How A Kid Earned $2m Before He Could Drink – And The Shocking Way He Lost It(mixergy.com)
mixergy.com
How A Kid Earned $2m Before He Could Drink – And The Shocking Way He Lost It
http://mixergy.com/andrew-thomspon/
12 comments
tl;dr: built tacky MySpace themes sites, promoted them by paying "MySpace whores" with 10,000s of friends to post bulletins, got in early with Yahoo!'s beta ad program when they were massively overpaying, made at peak $200,000 a month, blew a TON of money on cars, a house etc, redesigned the site (and permanently deleted the old one) without realising that changing his URLs would kill his Google rank, blew $30,000 on SEO experts, none of whom apparently told him he should set up redirects, ended up selling the MySpace site for $75,000, still has the house.
"tl;dr: built tacky MySpace themes sites, ... still has the house."
I'm having trouble reconciling the "dr" part of "tl;dr" with your concise summary of almost the entire interview. :)
"built tacky MySpace themes sites, promoted them by paying "MySpace whores" with 10,000s of friends to post bulletins, got in early with Yahoo!'s beta ad program when they were massively overpaying, ..."
Or, built a service that many people on MySpace were very happy to use, promoted that service very effectively within the web and MySpace community dynamics of the time, had lucky timing and benefited from his status on MySpace and the Web to get in the Yahoo ad beta stage when it was was more lucrative ...
"... made at peak $200,000 a month, blew a TON of money on cars, a house etc, redesigned the site (and permanently deleted the old one) without realizing that changing his URLs would kill his Google rank, ..."
Or, made more money at peak per month than most people will make at peak per year, ever, blew a lot of money, redesigned a site that had grown organically, as did his knowledge of software engineering and business, made a fatal error not just in changing the URLs but all the text on his site (html, css, javascript, etc)...
"... blew $30,000 on SEO experts, none of whom apparently told him he should set up redirects, ..."
When, what he should have done is spent a few hundred or thousand to have an SEO expert tell him what went wrong (or hired such before he finalized his decision to switch everything over in seconds) and how long it might take to fix it (if it could be fixed at all). If anyone had told him about redirects by that time (they probably did), it would have been too late because the mistake was already irrevocably "out there" ...
"... ended up selling the MySpace site for $75,000, still has the house."
Still had a business that could be sold for some amount of money, and, he's already dusted himself off and working his way back with what may be a viable and lucrative service.
The guy is 22 (?), and already he's built and lost/sold a million dollar business (based on nothing but tacky MySpace themes!) without, apparently, knowing much about business, and without benefit of any experienced adviser. He learned some very expensive lessons about spending, source control and how search engines see and judge your site, and about how important it is to learn important things before they're important. He did it in the fashion often advocated here: do it, and learn what you need when you need it. Unfortunately he learned a few things a bit later than when he needed it, but it doesn't seem to have discouraged him permanently.
Most of us make mistakes and learn about managing our life and business in our early twenties, we just don't think of those mistakes as "shocking" because we aren't spinning millions of dollars and our own business around.
I thought it was an interesting and useful story, and I liked the "en vivo, open kimono" format.
I'm having trouble reconciling the "dr" part of "tl;dr" with your concise summary of almost the entire interview. :)
"built tacky MySpace themes sites, promoted them by paying "MySpace whores" with 10,000s of friends to post bulletins, got in early with Yahoo!'s beta ad program when they were massively overpaying, ..."
Or, built a service that many people on MySpace were very happy to use, promoted that service very effectively within the web and MySpace community dynamics of the time, had lucky timing and benefited from his status on MySpace and the Web to get in the Yahoo ad beta stage when it was was more lucrative ...
"... made at peak $200,000 a month, blew a TON of money on cars, a house etc, redesigned the site (and permanently deleted the old one) without realizing that changing his URLs would kill his Google rank, ..."
Or, made more money at peak per month than most people will make at peak per year, ever, blew a lot of money, redesigned a site that had grown organically, as did his knowledge of software engineering and business, made a fatal error not just in changing the URLs but all the text on his site (html, css, javascript, etc)...
"... blew $30,000 on SEO experts, none of whom apparently told him he should set up redirects, ..."
When, what he should have done is spent a few hundred or thousand to have an SEO expert tell him what went wrong (or hired such before he finalized his decision to switch everything over in seconds) and how long it might take to fix it (if it could be fixed at all). If anyone had told him about redirects by that time (they probably did), it would have been too late because the mistake was already irrevocably "out there" ...
"... ended up selling the MySpace site for $75,000, still has the house."
Still had a business that could be sold for some amount of money, and, he's already dusted himself off and working his way back with what may be a viable and lucrative service.
