
Economic Inequality - urs
http://paulgraham.com/ineq.html
======
jacobolus
Graham is arguing against an enormous straw man. Nobody is suggesting that we
“prevent people from getting rich” or “end all economic inequality”. The most
extreme proposals I’ve seen in America are ones like, “institute an
unconditional basic income as an alternative to means-tested welfare
programs,” or “allow every citizen/resident into a single-payer healthcare
system,” or “go back to the tax structure of the 1950s–70s”, with higher
capital gains taxes, higher inheritance taxes, and higher top marginal income
tax rates, etc., plus a lot of proposals that seem to be pure common sense in
a democracy such as “limit anonymous spending on political campaigns”, but
nothing like a reprise of the French Revolution or early Maoist China or
whatever Graham is on about.

~~~
GavinMcG
On that note: the most offensive economic inequality isn't the 1% vs. the 99%,
which successful startup founders would find themselves on the wrong side of.

It's more about the 80 individuals with more wealth than half the world's
population [1] – which, yes, does include "startup founders" such as Gates,
Ellison, Bezos, Zuckerberg, Page & Brin, etc. But the vast majority of
successful startup founders aren't in this group. Even if they were, the
proposals are to keep people from becoming quite as obscenely wealthy, as
you've pointed out.

[1] [http://fivethirtyeight.com/datalab/meet-the-80-people-who-
ar...](http://fivethirtyeight.com/datalab/meet-the-80-people-who-are-as-rich-
as-half-the-world/)

~~~
pluckytree
Why is that more offensive? What if they were all startup founders or created
companies that made profound and positive change? At what point is the cross-
over between being reasonably and unreasonably wealthy? If they have too much
money and give most of it away, is that better than continuing to create new
ventures that could make a difference?

This economic inequality feels similar to racism. Why should a very wealthy
person be pre-judged to be worse than others without knowing the whole
picture? You seem to be singling out startup founders as being OK, it’s just
the others that are bad?

Sure, income distribution is unequal, but it doesn’t have to turn into
villifying those at the top of the heap.

~~~
geofft
These sorts of discussions always go downhill because they very quickly turn
into defending (and attacking) people as if their identity is inextricably
linked to their wealth, which means that policy discussions are read (and
sometimes written) as personal attacks. Can we do better than that, please?

I don't see a claim that any of these folks are _bad people_ for their money.
Gates, for instance, is doing extraordinary good in the form of philanthropy;
it's a stretch to imagine that the "offensive economic inequality" is a
judgment of his character (although you may be correct that parent's choice of
word "offensive" was risky). There are grounds to criticize his richness based
on the anti-competitive actions of Microsoft in the '90s, but his richness
_per se_ isn't valid grounds to condemn him.

What is to blame, what is "offensive," is a society that allows people to
become fantastically wealthy like this. What would the harm for society be if,
through whatever means, it was much more difficult to become this wealthy?
Maybe it is high taxes on the ultra-rich, maybe it is an unwillingness to
allow high CEO salaries, maybe it is a serious estate tax, etc. Is it really
true that Gates, Zuckerberg, Page, Brin, etc. were motivated primarily by
money to found Microsoft, Facebook, Google, etc.? If they had a 99% marginal
tax rate once they have assets of $500M (on any form of gaining wealth), would
we have a weaker Microsoft or Facebook or Google doing less good for the world
because they wouldn't be working as hard? Would the good done to people on the
lower end of the scale not outweigh any possible harm here? That seems hard to
imagine.

And it is precisely because these people _could_ be less rich that the
comparison to racism feels ill-placed. A society biased against people of a
particular race cannot make existing people cease being of that race, and
preventing new people of that race would be grossly immoral. A society biased
against billionaires can in good conscience make fewer people billionaires,
and it can even prevent hereditary billionaires without any particular
immorality (although I think most of the people on that list are self-made).

~~~
karzeem
Empirically, how well do you feel the US government spends its budget
currently?

There's often an assumption in these discussions that if a billionaire isn't
spending their money in a socially optimal way, the government will spend it
better. But if you look at how governments actually spend their money, you'll
find very little evidence to support that assumption.

~~~
s0uthPaw88
Government run social welfare programs are actually pretty efficient since
they have huge economies of scale [1].

[1][http://www.cbpp.org/research/romneys-charge-that-most-
federa...](http://www.cbpp.org/research/romneys-charge-that-most-federal-low-
income-spending-goes-for-overhead-and-bureaucrats-
is?fa=view&id=3655&emailView=1)

~~~
karzeem
I'd actually worry more about how efficiently the money is being used after
it's been disbursed, not about how much government administrative costs eat
up.

E.g. that chart says that ~96% of Medicare spending went to beneficiaries.
That sounds good, but all it means is that 96% of the dollars were paid to
hospitals/doctors/medical device manufacturers/etc. It says nothing about how
efficiently those people are providing their services, i.e. how efficiently
those 96% of Medicare dollars are being spent. A lot of those dollars get
quickly chewed up by high prices (which I'd argue are themselves caused by the
market distortions that these programs foster).

------
foldr
It's hard to take this seriously when pg asks us to believe, on the basis of a
single out of context quote, that Stiglitz is a simple-minded victim of the
"pie fallacy". Stiglitz explicitly anticipates and addresses this criticism:

> One can think of what’s been happening in terms of slices of a pie. If the
> pie were equally divided, everyone would get a slice of the same size, so
> the top 1 percent would get 1 percent of the pie. In fact, they get a very
> big slice, about a fifth of the entire pie. But that means everyone else
> gets a smaller slice. _Now, those who believe in trickle-down economics call
> this the politics of envy. One should look not at the relative size of the
> slices but at the absolute size. Giving more to the rich leads to a larger
> pie, so though the poor and middle get a smaller share of the pie, the piece
> of pie they get is enlarged. I wish that were so, but it’s not. In fact,
> it’s the opposite: as we noted, in the period of increasing inequality,
> growth has been slower—and the size of the slice given to most Americans has
> been diminishing._ [my emphasis]

More generally, it's unclear what pg is attempting to do here. None of the
arguments presented is at all original, and they are not presented in enough
detail to be properly evaluated. So what are we meant to take away from this?
That a rich dude is ok with income inequality? Quelle surprise.

~~~
noobermin
That still sounds like the pie fallacy. The idea is that wealth is not a
global conserved quantity, but can be created by individuals. One need not
"enlarge the pie" globally so that the poor can have more of it. It's more
like the rich create more of it and the poor create/obtain less of it.

~~~
nhaehnle
It's interesting that you focus on the individual when it comes to wealth
creation. This is not random, and it predisposes you to believe that there is
a pie fallacy going on when in fact there might not be one.

The truth is that almost no wealth creation is done by individuals. There is a
vast range of levels on which wealth creation is a shared enterprise and it
would be boring to trot them out again, but usually, all or at least most of
society is involved directly or indirectly (if only by agreeing to the social
contract of peacefulness towards one another).

Because of this, the question of the rewards for wealth creation is one of
distribution _from the very beginning_. Logically speaking, there is no single
point in time where the startup founder's product can be declared to be just
his or her own according to a universal philosophy.[1]

There is no neutral default distribution that you can derive from first
principles.

Instead, in the example of startups, to what extent the overall benefit of the
creation should go to the startup founder, and to what extent it should go to
employees, the people providing the underlying tech stacks, and other parts of
society depend on your value system and on your objective function.

So, to make explicit what this has to do with the pie fallacy: Since wealth
creation is generally not done by individuals, inequality is a concern even
when the pie is growing, and even when each individual's absolute income or
wealth is growing, because despite all this growth, the resulting distribution
might still be unjust.[2]

Graham tries to side-step this discussion, and unfortunately our society is
generally not well-equipped to defend against such rhetoric moves. You may end
up agreeing with him,[3] but I hope you at least recognize that if you do, you
do _not_ do so by purely applying logical deduction from first principles.
There is necessarily a subjective value judgement that reasonable people with
different values and objectives will disagree with.

[1] It is also no accident that Graham chooses the example of a woodworker at
the beginning of his essay. Since woodworkers have existed for millenia,
including through time periods where people really were more self-reliant than
today, it makes the reader subtly predisposed to be mislead into accepting the
story of wealth creation by individuals.

[2] And/or it might be inefficient, but that's a different can of worms.

[3] And you may well be right to do so, depending on your values!

~~~
noobermin
To you and foldr, I was only responding to his comment, that such reasoning
still sounded like the pie fallacy. If you really need _my_ personal opinion,
I believed that wealth inequality is a problem before I read pg's essay
because it seemed persuasive. I still disagree with a bit of it, but I don't
like shutting off others' ideas due to my biases[0]. You make an interesting
point though, the idea of how wealth is distributed after does have an
underlying value judgement, as you point out.

To be fair to pg, he is responding to an often used argument that assumes
wealth is a zero sum game rather than it being who gets more of the wealth
created. He is right then to claim that given his values (and those shared by
most people in America, remember, we still are center-right on most things)
and within that moral framework where ownership determines who reaps the
benefits, his logic is correct. However, with your values where it seems that
benefits should go to those who invest more[1] should earn a proportional
amount, it may be suspect.

[0] At least the ones I can identify.

[1] On second thought, many in America would agree this is a worthy moral
framework. I do too.

~~~
foldr
>he is responding to an often used argument that assumes wealth is a zero sum

This is not an often-used argument. It's obviously false that wealth is only
ever redistributed and not created, and someone as knowledgeable as Stiglitz
would obviously not believe something so silly. He even goes out of his way to
explain that he doesn't believe this. And yet pg _still_ decides to make out
that he's fallen for the "pie fallacy".

The pie fallacy is, in essence, the fallacious argument that one person can
get rich only at the expense of another. Approximately no-one thinks this is
true as a matter of economic or metaphysical necessity. Some people think that
as a matter of fact, the enrichment of the 1% in the U.S., in the last decade,
has to a significant extent been at the expense of the rest. To deny this
because "pie fallacy" is to commit the inverse pie fallacy: to assume that
individual wealth is always gained from creation and not redistribution. How
wealth was gained in any given instance is an empirical question, not a
logical or moral one.

------
loteck
_> So when I hear people saying that economic inequality is bad and should be
eliminated, I feel rather like a wild animal overhearing a conversation
between hunters. But the thing that strikes me most about the conversations I
overhear is how confused they are. They don't even seem clear whether they
want to kill me or not._

Straw man aside, I continue to be deeply concerned about individuals who spend
their time believing they are being hunted, literally or figuratively, to the
end that they or some aspect of them is to be "killed". This is the kind of
paranoid rhetoric that you can often find emanating, frequently unchallenged,
from people who are often people of means, with some degree of privilege.

