Hi, I'm the author, and I disagree with you about the definition of a bubble.
A bubble is when you're paying for something based purely on speculation about the future value of that thing, rather than on a rational analysis of the expected future return.
I would wager that Google does not have an internal projection of the value of any engineer showing them to be worth $3.5m over four years; rather, I'd bet that comp decision was made based on an irrational fear of yet another defection from Google to Facebook.
I completely agree that a bubble is when you buy based on speculation of the future value rather than expected utility to you. My point is that this is completely impossible if you cannot realize the appreciation in value. As an employer, you can only realize the engineer's productivity until he or she changes jobs.
If we were talking tulips, if you purchase at 100 florins, and a year later the bulbs are worth 400 florins in the market, you've made 300 florins profit.
With an employee, if you hire them at a salary of $100k, and a year later, they are worth $400k in the market, you do not receive any of that difference.
edit: A bubble in assets that can be resold can happen because it rational on the small scale to buy into the bubble. Everyone may know it will pop eventually, but people think they can make money and then get out. A bubble in unsellable things like employees can't happen because no one can expect that he will be able to "resell" an employee at a higher price.
$3.5 million is simply too large a number for your theory to be correct. A number that large to a single employee doesn't come out of thin air, it's based on something -- whether that be formal analysis or back of the envelope calculation.
It's also possible that it was based on the potential damage done to Google by Facebook's talent acquisition, or if this isn't a zero-sum game, to prevent any gains by Facebook.
Hi, I'm the author, I appreciate your comment. You're demonstrating that you still have some rational perspective here; my thesis is that many people have lost that perspective. I am an ex-Googler, and I am seeing more and more talented engineers leave Google to start a "company" with the express goal of getting acquired for talent, sometimes even hoping to get acquired back by Google.
When people see a valuation in the marketplace (eg, a talent acquisition that makes everyone extremely wealthy) and assume they can achieve the same kind of returns with minimal effort, that is the hallmark of a bubble. The same thing happened with day traders and real estate speculation.
Googlers and ex-Googlers may be living in a bubble. That doesn't mean that the wider engineering talent pool is.
From what I could find on the bls.gov site, in 2008 there were about 900,000 jobs in software engineering and 75,000 jobs in computer engineering. From what I can tell from searching, Google has 20,000 employees, but not all of them are necessarily engineers.
Even if all google employees were engineers, and they were going out and trying to create startups in order to be bought, that would be 2.0% of the US-wide engineer pool.
A bubble is when you're paying for something based purely on speculation about the future value of that thing, rather than on a rational analysis of the expected future return.
I would wager that Google does not have an internal projection of the value of any engineer showing them to be worth $3.5m over four years; rather, I'd bet that comp decision was made based on an irrational fear of yet another defection from Google to Facebook.