflation, due to people being more inclined to spend and invest money that would lose value just sitting there.
Thus, the government prints more money every year than would be necessary to match the growth in the economy. This is not some ridiculous plot by the Swiss and the Jews to enslave us all; it's simply a tax on everyone who holds dollars (or, in other countries, other currencies), since the government dilutes the overall pool of currency to grant itself spending money. This "inflation tax" is always a very small percentage of overall government revenues in the US, and even if Keynesian theory were totally wrong, the policy would not be particularly harmful. It would just be another tax, although somewhat regressive, since the poor tend to have more of their net-worth in cash than the rich.
And, it makes absolutely no difference who gets the money straight from the printing press, aside from the value of enjoying crisp, shiny new bills. The government spends money it got from printing in exactly the same places as it spends money procured from taxes.
I understand what psychological processes drive people to conspiracy theory, but it still frustrates me to no end that so many people believe in the laws of cigar-munching cabals instead of those of economics.
And, it makes absolutely no difference who gets the money straight from the printing press, aside from the value of enjoying crisp, shiny new bills. The government spends money it got from printing in exactly the same places as it spends money procured from taxes.
That is incorrect. Banks that have access to central bank money are able to borrow from the US a rock bottom interest rates, and then use it to loan to the public or invest in a business before the rest of the economy knows that there's more fiat money in the system.
For fuck's sake. Where did I say it's a conspiracy? Where did I mention the Jews? Where did I say that I failed macroeconomics?
I don't need you to regurgitate the textbooks. I was making a specific point which you did not understand. That is fine. Maybe I gave a bad explanation.
But if you don't understand what I'm saying, you can ask questions or at least address something I actually said. Don't just google "Federal Reserve" and copy-paste their website.
>However, by Keynesian theory (which is not absolutely proven be right, but has worked pretty well over the past 75 years), inflation (at reasonable levels) is more conductive to investment and consumption and overall economic vitality than deflation, due to people being more inclined to spend and invest money that would lose value just sitting there.
This has been disproven. Note how all computer technology experiences deflation - it is a benefit not a detriment. Deflation was a major issue in the days before electronic currency because it meant the mint would have to re-issue new money constantly to retain liquidity. But this is no longer the case.
The danger with deflation is that the money supply will become illiquid. Central banks in the past have accidentally induced illiquidity and deflation at the same time by restricting the money supply without issuing smaller currency denominations. This leads to illiquidity which is the worst possible thing.
With modern technology it is trivial to keep the money supply liquid in a deflationary environment and so the policy of continual inflation is no longer needed.
On top of that, the inflation rates are too high anyway. In an environment of continual inflation, it absolutely matters what order you eat in. Each new supply of money devalues all the money that came before it. It works its way through the economy in a specific order trickling down from the banks. Whoever receives this money first receives it BEFORE the entire money supply has been devalued which gives them an instant wealth increase relative to those they pay the money to.
When a bank loans 100k to an entrepreneur, the entrepreneur will make concessions to get that money. The money is worth more to the entrepreneur than to the bank, because until the money reaches the money supply as a whole it has not yet devalued the currency. As soon as it changes hands, the currency slightly inflates. When the entrepreneur pays his staff, it devalues again, and so on until it reaches some theoretical "room temperature" asymptotic point and the inflationary effect is complete.
The inflation does not occur when the money is released to the banks from the Fed. It occurs when the money trickles down into the hands of the average person. The people who get to spend this money before it reaches the average person's hands are spending non-inflated money. But the instant it reaches the hands of those people it is inflated money. This is why there is an effect where money is worth more the closer it is to the mint, and people who have jobs that allow them to receive payments closer to the mint* will naturally be more wealthy.
This effect happens in every inflationary economy, and the higher the rate of inflation, the bigger the effect.
*It should be obvious that when I said mint I actually mean the Federal Reserve issuing electronic currency.
I think the problem is that we are overestimating the intelligence of an average HN reader.
The concept you are trying to explain is somewhat abstract and difficult. My stab at explaining it:
Let's say that there are $100 in the economy right now. A piece of bacon costs $0.01 dollars.
The government, now fearing deflation, wants to issue another $100 into the system. The banks get access to this additional $100 at a rock bottom interest rate of 1%. They then proceed to use that money to buy out the bacon on the market for $0.01 dollars.
The people selling bacon now realize there is $200 in the market instead of $100, and start selling bacon for the true price of $0.02 dollars a piece. Unfortunately, the bank and their friends were already able to purchase the bacon for $0.01 dollars out of $200, when the market corrected price was $0.01 out of $100.
This correction error happens every time the fed prints more bills, and serves to enrich the people who get central bank money first.