It's a significant concern, I believe, because the claimant, despite being a
privileged and often powerful person, is admitting they have formulated their
outlook based on a feeling they are a victim, or soon will be.

The reality is that their station in life means they are able to protect
themselves from nearly all meaningful victimization. But either they do not
understand this fact, or they are deliberately ignoring it. Either way, the
positions they formulate based on this fear of nearly impossible victimization
are often extremely flawed.

You can turn on a news station covering presidential politics if you'd like to
see a consistent example of this being demonstrated.

I'd urge PG to be a little more self-aware, and I'm disappointed at the list
of editors and helpers he credits who are unable to help question him into a
more thoroughly developed narrative.

~~~
timmytokyo
I think there is some validity to Graham's paranoia.

There is another way to characterize the trends that Paul Graham observes.
Perhaps growing economic inequality is a natural consequence of capitalism
itself, and the "defragmentation" (or greater economic socialization) of the
economy brought about by World War II was only a temporary reprieve from the
overall trend toward greater inequality.

This view is essentially Marx's original critique that, given enough time,
capitalism will destroy itself. As wealth accumulates at the upper end of the
income spectrum, it has a self-reinforcing and accelerating feedback effect:
greater wealth purchases greater political and social influence, which enables
even greater wealth production, often at the expense of the poor and the less
wealthy. The system inevitably sows the seeds of its own destruction.

History has shown that massive inequalities lead to instability and
revolution. As a self-admitted beneficiary and generator of said inequality,
Graham is right to be worried about how he would do during such a period of
instability.

~~~
djhn
> As wealth accumulates at the upper end of the income spectrum, it has a
> self-reinforcing and accelerating feedback effect: greater wealth purchases
> greater political and social influence, which enables even greater wealth
> production, often at the expense of the poor and the less wealthy.

A case _for_ wealth accumulating on top can be made, if you believe wealthy
individuals, on average, are better at allocating funds for a given "common
good objective" than the government. In that case you would expect them to be
more intelligent and benevolent in their allocation of this wealth as well as
less susceptible to corruption (financial, moral, ideological) than the
bureaucracy.

~~~
whateveridunno
Systems wherein the wealthy are the primary allocators of 'funds for common
good objectives' have already existed. They were called 'aristocracies'.

They did not result in improved lives for the non-wealthy.

------
jrlocke
Pg, in effect: "if there was no economic inequality there would be no startups
(and all the good they bring). The real problem is the number of super poor,
not the number of super rich".

But this is a straw man: no one is arguing for total economic equality, just a
reduction in inequality. Further, pg asserts that startups are wealth
creators, and they thus create rich founders without having influence on
poverty in this country. This is patently false: the best startups make money
eating other people's lunch, and they concentrate this money in the hands of
the founders. Jeff bezos holds money that would have found its way to book
store owners, Netflix money from video rental services, Uber money from taxis
service owners, etc. The startups are often the better solution, you will not
see me hailing a yellow cab, but the economic inequalities they are
introducing must still be addressed.

~~~
wtbob
> This is patently false: the best startups make money eating other people's
> lunch, and they concentrate this money in the hands of the founders.

No, they concentrate the profits in the hands of their founders, but the big
winners are the millions of consumers. Yeah, Jeff Bezos is rich, but not as
rich as a world with Amazon in it

~~~
tonyedgecombe
I don't feel rich when I live in a town with no bookshop, beyond a certain
point the availability of cheap goods is pretty meaningless.

~~~
edanm
Unfortunately, that's not your decision. It's everyone's. You might personally
dislike the choices other people make, but clearly other people do think
saving money via buying at Amazon is worth it.

~~~
tonyedgecombe
Sadly I think you are right, although the French do have an interesting
approach to this.

~~~
jrsnyder
What is the French approach?

~~~
fixermark
They fined Amazon daily because they were found to be in violation of the law
that protects the bookseller's guild against deep discounts.

Last I heard, Amazon responded by paying the fine... And continues to pay the
fine, because the value of the French market still exceeds the fine.

------
rst
Central thesis (hidden a bit): "ending economic inequality would mean ending
startups". So, who is the straw man who advocates completely ending economic
inequality? Even left wingers in Europe (far to the left of anyone mainstream
in the US) talk mainly of reducing it.

So, if economic inequality were substantially reduced, would there still be
startups? I believe another piece of common advice in this field is that you
should only do a startup if you want to change the world, not just to get
rich...

~~~
asift
Reducing economic inequality is merely a lesser form of eliminating it. I
think the tough question people should consider here is whether relative
inequality or absolute standard of living is the more important metric. If
absolute standard of living rises faster as economic inequality increases, why
should we try and limit economic inequality?

~~~
bko
The ironic thing is that the wealthiest now try to live a rather stoic, normal
life with a focus on whole, local foods and simple agrarian pleasures. Sure,
they don't fly coach, but honestly, they don't exactly live extraordinary
lives when compared to that of the middle class in America.

Reminds me of a Warhol quote:

> What’s great about this country is that America started the tradition where
> the richest consumers buy essentially the same things as the poorest. You
> can be watching TV and see Coca-Cola, and you know that the President drinks
> Coke, Liz Taylor drinks Coke, and just think, you can drink Coke, too. A
> Coke is a Coke and no amount of money can get you a better Coke than the one
> the bum on the corner is drinking. All the Cokes are the same and all the
> Cokes are good. Liz Taylor knows it, the President knows it, the bum knows
> it, and you know it.

~~~
gethoht
This correlation of equality breaks down in regards to the justice system
however, where the poor are systematically curb-stomped and viewed as revenue
generators for local governments while the rich can literally destroy the
world economy through fraudulent mechanisms and walk away scot free.

~~~
jordanb
Not justice, nor healthcare, housing, education, or political influence. But
when it comes to sugar water Virginia yes it's true: we're all equals.

------
braythwayt
I don’t think “income inequality” has much to do with the rich getting richer,
especially startups.

I think the concern has to do with whether those same startups make the poor,
poorer. Some do, some don’t.

I believe that Github, for example, makes it easier for the world’s poor to
become richer. Amazon or Walmart, on the other hand... Some of these
disruptive industries make a lot of people poorer by driving businesses into
bankruptcy.

Same with the “sharing economy” claptrap, that turns jobs into piece-work
subcontractor relationships. All this stuff may be perfectly defensible, of
course, but but I don’t think anybody will complain if GitHub’s founders get
stinking rich. I think the complaints are about those industries that take
huge amounts of investment funds, run at a loss to drive existing businesses
bankrupt and drive people out of work.

To the anti-capitalist, that behaviour is not about creating value, it’s about
taking existing wealth and using it to make a lot of people poorer.

~~~
wtbob
> Amazon or Walmart, on the other hand... Some of these disruptive industries
> make a lot of people poorer by driving businesses into bankruptcy.

Amazon and Walmart make the poor richer, because they need spend a smaller
proportion of their incomes on food & goods. That's why Amazon & Walmart out-
competed the mom-and-pops of a generation ago.

This was bad for the owners of the mom-and-pop stores, but it was good for the
poor: in fact, the only way it could happen is because the poor voted with
their dollars.

~~~
whistlerbrk
I cant believe you're serious. People didn't vote with their dollars. They
needed to eat so they sacrifice the long term for the short.

companies like Walmart are able to leverage their miniscule effective tax rate
compared to mom and pop stores to offer cheaper goods, combined with the FACT
that they artificially lower prices to a point where an individual store loses
money all for the sake of driving the local competition out of business which
has no other operations to soak up losses.

Walmart has innovated in logistics and supply chain management but make no
mistake they offer poor quality goods which exploit cheap foreign labor at the
long term expense of our middle class

~~~
zo1
>" _They needed to eat so they sacrifice the long term for the short._ "

And they would not have had to sacrifice if they went to the "mom and pop
stores" instead? You're not really addressing the point of Walmart actually
being cheaper than the mom and pop stores, and thus got more sales. Precisely
leading to what the OP said of poor people voting "with their dollars".

>*"Walmart has innovated in logistics and supply chain management[...]"

Exactly how they made life easier for the poor, by transferring enough of the
cost-savings from the efficiency to both undercut the wasteful mom and pop
stores, and to save the poor customers money.

------
hobs
The problem with income inequality is not related to a startup founder getting
rich, its about the deck being stacked against people before they are even
born, and then the super rich continually stacking the deck against anyone
coming up and challenging their supremacy.

~~~
kelukelugames
I like the term social mobility. A person's station in life should not be tied
to their parents' income level.

~~~
wtbob
> A person's station in life should not be tied to their parents' income
> level.

Why not? One's genes are rather intimately tied to one's parents' genes, and
those genes completely determine one's physical self. One's upbringing is the
direct result of one's parents' choices (and one's own reaction to them, which
is itself a product of genes and upbringing).

It seems patently obvious that one's parents' lot in life (itself a product of
their own genes and upbringing) must determine one's own lot in life to a very
great degree. To think otherwise would be to assume that we are more than the
product of our genes and our upbringing, which seems an unsupportable
supposition.

~~~
MagnumOpus
If this is true, then the children of billionaires would rise to the top even
if they went to the same state schools and had the same resources/networks as
everyone else. (Obviously the billionaires don't agree with you since they
send their kids to exclusive private schools that cost more than a normal
person earns in a year.)

If this were true (and I am not arguing that it isn't), a very high
inheritance tax could be levied - the kids of billionaires don't need it
because they will rise to the top anyway, and you can cut income taxes and
corporate taxes to incentivise startup creation instead.

~~~
wtbob
> If this is true, then the children of billionaires would rise to the top
> even if they went to the same state schools and had the same
> resources/networks as everyone else.

No, because those private schools are part of the parents' choices about
upbringing. Moreover, it's impossible for state schools to be good because
it's politically impossible for state schools to teach unpopular truths.

------
Mikeb85
So much material, so little time (today, for me at least).

A few of his key points that I noticed:

> In the real world you can create wealth as well as taking it from others. A
> woodworker creates wealth. He makes a chair, and you willingly give him
> money in return for it. A high-frequency trader does not. He makes a dollar
> only when someone on the other end of a trade loses a dollar.

Not surprising that he uses this example, it's popular. As a retail trader
however, the amount of money I lose to a HFT is basically the HFT's commission
for making my trade happen. In the old days I would have paid a broker, today
I pay much less to my (electronic) broker and an HFT takes a few cents as
well. It may seem to be zero-sum, but they are providing a service
(liquidity).

But then again, everyone will defend their own interests, as PG is doing, and
as finance people do.