The guy is 22 (?), and already he's built and lost/sold a million dollar business (based on nothing but tacky MySpace themes!) without, apparently, knowing much about business, and without benefit of any experienced adviser. He learned some very expensive lessons about spending, source control and how search engines see and judge your site, and about how important it is to learn important things before they're important. He did it in the fashion often advocated here: do it, and learn what you need when you need it. Unfortunately he learned a few things a bit later than when he needed it, but it doesn't seem to have discouraged him permanently.
Most of us make mistakes and learn about managing our life and business in our early twenties, we just don't think of those mistakes as "shocking" because we aren't spinning millions of dollars and our own business around.
I thought it was an interesting and useful story, and I liked the "en vivo, open kimono" format.
Success is about equal to (aptitude * hard work * luck)
Luck is not repeatable. So, I think it would be clever for him to finish high school.
Luck is not repeatable. So, I think it would be clever for him to finish high school.
> Luck is not repeatable.
There is another gem for DanielBMarkhams quote search engine when he gets it finished.
it's interesting how the fact that this guy got lucky seems to imply that he'll do fine again in the future.
I got lucky once, I've been working very hard to see if I can 'get lucky' again, but I'm really not counting on it.
I think the real moral of this story is "If it ain't broke, do not fix it".
Do your experimenting on something that isn't making you a ton of money (yet).
There is another gem for DanielBMarkhams quote search engine when he gets it finished.
it's interesting how the fact that this guy got lucky seems to imply that he'll do fine again in the future.
I got lucky once, I've been working very hard to see if I can 'get lucky' again, but I'm really not counting on it.
I think the real moral of this story is "If it ain't broke, do not fix it".
Do your experimenting on something that isn't making you a ton of money (yet).
Getting lucky can significantly bolster your self-confidence and improve your chances. You also get to make some connections that can be reused.
It sounds like whoever bought that site may have made a bundle off of him. Just a few 301 redirects in the old .htaccess file and the new owner was back in business!
$25,000 (according to the transcript.)
transcript is wrong, he says $75,000 in the actual interview.
I believe $25,000 was for his clothing company that he sold at the same time.
Just a note, Mixergy seems to put up a bunch of interviews that I'd be interested in _reading_ but watching a 1 hour interview just doesn't work for me.
If you scroll down, there's a transcript made by MTurkers. (It's Friday, so you get snark-free. Well, aside from this parenthetical.)
Yah, I'm aware of that and thought about raising the point.
The joy of an article is that someone actually spends time "editing" the interesting information into something readable. The transcript is a bit of a poor substitute.
The joy of an article is that someone actually spends time "editing" the interesting information into something readable. The transcript is a bit of a poor substitute.
I'm glad the full transcript is available. You get a lot of insight into the personality of the founder that you wouldn't otherwise.
I have this issue with Mixergy as well. It sounds kind of stupid now that I'm typing it out, but... an hour is a long time. And the synopses that they write for the interviews are rarely very good.
I actually disagree completely, yes an hour is a long time, but that is exactly why I like watching them.
Most "real" interviews are so short, you never get any details, with mixergy you can actually get the nitty gritty details that help you see the actual thinking behind the actions. And since you can ask your own questions, you can actually get your questions answered.
For me the interviews, fall at 2pm, so I just watch them while I eat lunch. Probably the best hour I spend per day, come to think of it.
Most "real" interviews are so short, you never get any details, with mixergy you can actually get the nitty gritty details that help you see the actual thinking behind the actions. And since you can ask your own questions, you can actually get your questions answered.
For me the interviews, fall at 2pm, so I just watch them while I eat lunch. Probably the best hour I spend per day, come to think of it.
If watching an interview is the best hour you spend per day, consider doing different things during the rest of the hours.
Andrew is also doing excellent job asking the right questions. I was going to add "that's why we're paying him", but then realized that we're not paying anything. :-)
But it's certainly the kind of quality journalist work I want to survive the coming news-pocalypse.
But it's certainly the kind of quality journalist work I want to survive the coming news-pocalypse.
I don't watch all the interviews but the ones I have watched (this one included) have been well worth it to me. I find it inspiring hearing other peoples stories. It's cool to watch interviews with folks willing to get out and do something.
The fact that it's in audio is nice too. If something is only in video is demands your full attention, but something that is in audio you can multi-task while listening to. (Maybe it's only me, but I really find it hard to watch video and do something else at the same time unless the video is completely and utterly boring)
I'd have to agree with this. An edited video or transcript would be much more appealing. An hour is much too long.
