The Symptom of Prosperity

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This post is about billionaires. Pretty much every left student I encounter hates them and many claim they should not exist and we should make sure they don’t. I do not think this is a very reasonable position. This post is pretty opinionated and thereby way more attackable than my other posts. Please do so, this is just a draft of my current observations, subject to change and drift. Yes, it has contrarian motivations too.

“Billionaires should not exist”. Maybe this is another of those classical nerd-normie miscommunications, where a normie makes a normative statement meant for virtue signalling and the nerd is too autistic to let it pass. But someone has to clarify it:

The existence of the ultra-rich is not a problem but the consequence of the best solution for improving human prosperity.

Playing the game

Why do some people get ultra-rich in capitalism? They are good at playing the game, the free market. There are other ways to get rich: ruling over countries and the economy, parasitically taking a big share of what is meant for the public. The distinction matters. The free market variant is the preferable one: it is an intrinsically aligned system that distributes resources efficiently by construction. At least ideally. In practice, information asymmetry, externalities and monopoly formation complicate this, but no competing system handles these better at scale.

I am not an economist, but I have come to appreciate the market as a self-organizing and regulating system which is elegantly aligned. Not with the “public good”, not even with producing goods people need. But with producing goods people think they want, often instilling artificial needs. The problems that come with it, such as pollution, exploitation of workers, depletion of natural resources, are real. But using them as arguments against the system is only fair if you can make a case for a pareto-improving alternative.

The problem with public discourse

These problems can not be evaluated in isolation, but have to be compared in the space of possible solution paths. The sophistication of most public discourse is usually too low to account for this.

A common reason for that lies in its tribalism, mainly the fight for recruiting allies, using manipulation to convince instead of rational arguments to reflect. Most discourse is already ill-formed by its initial goal of convincing instead of finding truth. Only if the goals of the discourse are agnostic to any participant’s position, pure, informative discourse can happen.

Another reason is that rational discourse is simply expensive to sustain. Prior assumptions have to be taken into account, counterfactuals simulated, uncertainties estimated and superpositions have to be maintained. Unfortunately, normies do not enjoy this kind of thinking by definition. As most people in the population are normies and the internet is no longer a niche space for nerds, most engagement is generated by appealing to normies, ergo bad discourse.

Free markets and prosperity

From a utilitarian perspective, one can not deny that the economy of free market is a net-plus compared to any other historical system. There might be high-control state alternatives which also produce scientific and technological progress, but the free market outcompetes it by design. Long-term, it effectively allocates resources where they are modeled to result in the highest return. And this return is tied to consumers. Any inefficiency in allocation opens an opportunity for market makers, which keep the market liquid and are incentivized to keep spread low by rewards. Any arbitrage in offers will get exploited, which tends toward consistent pricing.

This efficient allocation is one of the primary mechanisms by which capital flows into research, infrastructure and technology. The compounding of these investments over decades is what actually produces prosperity: higher life expectancy, cheaper energy, faster communication, accessible food.

The efficiency of the market can even be used for real time prediction. The resolution problem in prediction markets is still suboptimally solved though. In prediction markets you bet on the outcome of reallife events, e.g. sports, elections or arbitrary things like the duration of Trump’s handshake. The resolution of a bet has to rely on some authority or consensus mechanism, determining what factually happened. Polymarket uses the UMA Optimistic Oracle which tries to approximate truth by letting UMA token holders vote with their staked UMA tokens (money) based on rules that were agreed upon. The UMA tokens staked on the majority will get returned (plus reward), while the other positions will get slashed. You can dispute etc. but there exists the problem of UMA whales manipulating outcomes with a majority either way.

In our free market we have an analogous but more resilient problem: that products do not need to be good for the customer, they just need to buy or engage with them. Cigarettes are clearly not good for the customer, but addiction traps you. In short-term the market does not care about helpfulness or goodness, but on the long run the signal of negative impact will either correct the market to improve customer satisfaction, or spiral down until the market destroys itself (which has never happened fully, though crises like 1929 or 2008 show it can come close and AGI may destroy the free market anyway). People have a voice and feedback is fast these days, improving market alignment with humanity in the long run.

Billionaires as a symptom

Billionaires are not just the highest watermark of prosperity, they are a byproduct of the mechanism producing it.