> I've seen this myself: you don't have to grow up rich or even upper middle
> class to get rich as a startup founder, but few successful founders grew up
> desperately poor.

This really should be the whole article. PG argues for economic inequality the
whole time, but this is the real reason why economic inequality is bad.

Economic inequality reduces social mobility, and reduces the pool of potential
entrepreneurs.

Also, PG should realize that what he does is basically what finance people do.
He's increasing valuations of certain startups, not creating wealth. It's the
same game played in the markets.

~~~
natrius
Retail traders don't have liquidity needs on a sub-second basis. They'd all be
better off with exchanges that used batch auctions. HFT is a tax on our
economy.

[http://www.businessinsider.com/michael-lewis-high-
frequency-...](http://www.businessinsider.com/michael-lewis-high-frequency-
trading-and-frequent-batch-auctions-2014-3)

~~~
Mikeb85
No, retail traders don't. However if I go through my electronic broker, it's
then trading on the 'real market' on my behalf, and the extra liquidity is
much appreciated. And trading today is cheaper than ever before.

I actually started trading on the TSX-V market, which has super-low liquidity
and no HFT players (not even sure if there are market makers for most of the
stocks). It's pretty much my idea of what hell is like.

BTW, here's an interesting link:
[http://www.forbes.com/sites/timworstall/2015/01/26/relax-
eve...](http://www.forbes.com/sites/timworstall/2015/01/26/relax-everyone-the-
high-frequency-trading-problem-is-over/)

The thing about HFT, is that it's basically arbitrage. People used to do it
manually, machines of course do it better. Now spreads are so small, there's
basically no profit in it. The result, better liquidity than ever, smallest
spreads in history. And yes I've read all the anti-HFT propaganda - but I'm
also in the markets, and I like trading in high-liquidity markets, especially
after trading in low-liquidity markets...

~~~
mrchicity
According to IIROC (Canada's SEC), HFTs are active on TSX-V, but not in all
stocks or to the same extent that they trade the TSX blue chips. I would
imagine they'd stick with the highest volume TSX-V stocks. The ones that
aren't liquid have low opportunity and risks that are impossible to
model/hedge (penny stocks can easily go to 0 from an accounting scandal or
jump 1000% if a wildcat strikes gold or oil).

"Figure 9 shows the HFT participation as a fraction of all transactions and
value. Compared to the main market, HFT activity in TSXV stocks is lower, with
only 20% of transactions and less than 10% of value involving an HFT on the
passive side (aggressive volume is negligible). As Panel C indicates, however,
they submit about 55% of all orders, and they are thus noticeable in these
securities. Panel D highlights the share of HFT and other traders’ orders
relative to best prices. HFTs generally submit more than half of the orders
that are submitted at the best price or that are improving the best price."
[1]

1:
[http://docs.iiroc.ca/DisplayDocument.aspx?DocumentID=048AE40...](http://docs.iiroc.ca/DisplayDocument.aspx?DocumentID=048AE4017CF34FCE8243ECD7A3C2913A&Language=en)

------
karlheinz
The wealth that PG and his friends accumulate through app startups does not
come from nowhere. The millions of dollars that make a handful of men rich
depends on extracting value out of:

1) Government funding. GPS, the Internet, touch screens and the CPU. All
funded by government research where the tax dollars contributed by each and
every citizen is the investment capital.

2) Global cheap labour. Miners in Africa (mining litium for batteries for
example) and factory workers in china provides the infrastructrue for YC
startups to make enormous profits.

3) Open source software. Unpaid labour provides the free tools that a startup
need to "grow fast" without much investments.

Most people involved in 1-3 don't see any return on their investments.
Something to think about.

~~~
twoodfin
Can you ballpark for me how much more the government spent on the Internet
than private industry?

Because I'm pretty sure it's the reverse by at least two orders of magnitude.

~~~
karlheinz
Some classic examples:

* TCP/IP (USDOD)

* HTTP and HTML (CERN)

* The initial research for the Google algorithm (NSF)

* Compaq and Intel’s early stage funds (SBIR)

* Tesla was launched with a $500m guaranteed government loan

In fact, 77 out of the most important 88 innovations between 1971 and 2006
(rated by R&D Magazine’s annual awards) were fully dependent on US federal
government support (1)

(1)
[http://ser.oxfordjournals.org/content/7/3/459.abstract](http://ser.oxfordjournals.org/content/7/3/459.abstract)

~~~
twoodfin
That doesn't answer my question. After all, you can use the same argument to
say all of computing depends on governments needing more accurate ballistic
tables.

My question was: In building the Internet we use today, how much money was
spent by governments, and how much by private industry?

~~~
karlheinz
I'm not the right person to answer this question.

My initial comment was an attempt to illustrate the fact that startup funders
and VC's that get rich don't make innovations in a vacuum. They rely on a
complex network of global labour, government funding, university research and
the entire history of human knowledge.

Therefor I don't think funders and capital owners should feel so certain about
their privilege to extract enormous amounts of private wealth for the prize of
rising income inequality.

------
11thEarlOfMar
To me, income inequality means: The rich get richer, the poor get poorer.

But that is not the situation. In reality, the situation is: A rising tide
raises all boats.

The global pie is getting bigger because GDP is growing faster than the
population:

\- GDP Growth since 1999 ~2.5% annually [0]

\- Population growth since 1999 ~1.3% annually [1]

\- % of world population living in extreme poverty has more than halved since
1999, 29% to 10%. [2]

Meanwhile, the wealth of the top 10 wealthiest in the world has grown at a
rate of ~4.5% since 2000 (not adjusted for inflation) [3]

So perhaps a more accurate depiction would be: A rising tide raises all boats.
But it raises some faster than others.

[0]
[http://www.indexmundi.com/g/g.aspx?c=xx&v=66](http://www.indexmundi.com/g/g.aspx?c=xx&v=66)

[1]
[https://upload.wikimedia.org/wikipedia/commons/1/13/World_po...](https://upload.wikimedia.org/wikipedia/commons/1/13/World_population_growth_rates_1800-2005.png)

[2] [http://ourworldindata.org/data/growth-and-distribution-of-
pr...](http://ourworldindata.org/data/growth-and-distribution-of-
prosperity/world-poverty/)

[3]
[https://en.wikipedia.org/wiki/The_World%27s_Billionaires#200...](https://en.wikipedia.org/wiki/The_World%27s_Billionaires#2000)

~~~
AndrewDucker
Look at the quintiles in the second graph here, which adjusts for inflation:
[http://www.advisorperspectives.com/dshort/updates/Household-...](http://www.advisorperspectives.com/dshort/updates/Household-
Income-Distribution.php)

It's very clear that the bottom 60% of the USA hasn't risen even slightly in
the last 50 years. And the 20% above that has only risen slightly. While the
top 20% has approximately doubled.

(I suspect that if you broke it down further the rises would mostly
acccumulate to the top few percent)

~~~
MrBuddyCasino
So, the rich are getting richer, but the poor are at least not getting poorer?
While not ideal, it doesn't sound so bad to me, or am I missing something?

------
pekk
"They don't even seem clear whether they want to kill me or not."

When someone very influential broadcasts the idea that people who don't like
economic inequality (let's arbitrarily call them "liberals") are waiting
around to kill the rich for being rich, on the surface that is deniably close
to expression of a fear. But it is also preparing a public case for supposedly
"pre-emptive" suppression. Which would logically come in the form of violence,
given how violent these people supposedly are.

Notice how no evidence was ever presented that those who differ with pg's
politics actually are presenting a violent threat, yet we are somehow
discussing it as a truth anyway. This is skilled manipulation.

I never had any axe to grind with pg's work encouraging certain startups, but
when he suggests that I must be deciding whether to murder rich people merely
because I am not happy with the degree of economic inequality in my country, I
can't help remembering the blood libel.

~~~
austerity
You are deciding whether to violently take away wealth from the rich. It might
even be a good idea, but the real manipulation here is to pretend otherwise
and get all offended when it's pointed out.

------
mpweiher
> _The problem is not economic inequality_

Yes, actually it is. There are other problems that are negative consequences
of inequality, such as the US having turned into a plutocracy etc., but
inequality just by itself is a problem.

To quote: "The average well-being of our societies is not dependent any longer
on national income and economic growth. That's very important in poorer
countries, but not in the rich developed world. But the differences between us
and where we are in relation to each other now matter very much."[1]

Let me repeat this: in our fairly rich developed world, inequality _is_ the
problem, it is more important than overall wealth of the society. So the
"rising tide raises all boats" meme is a nice metaphor but empirically just
pure nonsense.

Furthermore, even the very rich in the more unequal societies are, in many
aspects that matter, worse off than average people in more equal societies,
even though they are much weather individually. This surprised me. A lot.

[1]
[https://www.ted.com/talks/richard_wilkinson?language=en](https://www.ted.com/talks/richard_wilkinson?language=en)

------
ranprieur
Economic inequality is harmful when it results in centralization of power,
where decisions are increasingly top-down and made by a smaller number of
people who are more out of touch because they're more insulated by wealth.
This leads to bad decisions, and unhappiness among the increasing number of
people who sense that they have no meaningful participation in society.

"Can you have a healthy society with great variation in wealth?" Only if there
is no great variation in power, and this would require redefining wealth as
something disconnected from power, like consumption of luxuries.

~~~
nhaehnle
Yeah, this is the part of the essay where I really did a double-take. He
actually writes: _" Can you have a healthy society with great variation in
wealth? What would it look like? Notice how novel it feels to think about
that."_

That is not novel _at all_. The connection between _economic_ power and
_political_ power is a very old subject. Complaints about the influence of
money in politics and hence about the influence of inequality in politics are
probably only slightly younger than politics itself. I have been saying for
_years_ that one of the most important reasons for being critical of
(excessive) economic inequality is that it destabilizes democracy, since the
market is fundamentally one-dollar-one-vote rather than one-person-one-vote.

------
supercanuck
Lots of window dressing to serve up PG'a core thought:

>So let's be clear about that. Ending economic inequality would mean ending
startups.

PG also called those who questioned Mark Zuckerberg's altruistic intentions
"losers." In reference to Altman's bewilderment at the criticism of
Zuckerberg's donation to his LLC.

I have tremendous respect for PG on startup related manners, but in terms of
making a better society, I prefer those that study this sort of thing for a
living.

~~~
gkop
The philanthropy point is not to be missed.

