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Astral Codex Ten Podcast

Aug 31, 2022

The typical neoliberal defense of self-made billionaires goes: entrepreneurs and other businesspeople create a lot of value. EG an entrepreneur who invents/produces/markets a better car has helped people get where they’re going faster, more safely, with less pollution, etc. People value that some amount, represented by them being willing to spend money on the car. The entrepreneur should get to keep some of that value, both because it’s only fair, and because it incentivizes people to keep creating value in the future.

How much should they keep? The usual answer is that the surplus gets distributed between the company and the customers. So suppose that this new type of car makes the world $200 billion better off. We could have the company charge exactly the same price as the old car, in which case customers get a better car for free. We could have the company charge enough extra to make a $200 billion profit, in which case customers are no better off than before (they have a bit less money, and a bit better car). Or they could split it down the middle, and customers would end up better off than before and the company would make some money. Which of these distributions happens depends on competition; if there’s no competition, the company will be able to take the whole surplus; if there’s a lot of competition, all the companies will compete to lower prices until they’ve handed most of the surplus to the customers. Then once the company has some portion of the surplus, it divides it among capital and labor in an abstractly similar way, although with lots of extra complications based on whether the labor is unionized, etc.