The billionaires I refer to are humans (or in the near future AI agents) that simply have assets worth over 1,000,000,000 Dollars (…duh). At least virtually, a lot of their networth often can not be realized as for many assets, freeing their assets drops the worth of the asset. Not just because those amounts of worth quickly change the prices, but also because liquidating big positions is seen as a strong bearish signal, especially if you sell your own company stocks or crypto (see Vitalik Buterin’s recent ETH sells).

There are more problems, e.g. that you actually need to find buyers. Without prohibition you could generate any networth on paper just by a private valuation round at a high price of your shares: keep 99.99% and sell 0.01% for 100 Euros and bam millionaire. Sell 0.00001% for the same price and bam billionaire. Easy money. Actually a youtuber did this. Going public makes this harder, IPOs require underwriters, regulatory filings and real price discovery, so the market has some soft protections. All I want to say is that networth is not comparable and especially in the high regimes does not convert into actual buying power. But this is not how the game is played there anyways. For a real-life example of how the predictive nature of markets can be played look at the discussed OpenAI Nvidia deal, a great example for circular funding. At this time, people observed with some amusement that OpenAI could ask for AMD chip deals without any payment, just because the deal would push the AMD stock amortizing the gifted chips. Of course this has a lot of negative risks, but the sheer idea gives you a sense of how a lot of deals are actually made outside of actual buy/sell relations (which is partly the critique against the practical efficiency of markets).

So billionaires are mostly not liquid billionaires and they do business in non-standard ways. But why must they exist?

What would it mean to make them not exist? They got rich because they effectively generated a lot of perceived value and are believed to continue to do so. Their networth usually binds to their share in the company they have built, steer and control. Prohibiting billionaires means that no one should be allowed to have significant stakes in big companies, artificially decreasing those stakes when the company increases in value. This is realizable by either institutionalizing the company, giving the shares to the government, democratizing the company by splitting the dominant shares to many small shareholder positions, or simply decoupling the leaders from their stakes while letting them retain control. Giving the government control over all big companies is bad for obvious reasons. Apart from the incentive collapse by aggregating control in one institution, they are less economic and less skilled in leading the company, while the previous leaders have proven their position by successfully increasing the company’s net-worth and thereby projected value. Democratizing the lead of companies is also a bad idea for similar reasons, although there might be more room for improvement. Companies need to be efficient, they have to adapt, act fast and also sometimes act against the interests of the employees to improve their long-term societal value. Democracy, embodied by having many minority stakeholders, averages opinions and thereby loses cunningness and innovation. Innovation needs fluid dictatorship, the ability to push minority decisions from different sources through.

Let us assume the leader gets his shares capped but stays in control. Separating control from ownership may partially preserve incentives as losing your company is a real downside, and for vision-driven founders it outweighs financial exposure. But financial skin in the game is harder to rationalize away than reputational or career risk, and a soft cap still leaves the question of how much is enough open. The cleaner solution remains binding fate to the company directly. Binding networth to shares achieves this naturally, including the downside. Performance-based pay is a weak substitute as signals are delayed over long timescales, and bonus structure has no intrinsic negative reward signal. And practically, any unilateral cap is an invitation, other jurisdictions will simply offer better terms, attracting both the founder and the company’s tax base, jobs and intellectual capital with them. But this is a practical problem we might actually be able to solve, making this third option a difficult but possible alternative.

Final Words

The networth making someone a billionaire is not an empty husk, it is actually representing decision power and autonomy over influential companies that in turn produce real value. Yes, evaluations and markets work via believed and projected value, not the actual value, but long-term these converge and networths in the billions mostly have real underlying value (WeWork and Theranos exist, but they are spectacular failures, not the median). Of course there are parasites too and ways to gain billions in short time without delivering. These opportunities exist now more than ever. But still for the majority of super-rich an underlying value exists and no matter how we try to reduce their networth we can not really cap it without making the situation worse. Yes tax the rich, but only to the degree that your state is competitive enough to ensure the taxing will not lead to them and their companies leaving. See the current discussion of California’s Billionaire Tax: Tragically, the sole discussion of the tax, which is proposed to act retroactively, leads to many of them planning to, or already leaving California, worsening the situation instead of improving it.

In the end the existence of the ultra-rich and powerful is scary and hopefully we will come up with better systems in the future to improve their alignment with humanity as a whole. Solving this is correlated with solving AGI alignment so the next years might yield new ideas. But up until then the birth of billionaires through the free market might be a good sign for humankind.

Further reading

• I really enjoyed the post Psychos vs. Schizos: A Silent War framing the capitalistic power structures by a Psycho-Normie-Schizo trichotomy. It is primarily light-hearted, funny and entertaining.