The perception of Silicon Valley super rich people by the rest of the USA is
that they are more stingy with their wealth than respected entrepreneurs in
other industries. SV super rich are perceived to punt forever: "If I invest my
$100M rather than donate it, then I can grow it to $500M and donate half of
that, $250M! See, everybody wins." But then they never do end up actually
donating the money (except for Marc Benioff, who "gets it", and who I don't
believe would write such an out of touch article as Graham's).

So the SV super rich wind up resented by the public and then run PR like this
article.

~~~
supercanuck
I think it has more to do with the "I built Facebook" and therefore I am
capable of solving "world hunger", when there are people out there who
dedicate their lives to the the task but lack resources.

It is incredibly arrogant, in my opinion.

~~~
gkop
Indeed.

PG's audience is start up people, so his message here is in part "You
shouldn't feel bad about pursuing or having massive wealth". Of course this
message is true. But it should probably be accompanied by a message like "But
don't be an asshole, give a large amount of your massive wealth away to noble
causes".

------
lucidbee
This seemed like a blurb for start ups rather than an analysis. One thing that
is missing is a quantitative analysis in the factors underlying inequality,
and whether / how they relate to startups at all. Also missing is an analysis
of the role of rent seeking in increasing inequality. Basically there is a
fundamental division in factors of inequality: which are related to the self
serving manipulations of the political and economic system by rich people to
sustain their position and which are related to innovation by the best
entrepreneurs? Then we must also analyze which of these factors are dominant
in our environment. He avoids these essential questions so this essay is just
opinion. There are some aspects of our situation that make it seem rent
seeking is dominant: low productivity growth, stock buy back games by
companies rather than investment, a slowing down of new business formation
(which can be caused by monopolies). I am sometimes critical of economics as a
discipline because there is no scientific method but he could use some
immersion in economic data, studies, and theory, to force him to come up with
a useful analysis.

------
bambax
> _economic inequality is really about poverty (...) startups aren 't the
> problem (...) The problem is not economic inequality..._

Really, no. The problem is really economic inequality.

Poverty is _a_ problem; a different problem, that has always existed and that
is (slowly) improving.

Economic inequality is a new problem (or, the recent incarnation of an old
problem) and it's undesirable _in and of itself_.

Also, poverty is a symptom that the system isn't working. It's always been
assumed that "a rising tide lifts all boats"; but after the emergence of the
super-rich and their continued prosperity, the facts that not only the poor
are still poor, but the middle class sees its income stagnate, absolutely
disproves this assumption.

A rising tide lifts yachts; but for those living in a hut on the shore, a
rising tide destroys their home and has a good chance of drowning them.

------
fivedogit
Usually pg's essays are spot-on. But this one, I feel, is based on a false
premise: People aren't upset about startup founders getting rich -- in fact,
society loudly applauds it. What people are upset about is legacy capital
growing and growing and growing while the poor and middle class stagnate or
even contract.

On this subject, I always think about farms.

Back in the day, it took ~100 people to work a large farm. Now it takes one
(or a few) guy(s) with some machinery. All those farm workers aren't now out
on the beach somewhere -- they've migrated to the city to drive cabs, etc. The
wealth generated by this astounding leap of productivity went entirely to the
shareholders of the John Deere corporation. (edit: Yes, cheaper food benefits
everyone. I meant the share of the revenue generated by the farm going to its
workers, vendors and shareholders. And the farm owners obviously benefited,
too. Farmhands? Not so much.)

And that was great! Good for those speculators and innovators!

What I think most have a problem with is 7 generations later, the John Deere
family (<\-- edit:metaphor) still controls all that capital and pays taxes at
15% on capital gains while losing count of how many homes they own.

~~~
unclesaamm
Yes. This is a very strange article. When you think about what goes into the
startup ethos, of independent hacking and really a passion for work, there's
nothing antithetical about that and being turned off by massive income
inequality in America. I, for one, would prefer to be an entrepreneur in a
society that strove to make it harder for dynastic companies like Wal-Mart to
accrue power.

The "polynomial curve" historical argument is naive and I would have expected
better. Movement toward free markets has been precipitated on political
intervention, c.f. the shock doctrine, and conservative moves to increase
income inequality (repealing financial regulation, Citizens United) do not
occur as a historical inevitability.

I am also weirded out by the "hunter" metaphor. The people fighting income
inequality are not predators out to get pg's billions, they are working class
people who can't afford healthcare or to send their kids to college.

~~~
whoiskevin
"I am also weirded out by the "hunter" metaphor. The people fighting income
inequality are not predators out to get pg's billions, they are working class
people who can't afford healthcare or to send their kids to college."

+1 on that alone. I was concerned that this was completely misunderstanding
those that understand the income inequality issue.

------
jwesleyharding
Did he read Piketty? It doesn't seem like he's even read it somehow: an
awkward oversight if you're looking to contribute to high-level discourse
about inequality.

He seems to assume that Ycombinator is a microcosm for the American economy,
but this is a burdensome assumption for most who have even a casual interest
in the subject.

For those who missed it: Capital, the recent intellectual best-seller on this
topic, spent about 500 pages attempting to demonstrate that inherited wealth
(NOT human capital) is the dominant force in the economy and that this
tendency is only worsening, for fundamental structural reasons (r > g). In
other words, we are entering a new gilded age.

Think Trump, not Zuckerburg.

So, I can't understand why Graham doesn't address this. If Piketty is correct,
it renders meaningless almost every thing he writes in this piece.

------
vgoh1
Yes, startup founders will become rich if they are successful, but what good
does a startup founder having $10 billion in wealth vs $100 million? I don't
think anyone outside of soviet russia is suggesting the hyperbole that is
being discussed in this article, but let's be real - the reason for people
working hard is to make more money, yes, that we know that is what keeps us
from becoming an economic hell-hole, but there needs to be some limits here.
At some point, the the cost of keeping so much wealth at the top is not being
paid back by encouraging more and better entrepreneurs.

Also, let's not kid ourselves. It's not a zero sum game, but it's not the
opposite either. He is discussing carpenters making a chair or whatever, and
then comparing that to something completely different - the founders of
facebook, sorry, they did not code every line of facebook themselves, they
have thousands of employees that actually GENERATE the wealth. And, to be
hyperbolic myself, if a wealthy founder gives away all his money to his
employees, yes, that seems a little zero-sum if you look at it that way.

It get the article, he is trying to keep his founders from getting lynched,
saying that they aren't a part of the problem, it's the rent seekers. But he
is again trying to paint a black and white picture, saying "no, those guys are
all bad, my guys are all good"

------
laurencerowe
> The most common mistake people make about economic inequality is to treat it
> as a single phenomenon. The most naive version of which is the one based on
> the pie fallacy: that the rich get rich by taking money from the poor.

For most of us, our largest single expense is housing, whether that be rent or
mortgage repayments. Supply of housing is quite inelastic, something that
should be clear to all of us who live in California, New York, or London.

By driving up the costs of homes, those of us who have more to spend are
driving those who have less further out from the urban centres where the jobs
are found, reducing their leisure by forcing them to spend more time commuting
instead of with their families.

While the cost of manufactures has been falling as the economy grows, food -
the other major expense for the poor and middle class, has also seen much
higher inflation than the headline figures.

Entrepreneurial progress _is_ a great thing. But we need to recognise that for
many, the 'pie fallacy' really isn't a fallacy. For someone on the median
income, a reduced share of total earnings is materially increasing
deprivation.

The biggest thing we could do to increase entrepreneurialism would be to
redistribute more and make more people feel secure. It's much easier to take
risks when you have the security of parental wealth.

------
japhyr
> For example, let's attack poverty, and if necessary damage wealth in the
> process. That's much more likely to work than attacking wealth in the hope
> that you will thereby fix poverty.

This seems like a pretty healthy mindset to me.

------
ElSif
Am I the only one that is totally fine with startup culture disappearing? All
it has ever really meant is the rich deciding through funding rounds which
technology deserves to survive (often with stupid results). Paul Graham is
just a blind startup optimist, there is no real substance to his argument.

------
Plough_Jogger
Empirically, the transition of American workers from large corporations to
smaller ones described both here and in PG's 'Refragmentation' has not taken
place.

If one considers a firm employing > 500 workers to be large (as per the
Government's definition), the percentage of employed individuals working for
large companies has remained nearly flat (actually increasing slightly). The
same holds true if your definition of large is employing more than 1000, 5000,
10000 etc [0].

A dead giveaway that this observation was anecdotal rather than empirical was
Paul's statement: > you find what most would have done back in 1960... was to
join big companies or become professors.

The percentage of individuals working as professors has historically been such
a small percentage of the overall workforce that their inclusion in a
statement about national employment trends highlights the author's dependence
on the availability heuristic rather than data.

[0]
[https://www.sba.gov/sites/default/files/files/bds_firmsize.x...](https://www.sba.gov/sites/default/files/files/bds_firmsize.xlsx)

------
clouddrover
> If the rich people in a society got that way by taking wealth from the poor,
> then you have the degenerate case of economic inequality where the cause of
> poverty is the same as the cause of wealth.

Yes, that is the problem and is what's happening. Prior to the 1970s increases
in productivity led to increases in household income. Since the 1970s
productivity has increased but household income has stagnated. Workers are no
longer seeing their return match their productivity.

[http://stateofworkingamerica.org/charts/productivity-and-
rea...](http://stateofworkingamerica.org/charts/productivity-and-real-median-
family-income-growth-1947-2009/)

[http://www.ilo.org/global/about-the-
ilo/newsroom/news/WCMS_3...](http://www.ilo.org/global/about-the-
ilo/newsroom/news/WCMS_324645/lang--en/index.htm)

------
danharaj
We don't need startups. The only reason why we "need" startups is because you
can't get anything done in this society unless the property owners and capital
holders get the majority of the profit.

I bet a lot of people prefer the version of history where great men do all the
great work and drag the rest of humanity along with them: peerless, fearless
leaders who need to be rewarded with wealth and power because otherwise they
would not contribute their might and talent to the betterment of the world and
we would all be living in shit-thatched straw huts because only the great men
who own property can save us from our inferior nature.

~~~
minimuffins
> You can't end economic inequality without preventing people from getting
> rich, and you can't do that without preventing them from starting startups.

And "startups are good" is supposed to be so axiomatic that the discussion
ends there.

Here's what you're supposed to think:

1\. Startups are good (duh)

2\. Startups cause inequality

3\. Inequality is actually good.

QED!

There is this idea out there, and it's especially dominant in SV, that the
appropriate expression of creativity is in the scramble to get rich. Like if
we didn't incentivize the creation of new ideas with massive wealth no one
would ever do it. And it's very much related to that Randian superman
narrative you have there.

------
crabasa
The most interesting question pg asks is one he doesn't really answer:

>> Can you have a healthy society with great variation in wealth? What would
it look like?