Videos are value-add when the presentation is well done (in terms of 'stagecraft and being able to see the slides). Merely listening endless ramble designed to keep you on the hook looses against speed-reading the transcript.
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.
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.
Paul Graham talks about this in more detail and more eloquently than I can hope to at http://www.paulgraham.com/wealth.html
(Edited to add a small comment).
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.
Paul Graham talks about this in more detail and more eloquently than I can hope to at http://www.paulgraham.com/wealth.html
(Edited to add a small comment).
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.
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.
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.
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.
you mean people will forgo consumption in favor of investment? the horror!
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.
I think you are being a bit naive here.
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:
http://www.progressdaily.com/wp-content/uploads/2007/10/Nikk...
I recommend you think about these points for a while before discussing this matter again.
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:
http://www.progressdaily.com/wp-content/uploads/2007/10/Nikk...
I recommend you think about these points for a while before discussing this matter again.
Codexon, on this site people use a civil tone. Please read this: http://ycombinator.com/newsguidelines.html
Also I'd rather not debate economics, sorry.
Also I'd rather not debate economics, sorry.
See my reply here to see why that is a naive point of view.
http://news.ycombinator.com/item?id=1000181
http://news.ycombinator.com/item?id=1000181
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.
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.
Can you read? I didn't call it a pyramid scheme. I called it a pyramid.
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.
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.
zero sum? but people take raw materials (e.g. glass and aluminum) and make awesome, valuable stuff out of it all the time.
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.
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.
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.
How many times do I have to repeat myself?
I never said "wealth" exchange was a zero-sum game. I said currency exchange is a zero-sum game.
I never said "wealth" exchange was a zero-sum game. I said currency exchange is a zero-sum game.
You mean trading currency for currency doesn't go anywhere? Umm, I guess so. What's your point? The guy wasn't in the currency exchange business.
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.
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.
Is it sad that you assume all capitalist people here are repeating views from PG, rather than explaining their own independent views?
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.
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.
While what you say is true, it is a non-sequitor.
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.
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.
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.
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 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.
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.
This was a very informative post. I have thought about this before, but was never able to get my facts lined up in this way. Thanks
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.
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.
What about interest and electronically created debt? It doesn't depend on the Fed printing anything.
That is currency... the far majority of currency in the world is "electronic".
This title is a little misleading. He didn't lose the $2m. He spent it all on fun stuff and then broke his SEO in some way so that the revenue stopped coming in.
I think this says it all:
"Interviewee: Yes, that was actually an .htaccess thing I forgot to do. You can do a redirect - there's a few types of redirects you can do, there's like 301s, 401s, and there's one, there's a redirect that you can do in the .htaccess file that says, "Hey, this page is gone - not missing, it's over here." And we didn't do that, and I didn't figure that out until a month later when it was too late, when the old design, when the old site was already gone."
"Interviewee: Yes, that was actually an .htaccess thing I forgot to do. You can do a redirect - there's a few types of redirects you can do, there's like 301s, 401s, and there's one, there's a redirect that you can do in the .htaccess file that says, "Hey, this page is gone - not missing, it's over here." And we didn't do that, and I didn't figure that out until a month later when it was too late, when the old design, when the old site was already gone."
Sometimes it's all about being in the right place at the right time and getting a little lucky. I have a friend who had a lastminute.com affiliate account go ballistic because his affiliate code somehow got onto all of their call center's terminals. He was earning commission from every single holiday booked over the phone at lastminute.com for around a month!
It was an interesting interview which could have very well be summarized in 10 min. Andrew Warner has just dragged it way too long.
Kid's spending patterns and his love intersts. Not necessary. It pretty much seemed like he ran out of questions or was it like a highschool kid in awe interviewing another highschool kid.
Kid's spending patterns and his love intersts. Not necessary. It pretty much seemed like he ran out of questions or was it like a highschool kid in awe interviewing another highschool kid.
This is a classic scenario where a human is overspending and don't have any insight to economics. He also thought he knew his domain, while he didn't. The SEO-guy was ripping him off, and he should have taken legal action against the SEO-scam that effectively pulled the plug on his cashflow.
I looked for beemodel.com that he mentioned about a dozen times, think he got the address wrong! Whoops. There is a bemodel.com but only a domain seller holding page at beemodel.com.
Does anybody else think its wrong how he blames his loss of $2mm on his website falling on Google's rankings?
Umm... maybe he lost $2mm from all the crap he bought!
Umm... maybe he lost $2mm from all the crap he bought!
He lost his $200k/month golden goose due to falling on google's rankings.
He traded his $2million in cash for some status symbols.
He traded his $2million in cash for some status symbols.
I posted about this yesterday, and Andrew finally upped the interview, so here is a link.