~~~
gred
The Economist asked the same question in August, but didn't try too hard to
answer it.

[http://www.economist.com/news/united-states/21660180-what-
go...](http://www.economist.com/news/united-states/21660180-what-good-more-
unequal-america-might-look-living-inequality)

------
W09h
I don't think anyone will argue with the idea that working hard should and by
nature results in good rewards. but what about the idea that one person
putting in 500lbs of innovation generates less than a tenth of another's same
force?

what if the outcry against inequality refers to the capacity to join the upper
echelon and the requirement of other 1%'ers to groom and select future 1%'ers,
not it's elimination?

not to mention the people who affect the largest change are folks in the 1%
club

One culture or group thought should not keep other cultures from affecting the
world.

IE the rich white guy you hear about that has it so easy when compared to
someone of lesser means. They aren't referring to the color of their skin.
They are referring to the family ties, the unfair education, the modeling of
the 1% clubs culture, which opens an incredible amount of doors by itself.

It is not that we are upset with some people having more money than others,
it's that some people have unfair tools and advantages to get wealth, and that
wealth directly translates into influence and power. Thus, where you are born,
what culture you grew up with, where you went to school, have profound affects
on how others treat you, the influence you have on this world, and your
ability to create true change.

I'm not saying this is something new, but just as civil rights have been huge
issues in the past, the current issue, an new issue to tackle, to advance our
society and understanding is inequality of ability to amass
power/money/influence.

IE at one pole we might find that incumbents to money are no more likely to
generate additional money than those without money, at the other, the only way
to generate wealth is to have wealth.

It's a fascinating issue, you know where I am if you want to nerd out about
it.

------
RobertoG
"The evolution of technology is one of the most powerful forces in history."

I find this part funny. It seems that one of the most powerful forces in
history can be stopped just raising taxes.

------
coldtea
Rich person finds nothing wrong with inequality. News at 11.

------
paulpauper
The trend is that wealth inequality will become almost the same as IQ
inequality. IQ is more much important today than a generation ago in
influencing individual economic outcomes. 100 years ago in an economy
dominated by manual labor, the difference between a 90 IQ and 120 IQ wasn't
that important, but now it is.

~~~
IkmoIkmo
Where did you get that? As far as I've read, most studies find very poor or no
correlations at all between IQ and wealth. And that's striking, given what
you'd expect from a metric that measures IQ, isn't it?

In fact, those same studies often identify other factors. Interestingly, your
parent's class is a hugely important indicator. Sociologists call this
phenomenon social reproduction, and it essentially goes against the ideals of
the 'american dream', where one can get ahead through hard work. In reality,
socioeconomic mobility is quite poor, particularly in the US, which would
explain metrics like IQ not being one of the foremost factors in determining
wealth.

I would agree with you (not on the basis of data but merely by assumption)
that IQ today in a mainly services economy is more important than 100 years
ago in a mainly manual labor economy.

~~~
lostsock
While I agree that a higher IQ does not nessicarly equate to high wealth every
source I could find in a quick Google search seems to show a near linear
correlation between IQ and income. I'd say this backs up what the GP was
saying. For most very "wealthy" people it is built over many generations and
passed down.

------
vadym909
Usually love PG's essays but this one is pretty shallow in how it tackles the
subject. Smart as he is I'm sure PG understands what people are talking about-
the problem is the 90% that don't work in overhyped and overvalued software
startups, but the regular worker- the factory worker at Tesla, the checkout
clerk at Walmart, the teacher in the Public School. Unfortunately for them, no
one told them software would be it 20 years ago. They can't just go start
making chairs or open a private school. Its not that they are lazy or stupid.
They just got unlucky because they thought they would get by doing these jobs-
based on what they knew- and then the world changed. Is it any surprise they
are pissed? and to add insult to injury- they see the rich bend systems
unfairly to their favor to enrich themselves even more.

------
jpmattia
Great essay. I was struck by this though:

> _A woodworker creates wealth._

There's an odd can of worms in that simple statement, which is roughly reduced
to: How do you measure wealth?

Part of the controversy is that wealth is often a summation of net worth in
[dollars | yen | euro | yap stones]. However, if you look at the simple act of
the woodworker selling a chair, the total dollars in circulation before and
after the woodworker sells his chair is constant. Therefore, the woodworker is
now in possession of a greater percentage of the total dollars, and
consequently "inequality" has now increased, due to the (mostly) zero-sum
definition of the money supply.

~~~
braythwayt
Not exactly. Before the woodworker builds the chair, they have some wood. The
value of the wood is less than the value of the chair. So building the chair
increases the total value of the economy.

The actual sale of the chair to someone else is a NOOP, it’s just shuffling
assets around.

~~~
collyw
This is the problem that I and many others seem to see. The people getting the
richest in our current society are the ones doing the asset shuffling and not
those who create the wealth.

(BTW,what is NOOP?)

~~~
kuschku
No-Operation. It’s something from assembly programming, an instruction that
does nothing (but is sometimes necessary for alignment purposes)

And yes, that’s the issue. The rich are purely asset-shuffling.

Most of the speculatant markets is just that. It doesn’t create any wealth for
society, but just takes from people.

------
MisterBastahrd
People still got rich when the top tax percentage was 90%. I personally don't
care what people make, but I care when they use their massive wealth to
influence policies which affect me. If you have more access to my
representative than I do and you don't even live in my congressional district,
then I want that to stop, one way or another.

~~~
refurb
Nobody actually paid the 90% marginal rate back then. Going back to those
rates would mean opening up a huge number of tax concessions as well.

Take a look at a historical chart of which incomes levels paid what percent of
total taxes. If anything, the total burden on the highest brackets has gone
_up_ not down over time.

~~~
wstrange
That seems inconsistent with what I have read on the subject. Can you provide
a link to the data you are citing?

------
Balgair
If you were looking for a high water mark of this bubble, I think we may have
a winner. Though I will wait to see what the next 3 months also bring in.

------
wes-k
As Paul Graham states, the metric we measure is the metric we improve. What
metric do VCs care about? Profit or societal good?

The current construct has the public and employees in battle against these
capilitistic profit seeking businesses.

Sure some generate wealth but they also capitalize as much of that wealth as
possible. When Uber and the like create incredible wealth with self driving
cars, who will benefit? Society? Maybe with cheaper rides but at the cost of
many jobs.

The new rise of B corps leaves me hopeful as a possible transition between the
profit game and the helping the world game.

------
BobTheCoder
I don't think many people are saying that income inequality itself is the
problem. It is the level of inequality and rate with which it is increasing
that is the problem.

Also you can't say poverty is the only possible issue related to wealth
distribution. Due to technology and globalization there is a tremendous amount
of wealth. Exceedingly disproportionate distribution of it, far beyond
effort/brilliance/whatever is unfair for the majority and IS a problem.

------
dnautics
PG is wrong that he is a creator of economic inequality. Technology
development usually brings prices down. This is deflationary; the 'big
picture' way that deflation happens: that prices are discovered more
efficiently, or resources are used more efficiently, or that idle labor
capacity is recruited to fulfill a want or need that was not known before
(esp: think uber/lyft).

Deflationary processes are inherently anti-inequality. Think of it this way.
If we never changed the minimum wage, then people's incomes, especially at the
bottom segment of society would make their net economic potential greater over
time.

It is not the investment in technology that makes "tech drive inequality". It
is the political structure around it. We have a structure where monetary
policy shoves free or cheap money into the faces of banks and the investment
classes in efforts to 'stimulate' the economy, where the secular (over
decades, not over years) inflation drives low- and middle- class citizens into
risky investment activity just to be able to sustain themselves in their later
years (effectively a subsidy for the rich).

------
staunch
"Economic Inequality is a Red Herring" might've been a better title.

He's probably right that economic inequality itself is not a huge problem. But
he could be wrong. Maybe it should be illegal for any person to amass more
than $1 billion or some reasonable limit. Individuals with massive fortunes
might always threaten democracy.

The Koch Brothers and Sheldon Adelson are examples of how corrupting they can
be. Zuckerberg could start buying elections the same way with his new $45
billion LLC. Michael Bloomberg bought himself high political office. Mitt
Romney tried. Donald Trump is trying again.

Supposedly 200 families have funded 50% of the 2016 election. One solution is
to close every possible loophole they use to exert their influence over
politicians. Another solution is to cap wealth at some high number, limiting
the potential damage.

Heck, the unprecedented wealth of Crassus was the proximate cause of the fall
of the Roman Republic. Crassus used his massive fortune to finance Caesar's
very expensive political career, including bribing politicians left and right.

Didn't Hitler also rely on the backing of a few wealthy industrialists in his
rise to power?

~~~
natrius
We can stop amassed wealth from threatening our democracy without limiting
wealth itself. I don't care how much wealth people have, but I care how they
use it to subvert our democracy. We've been trying to solve this problem with
laws, but lawmakers can be subverted with wealth, too.

Instead of trying to stop excess political spending, we should eliminate the
incentive to accept excess political spending. People accept money to
influence our democracy because they can use that money to get whatever they
want from almost anyone, including you. You can't opt out because economic
power is invisible. But we can make it visible, and give every individual the
freedom to reject economic power that they feel is misused.

This is merit capitalism.
[http://meritcapitalism.com/](http://meritcapitalism.com/)

------
bsbechtel
I've always thought a good question to ask on this subject is "If you could do
something to make the wealthiest 50% wealthier, with 100% certainty that it
would not negatively affect the bottom 50%, would you do it?"

~~~
RobertoG
A better question is, if the 158 families that dominate U.S. Presidential
Campaign Contributions were 50% wealthier, do you think they would contribute
more or less?

[http://nymag.com/daily/intelligencer/2015/10/158-families-
do...](http://nymag.com/daily/intelligencer/2015/10/158-families-dominate-
campaign-contributions.html)

~~~
argonaut
Like how PG talks about poverty being the real cause of the problems that
people blame on wealth inequality, the solution here is to limit the leverage
that wealth has on politics (finance reform).

------
cognivore
That article, and really, almost every post here, don't make a damned bit of
difference once the tipping point is reached and the 99% get fed up enough to
do something about their situation. They're not going to try and create start-
ups, either.

We let the inequality keep growing and someday you _are_ going to see people
lined up against walls and shot. Don't think history won't repeat itself.

~~~
sliverstorm
I'm skeptical. So long as the lots of the poor keeps improving (which it has-
nearly nobody lives in single room dirt floor log cabins anymore. Thank you
Progress, thank you Technology) it seems unlikely that hordes people's lives
suck so much they wouldn't mind dying in revolution- even if the rich continue
to get richer.

The righteous indignation option (ala Taxation without Representation- the
instigators of the American Revolution were all well-off, not economically
miserable) could come to pass if the top echelons continue to tighten their
grip on the country, but that doesn't _automatically_ come with inequality...
hmm.

------
jgalt212
PG, and his ilk, are increasing inequality in this country largely because
they are exploiting the carried interest tax loophole whereby they are able to
re-classify regular income as long term capital gains which is taxed at a much
lower rate (now approx 23.9%, but used to be 15%). In any case, both are lower
than the top federal rate of 39.6%.

Even worse than the VC's are the HF mangers like Dan Loeb and Einhorn who set
up re-insurers in Bermuda and push all their earnings here (except the are not
declared as earnings (and taxed) but as reserves against future claims (and
not taxed)).

Carried interest isn't the only bogeyman, but it's by far the largest one at
the individual level. There are tons at the corporate level (which is then
monenitzed by Tim Cook, et al, by paying themselves in stock which goes up in
price as their burgeoning untaxed corporate cash hoards accumulate).

I am free marketeer, but all these crony capitalism set asides are anything
but the free market in action.

------
quadrangle
Great to see so much discussion about this really controversial article.

If startups _create_ wealth so much, then why is the overwhelmingly used (and
accurate!) term about "capturing" value? Most startups do a MIX of adding
_some_ value while otherwise benefiting from network effects so that they get
to be the ones that capture existing value. Go evaluate _any_ example. Very
few are unambiguously creating wealth. The whole concept of disruption is
about moving wealth from one place to another.

The BIG issue is about POWER. Wealth inequity corresponds to POWER inequity.
This isn't about whether a startup founder gets to have a huge house that
dwarfs the poorer folks' homes. The problem is that money is power and the
wealthy get to set the rules, and that undermines the democratic structures of
our society (to whatever extent they existed at all or could potentially
exist).

------
js8
There is a common argument that by increasing taxes or redistribution,
economic activity of entrepreneurs would go down. But I think this argument is
false and can be empirically falsified.

If you think about taxation, ultimately it reduces the pie of money that the
entrepreneurs compete over. For instance, 50% taxes reduce the pie to half.
The pie is roughly given by the size of the economy (market for the thing).
However, in the real world, we don't see economic activity depend too much on
the market size. In particular, we don't see small countries to have less
economic activity (per capita) than big countries.

That means size of the pie doesn't actually matter very much as an incentive
for entrepreneurship. So you can have almost any level of taxation and people
will still do it.

------
protomyth
The change in Federal government power started long before WWII. Its origins
came with President Lincoln and the Civil War and its aftermath. The strong
Federal power picked up quite a bit of steam in the 1900's with several
Supreme Court rulings allowing the commerce clause to intrude into state's
business. The Presidency's of Wilson, both Roosevelt's, Hoover, and Truman[1]
continued the rise in Federal power that setup later Presidents. Nixon[2] had
a wages and price controls board too.

1) Truman was stopped from continuing to fund the government at a wartime
budget by the House. The time period from 1945 through 1950 makes for some
fascinating reading.

2) “I am today ordering a freeze on all prices and wages throughout the United
States.” President Nixon Aug. 15, 1971

------
gedy
Apologies as I'm not an economist, but one thing that seems wrong/misleading
about using the phrase "income inequality" in the media is that it usually
follows a populist, single variable: "they have more money, so of course they
took it from everyone else!!"

Which implies modern money is a finite closed-system ala the gold standard.
It's not, and money is basically created via the Fed, debt, QE, etc.

Seems the real problem is not feel-good bashing and taxing of "high-pay"
(which usually just means middle class), but instead the people and
organizations that are beyond income such as bankers, banks, politicians, etc.
who control that creation and distribution.

------
yalogin
That is a pretty bad extrapolation on his part.

I don't think anyone here (or for the most part) would say the rich getting
richer is the problem. The concern is that the poor and the middle class are
stagnated. I was really hoping he would talk about those issues.

------
jondubois
I don't agree with the point about the pie and the idea that startups 'create
value'. I say this because I've been a 'victim' of YCombinator (and VCs in
general) on two occasions. I don't mean to say that it's all VC's fault - I
just want to make a point about how VCs can make a poor person's life
difficult.

About 6 years ago, before Weebly came out, I was working on an open source
drag-and-drop (user-friendly) content management system - I had spent 2 years
on it (all my spare time) - I intended to offer it as a service eventually.
Then I found out about Weebly (who got funded by YCombinator) - They had a
huge well-funded team and so they were able to quickly develop a great product
and they got massive traction. To be fair there were other competitors in the
space, but they also had lots of funding - I decided that without funding, I
could not compete with these products (in that space) and I so ended up just
giving up my 2 year project.

Then I started working on a new open source project (3 years ago); in the area
of realtime data; my plan was to build a tool which would improve how data is
transferred between the database and the frontend client. Unlike my last
attempt, this time, my open source project got a lot of traction; I later
found out about Meteor (YC), then later Firebase (YC)... I'm still working on
this new open source project though; I have decided to keep working on it
forever (or until it becomes completely outdated) I intend to turn it into a
service - I feel that no matter what I do, some great company will come out of
YC to make all my work economically meaningless so I might as well keep going.

Basically YC is just churning out competition and putting huge amounts of
money behind them. It's taking opportunities away from the poor, hard working
engineers and giving them to the few lucky ones who happen to be selected by
YC.

It's not just YC though, it's VC in general; the huge amount of funding that
they give out creates an artificial barrier of entry for newcomers.

Basically the idea is that if you don't have a good social network, you cannot
raise funding and if you cannot raise funding, you cannot succeed. If VC
funding didn't exist, the system would be a lot fairer.

I think YC does select good founders, but they miss a lot of really good ones
too and these suffer greatly.

If you're an investor, you should be mindful that for every investment you
make, you're probably hurting someone else somewhere in the world - So make
sure you're investing in the best of people (not just your friends).

~~~
nostrademons
FWIW, Weebly came out in 2006, almost 10 years ago. They ran on angel & seed
funding only, just funding the founders, for about 30 months, and at one point
had <$100 in the company bank account. If you started your project 6 years
ago, in 2009 or 2010, it would've been right around when Weebly hit
profitability, took some serious funding, and was able to afford an office and
employees. It was 4 years after they started.

[https://www.youtube.com/watch?v=ZOeyYAfKXLI#t=420](https://www.youtube.com/watch?v=ZOeyYAfKXLI#t=420)

I think this is more an instance of discovering a competitor late with a large
head-start than with VCs putting money into a company and picking a winner.
Weebly had traction and profitability when Sequoia funded them; they had been
working on the company for 5 years at that point.

------
ThomPete
The problem with any discussion about inequality is that it ends up discussing
the rich rather than wealth. This turns the discussion into a moral one which
destroy any possibility of discussing this rationally.

First. It often creates two groups. The 1% and the rest and then go on to
discuss trickle down effect. While it's in fact true that trickle down
proportionally does not work with the 1% it does work with a lot of other
people who create wealth and invest them into other things which then in
return creates jobs much more proportional to their wealth (but still of
course not in any 1 to 1 relationship)

Second. A lot of time discussions about the rich ends up being about their
moral compass and their intentions to avoid paying taxes rather than about how
they became rich and then look for any weakness in the system which allow for
extreme richness (if any)

Third. In any discussion about how to tax the uber rich, tax avoidance and
lobbying often ends up being the focal point. What I would like to suggest is
instead we look at extreme wealth as a function primarily fueled by technology
and globalization and then further down the list politics, network etc.

I.e. many of the people who are extremely rich today are so because they
benefitted from technology and globalization happening at the right time for
them not because they somehow worked the system fraudently to become rich
(some of course did use it more than others but often also end up being rich
much shorter time)

Extreme wealth is a function of the system not just the choice and skills of
individuals. Someone will become the richest and their richness will be highly
influenced by the system they operate in. Since this system is primarily
technological and technology moves faster than legislation the job isn't to
figure what rules to implement/remove/adjust but rather how to do it fast
enough and still without killing the ability for growth.

But this wont happen until the economist who advice governments acknowledging
technology as part of the equation instead of treating it as an externality as
they do now.

And so why I have nothing against people getting rich (heck I hope to be so
one day myself) trying to defend it like PG does here strikes me as extremely
limited in how to understand the issues with inequality.

------
ignasl
I feel that this discussion about income inequality doesn't do us any good
mostly because both sides are kinda right but they fail to realize that and
just try to promote their own agenda. Economy seems simple but in reality
there are millions of variables. Is the income inequality a real problem
depends on a lot of those variables and possible solution depends on them too.
Education of population, infrastructure built, society culture, human nature,
society homogeneity, corruption, political system, dominant industries, social
mobility, tax rates, efficiency in using tax revenue, various incentives etc.
Everything matters and if you want to implement some policy you need to take
into account as much as you can before deciding what is the best policy. Like
a chess player calculates multiple steps in the future so should economists.
For example in some dirt poor country with bad education and huge corruption
the higher income inequality will result in even lower total pie while in
silicon valley (where Graham comes from) increased income inequality just
makes pie bigger to everyone (and that's why Graham argument is what it is).
The problem is that everyone choose to see what they want to see and then
argue about different thing than the other side. I understand that some John
"The programmer and self labeled savior of the poor" thinks he is very smart
economist and argues that if someone has too much and then someone has too
little lets just take from rich and give it to the poor. But real world is
much more complex. And before we even start discussing what we should do about
income inequality we should first agree on what exactly we are arguing about.
What is income? What is inequality? What is fair share of taxes? What is
wealth? What is capital? Even what is the economy and how it works! How one or
another policy will affect various economic activities? Analysis must be much
broader than simply stating your opinion that being rich are bad (or good).

------
malandrew
Polyamory and open/alternative relationships gaining acceptance is yet another
example of this fragmentation. The expectation up until now is that you need a
single "vertically integrated" partner that satisfies most of the partner
roles in your life. More and more people are starting to realize that this is
a compromise between time and satisfaction. With a single partner, you get a
lot more of their time, but the likelihood that they will be satisfactory for
all of the roles partners typically assume is less likely. There are two
reasons for this that I can see.

The first is that we are less and less likely to share extremely similar
upbringing with others such that it is easy to find someone who is largely on
the same page. When people were born, lived and died in a small town or city
and the internet didn't exists, two people from the same place likely have a
LOT in common. Now, everyone is shaped by the information they encounter and
experiences they have, and at no time in history has there been as much
variation between people than now.

The second is that our sexual and romantic tastes are fragmenting and we
demanding greater satisfaction in both breadth of tastes and depth of tastes.
People want to have the same level of satisfaction from the romance and sex
parts of their lives well beyond the honeymoon period, and when a single
partner doesn't or can't meet the variety of needs you start looking elsewhere
to satisfy them. The difference is now that there is acknowledgement of this
greater fragmentation in sexual and romantic needs, giving people the position
to be more transparent with dialogue surrounding it. There is also a greater
acknowledgement of enthusiastic consent between all partners involved in an
act as being important. This focus on consent means that you don't try to make
someone participate in something they don't desire to participate, thus you
need to find other partners that reciprocate for those sexual or romantic
needs.

------
kzhahou
> Almost by definition, if a startup succeeds its founders become rich. And
> while getting rich is not the only goal of most startup founders, few would
> do it if one couldn't.

As usual, the investors and founders are teamed up, with employees in the
background. In contrast with founders, there is no certainty that employees
will get any life-changing financial gain from working at a successful
startup. The only certainty is that whatever the founders make, the employees
will make several orders of magnitude less. In fact, all employee wealth put
together won't usually add up to the founders' share.

I understand why founders are OK with this and have a long list of
justifications including "personal risk" and vision. But why do non-founders
continually sell themselves short?

I find it ironic that's there such a blatant economic inequality even among
those who create the wealth.

~~~
firebones
That quote stuck out for me as well. It assumes there are no models where
value can be created unless the value creators can become rich. At the very
least, the typical Kickstarter project is one where value is created and the
creators don't become rich. Or that no one would try to create value in the
absence of potential riches.

To say that "few would do it" without the prospect of becoming rich is bogus.
Describe the world in which these motivated founders roll over and give up the
essence of who they are.

Even repressive, dictatorial regimes have entrepreneurs. The will to innovate
and create value won't disappear if the rules change. It never has.

------
dominotw
> pie fallacy: that the rich get rich by taking money from the poor.

I've read this in other pg essays. But I've always wondered if there is some
truth to that 'fallacy' and if shouldn't be simply dismissed with an absurd
and simplistic example of generating wealth by fixing an old car.

~~~
asift
He accepts that this is true through various forms of rent seeking behavior.
He even explicitly condones such forms of wealth creation.

~~~
wtbob
I think you mean 'condemns,' not 'condones,' rent-seeking.

~~~
asift
You're correct. Using swipe to type on my phone can lead to some dumb
mistakes...

------
fineoldcannibal
This was a bizarre article. I assume PG is a very smart guy so it baffles me
when he writes something which so obviously has blinders on. Did he not stop
to think what are the consequences of economic inequality and then quickly
realize why people worry about it? No its not about poverty, it really is
about inequality. Wealth is power, and in any society where power is
distributed so unevenly, people will take actions, very often unknowingly, and
without malicious intent, that still result in hardship for others. To use an
analogy - if the world were just elephants and ants, when the elephants came
out to play, there would be a lot of dead ants even though this was not the
intent of the elephants

~~~
crimsonalucard
Even smart people need to justify their own sins.

------
JDDunn9
I've never heard anyone begrudge innovators for getting wealthy. It's about
crony capitalism and CEOs who enter a company, and siphon off wealth for
themselves before getting "fired" with a golden parachute.

------
DrNuke
Good old Karl Marx from Germany had more history to ponder and got it right:
rich and poor are regulated enemies, more or less depending on where you do
live. The rich can buy resources and people, the poor need to act together to
survive. PAul Graham in 2016 teaches both moneymaking (for the rich and the
poor, that's also why HN exists) and new pies creation (for the rich to become
richer thanks to their competitive advantage). The basic outcome for the poor
as a whole is that they will never make more money than the rich but can still
make enough to live better.

------
xchaotic
The article seems to overlook the fact that most of the 'value added' is
created out of thin air and people can only tolerate so much bs. So while
something like the value of Facebook likes is not immediately stealing money
from ikea furniture it is taking the attention away, there is still a finite
pool of brains and eyeballs and people only have so much attention span. It's
not like you can create value ad infinitum without adding eyeballs or
resources. Hence Facebook 'Internet Basics' attempts and such

------
skybrian
"A high-frequency trader does not. He makes a dollar only when someone on the
other end of a trade loses a dollar."

This assumes that (a) there's only one other party, and (b) they got nothing
in return.

But trading is often about buying at one place and time and selling at another
place and time that's more convenient for the buyer and/or seller. So it's
quite possible that traders are earning their fees. Today, these fees are
often very small (compared to previous market makers), so it doesn't take very
much to earn them.

------
DominikPeters
Whenever he says "polynomial", he actually means "exponential", right?
Economic growth over the last couple of centuries looks pretty exponential, at
least.

~~~
ScottBurson
Yeah, I think so. In fact, I get the feeling that he originally wrote
"exponential", and someone talked him out of it. I'm as opposed to the misuse
of "exponential" as anyone -- and it is frequently misused by science
journalists and others -- but in this case I think it is appropriate. For one
thing, polynomials don't have a flat left tail!

------
tdaltonc
I think that his critique of academic economics is spot on. Economists do not
have a good way for thinking about where Mark Zuckerberg's money came from. In
macro they would call it return on capital because he bought some stock from
Facebook on day 0 and held it until it was worth billions. Great return. But
that doesn't seem to be a useful way to model it. Economics needs a better way
to think about what entrepreneurs do as neither capital nor labor.

------
adamzerner
There seems to be an assumption that if you tax the rich, they won't be
motivated to grow the pie. I don't think that that's true. I don't think
people would say, "Tax rates doubled. Now I only expect to make $100M instead
of $200M. It's not worth it any more; I'm quitting."

Here's how I see it:

A: Double taxes; 10% smaller pie.

B: Keep taxes; inequality grows.

C: Increase taxes such that innovation stops.

Graham seems to be arguing that B is better than C. I agree, but he doesn't
seem to address A.

------
wtvanhest
PG is an amazing writer and the wood worker analogy is very smart, but I am
just amazed at how biased he is against finance.

I do not know a single person who gets in to finance because 'they want to be
rich'. Most people go in to finance because it is viewed as a meritocracy
where all your coworkers are really smart. I'm disappointed that someone as
smart and experienced as PG has not taken the time to understand such a large
a diverse industry.

~~~
tomasien
You don't know a SINGLE person who got into finance because they wanted to be
rich? I find that shocking. I work in finance (fintech, but but serving mostly
traditional finance) and outside of those working for financial
inclusion/wellness, getting or "doing well" seems to pretty much be the
universal goal.

~~~
wtvanhest
First, I will admit that it is extremely hard to know who wants to do
something to get rich, but I can tell you that during the 3 years I spent at a
buy-side finance company, no one ever talked about their personal wealth or
making money at work. It was always fund performance, risk mitigation, etc.
Maybe that was just the culture, but I met many people at different firms and
I feel like it was pretty much universal.

People that work in finance can "Do well" in many industries. Most people who
work for big companies in any management / technology capacity "Do well".
There is a massive difference between "Get Rich" and "Do Well"

------
cs702
For me, the issue with economic inequality in the US is that somehow it has
lead to INEQUALITY OF OPPORTUNITY, which makes our economic system _unfair_.

Sample evidence:

* US children of wealthier parents grow up to be wealthier than US children of poorer parents, regardless of whether the child was adopted or not.[1]

* US children whose families are in the bottom income quartile are eight times less likely (!) than children from the top quartile to get a college degree by age 24.[2]

* According to test scores of US children in public school, those from low-income families are far less proficient in math and reading than their better-off peers.[3]

* Poorer US children eat a poorer diet, with negative consequences for brain and body development.[4]

* Poorer US children are more exposed to lead, with negative consequences for IQ and behavior.[5]

I gathered this evidence through a quick Google search, but there are lot of
other data points out there suggesting we have a real problem: if you are born
poor in the US, the odds are stacked against you -- you get worse healthcare,
a worse diet, worse parenting, worse teachers, a poorer education, less
support of all kinds... the list goes on.

WHY should wealthier children, who simply got lucky and won the "ovarian
lottery," have more and better opportunities than poorer children?

Wouldn't we able to create EVEN MORE WEALTH if our economic system offered
_the same degree of opportunity and support_ to every child, regardless of
parental status?

\--

[1] [http://www.theatlantic.com/business/archive/2015/07/rich-
peo...](http://www.theatlantic.com/business/archive/2015/07/rich-people-raise-
kids-family-wealth/399809/)

[2]
[http://www.forbes.com/sites/eriksherman/2015/02/05/wealthy-c...](http://www.forbes.com/sites/eriksherman/2015/02/05/wealthy-
college-kids-8-times-more-likely-to-graduate-than-poor/) /
[http://www.pellinstitute.org/downloads/publications-
Indicato...](http://www.pellinstitute.org/downloads/publications-
Indicators_of_Higher_Education_Equity_in_the_US_45_Year_Trend_Report.pdf)

[3]
[http://news.nationalgeographic.com/news/2014/09/140901-ameri...](http://news.nationalgeographic.com/news/2014/09/140901-american-
diet-obesity-poor-food-health/)

[4] [http://money.cnn.com/2015/01/29/news/economy/poverty-
schools...](http://money.cnn.com/2015/01/29/news/economy/poverty-schools/)

[5]
[http://www.environment.ucla.edu/reportcard/article3772.html](http://www.environment.ucla.edu/reportcard/article3772.html)

~~~
lazyjones
> _Why should wealthier children, who simply got lucky and won the "ovarian
> lottery," have more and better opportunities than poorer children_

Better genes and epigenetic effects would seem to be a valid and natural
reason to me. Let's not exaggerate the opportunities though: average lifespan
isn't much higher and a life in luxury isn't devoid of problems. It may be
weakening and dangerous if exaggerated. We're doing well at fixing extreme
effects of poverty (like eliminating hunger), let's not attempt to fix the
wrong things (i.e. richness).

~~~
imtringued
Did you even read the first point in the list?

>US children of wealthier parents grow up to be wealthier than US children of
poorer parents, regardless of whether the child was adopted or not.[1]

------
ctlaltdefeat
> Graham writes another article on a subject about which he knows little, and
> in doing so quotes Stiglitz as advocating a silly "fallacy".

------
jeffdavis
I really wish nobody would pay attention to quintiles. They cause more
confusion than anything, because they don't follow people.

Even high earners spend maybe 25% of their life as high-earners and the rest
of their life as low-income. That does _not_ mean poor, just low-income. They
might be college students, PhDs, doctors in residency, or just building up
their careers still.

------
qaq
I think people tend to overlook a very important factor risk. Majority of
people are quick to want to share in the profits of risk takers few would want
to share the risks they take. For every Zuckerberg there are hundreds of
thousands of people who tried and failed. Unless you are ready to backstop
failures what right do you have share in the profits?

------
thruflo
Wealth inequality may be seeded by value creation but it's perpetuated by
(compound) interest. At the end of any time period, those who start with more
money end with even more money.

Investing in startups creates wealth equality in so far that it increases the
return on investment (interest) that investors (those who start with the
money) achieve.

------
api
The hole in the positive sum view of capitalism is the effect that savings
have on asset and commodity prices.

Savings equals debt equals savings. Money has to be put somewhere. When the
savings of the top 10% or so exceed a certain threshold then they tend to be
dumped into things like property or "safe" forms of debt like student loans
and mortgages.

Thus the wealth of the rich does steal from the poor, not directly but by
making housing, college, and commodities more expensive. Your savings is why I
can't afford a house.

Keynes called this "savings beyond planned investment" and on that count at
least history seems to be proving him right.

To make capitalism truly positive sum we must find a way to deal with this
problem. Perhaps the answer is to make things like equity investment and
startup founding even easier-- to increase the efficiency and availability of
productive growth investment markets so they can compete for idle dollars
against destructive rentier investments.

So while I no longer believe in naive Randianism on these issues, I do still
prefer non coercive solutions if such can be found. I wonder if the sort of
work YC is doing is really the "problem" or whether PG is actually a bit wrong
about that. Every startup represents some investment capital going somewhere
other than to jack up the rent.

Sarbanes Oxley seems like precisely the wrong thing. I wonder if the present
day housing silliness would exist if IPOs hadn't been made borderline illegal.
The housing bubble, which made housing unaffordable to at least two
generations, immediately followed the partial closure of the IPO market. Did
all the capital that should have gone into post-series-A-D financing go into
inflating real estate instead?

------
cryoshon
Swing and a miss with this article. I wrote a full response at
[http://cryoshon.co/2016/01/02/a-response-to-paul-grahams-
art...](http://cryoshon.co/2016/01/02/a-response-to-paul-grahams-article-on-
income-inequality/).

I've abridged some of my comments/quotations for this comment.

Let's break it down bit by bit:

FTA:

"I'm interested in the topic because I am a manufacturer of economic
inequality."

Well, not quite. The throughput of successful startup folks is never going to
be enough to make a dent in the economy's general state of inequality. If
anything, YC offers social mobility insurance; the potential for social
mobility from the middle classes to the lower-upper class without the
potential for a slip from the middle classes to the lower classes in the event
of failure.

"The most common mistake people make about economic inequality is to treat it
as a single phenomenon. The most naive version of which is the one based on
the pie fallacy: that the rich get rich by taking money from the poor."

Well, "taking" is a bit biased, but broadly speaking, it's true that the poor
must buy or rent what the rich are offering in order to survive. This means
that the poor are at the whim of the rich unless they choose to grow their own
food and live pastorally, which isn't desirable. People pay rent if they're
poor, and collect rent if they're rich. The poor sell their labor, whereas the
rich buy labor in order to utilize their capital, which the poor have none of.
These are traits of capitalism rather than anything to get upset about. People
get upset when the rich use their oversized political influence to get laws
passed to their benefit; over time, the rich make more money due to their
ability to manipulate the political system.

"...those at the top are grabbing an increasing fraction of the nation's
income—so much of a larger share that what's left over for the rest is
diminished...."

[http://www.epi.org/publication/charting-wage-
stagnation/](http://www.epi.org/publication/charting-wage-stagnation/) Check
out these charts... the data is much-discussed because they are unimpeachable.

"In the real world you can create wealth as well as taking it from others. A
woodworker creates wealth. He makes a chair, and you willingly give him money
in return for it. A high-frequency trader does not. He makes a dollar only
when someone on the other end of a trade loses a dollar.

If the rich people in a society got that way by taking wealth from the poor,
then you have the degenerate case of economic inequality where the cause of
poverty is the same as the cause of wealth. But instances of inequality don't
have to be instances of the degenerate case. If one woodworker makes 5 chairs
and another makes none, the second woodworker will have less money, but not
because anyone took anything from him."

The woodworker works in a wood shop, not alone. The owner of the wood shop has
decided that if 5 chairs are sold, it takes 2 chairs worth of money to recoup
the costs of making the chair. With three chairs worth of money remaining, he
takes two and three fourths chairs for himself and distributes the remaining
amount to the worker who created the chair. The woodworker created the wealth
by using the owner's capital, and so the owner of the capital gets the vast
majority of the wealth generated, even though he didn't actually make the
chairs himself. Is the owner "taking" from his employee? No, the employee has
merely realized that one fourth of one chair's income is the standard amount
that a woodworker can get from working in a shop owned by someone else, and
happened to choose this particular shop to work in. "Taking" is the wrong
word; "greed" is the proper word. The proportion of revenue derived from
capital that is returned to workers selling their labor is far too low. The
woodworkers can't simultaneously pay off their woodworking school loans,
apartment rent, and care for their children on the wages they're offered.

"If you want to understand change in economic inequality, you should ask what
those people would have done when it was different. This is one way I know the
rich aren't all getting richer simply from some sinister new system for
transferring wealth to them from everyone else. When you use the would-have
method with startup founders, you find what most would have done back in 1960,
when economic inequality was lower, was to join big companies or become
professors."

Not even close. The richest hundred people have gotten wildly richer as a
result of crony capitalism in which the richest are able to bend the political
system to their will via overt bribery, creating unfair advantages for their
ventures and endless loopholes for their personal wealth to avoid taxation.
The ventures of the very rich are given unearned integration into political
life, again making them a shoe in for special treatment. Remember how the
failing banks in the financial crisis were considered too big to fail, and
were accommodated at the public's expense? This kind of behavior insures the
rich's safety with the money culled from the poor. Information technology is a
gold rush, and creates rich people by forging new vehicles of capital--
generating wealth. The economics of a gold rush are quite clear, but PG
forgets that the vast, vast majority of the workers in the economy are not
participating in the gold rush, nor could they.

"And that group presents two problems for the hunter of economic inequality.
One is that variation in productivity is accelerating. The rate at which
individuals can create wealth depends on the technology available to them, and
that grows polynomially. The other problem with creating wealth, as a source
of inequality, is that it can expand to accommodate a lot of people."

Productivity has been increasing for decades, and at one point in time, wages
tracked productivity. The relationship between wages and productivity fell
apart. This means that the business owners were benefiting from increased
worker productivity, but the workers were not benefiting... another cause of
economic inequality that can be attributed directly to the owners not allowing
enough money to go to their workers. If productivity is accelerating, wages
should be too. Rather than understanding workers as slaves that require a dole
as they are presently, they must be considered as close partners in economic
production.

"Most people who get rich tend to be fairly driven. Whatever their other
flaws, laziness is usually not one of them. Suppose new policies make it hard
to make a fortune in finance. Does it seem plausible that the people who
currently go into finance to make their fortunes will continue to do so but be
content to work for ordinary salaries? The reason they go into finance is not
because they love finance but because they want to get rich. If the only way
left to get rich is to start startups, they'll start startups."

Once again: the current flap about economic inequality is not about people
wanting to become rich, it is about people wanting to get by. Most people are
not driven. Everyone wants to at least get by. You will not stop people from
being driven to become rich by making it possible for everyone else to get by.

"So let's be clear about that. Ending economic inequality would mean ending
startups. Are you sure, hunters, that you want to shoot this particular
animal? It would only mean you eliminated startups in your own country.
Ambitious people already move halfway around the world to further their
careers, and startups can operate from anywhere nowadays. So if you made it
impossible to get rich by creating wealth in your country, the ambitious
people in your country would just leave and do it somewhere else. Which would
certainly get you a lower Gini coefficient, along with a lesson in being
careful what you ask for. "

No, it wouldn't. There is lower and higher economic inequality in many places
in the world, and many of those places have startups. There is nothing special
about startups, and startups persist whether or not the society is extremely
unequal. There are startups in Sweden. There are startups in China. There are
startups in Nigeria. There are startups in Denmark. There is absolutely no
reason to be prideful in the American startup phenomenon if it requires people
living in poverty-- I do not believe that it does require this, though.

"Notice how novel it feels to think about that. The public conversation so far
has been exclusively about the need to decrease economic inequality. We've
barely given a thought to how to live with it."

Living with economic inequality is precarious and uncomfortable for the
majority of the population, but it is comfortable for the rich.

Is this what PG thinks is okay?

~~~
thanatropism
> the current flap about economic inequality is not about people wanting to
> become rich, it is about people wanting to get by

In other words, it's about poverty.

~~~
cryoshon
Yes-- increasing poverty for the masses and increasing opulence for the
wealthy, who rely on the masses to produce said opulence. You can see exactly
why people are upset.

------
kevindeasis
What I do know is that there will always be income inequality. There will
always be poverty, but we can significantly raise the quality of life for
everyone. In fact, I feel it is more important that we raise the quality of
life than to fix income inequality.

Thoughts?

------
thanatropism
Ctrl-F on the comments "Baumol" \- not found.

197 comments and no one actually read the article?

~~~
zavi
Le Reddit army is here

------
known
Self-attribution-fallacy

[http://www.monbiot.com/2011/11/07/the-self-
attribution-](http://www.monbiot.com/2011/11/07/the-self-attribution-) fallacy

~~~
civilian
This is about finance, not about start-ups. Yes, there's overlap, but it's
different.

But even if we agree to your point (and I bet PG would agree that there's an
element of luck), the pie fallacy is still there. People ought to be able to
flip a coin to try to generate wealth.

"If wealth was the inevitable result of hard work and enterprise, every woman
in Africa would be a millionaire. " Puh-leez. If wealth was the inevitable
result of hard work, I'd be out-performed by every jock I went to high school
with. HN readers aren't relying on work-ethic, we're relying on our minds. We
learned how to study independently and apply what we've learned.

------
r2dnb
As reserved as I've been with the "Refragmentation" essay, I have to say that
this one is the kind of PG's essay I like.

I'd add that with governments printing billions of dollars a year, it's
intriguing to even think that the only way to be rich is to take from the
poor. One needs to understand how money flows and stop trying to work more to
earn more but start working smart to deliver more and attract more.

"The reason they go into finance is not because they love finance but because
they want to get rich. If the only way left to get rich is to start startups,
they'll start startups. They'll do well at it too, because determination is
the main factor in the success of a startup."

Nicely put.

------
michaelsbradley
I find it's good to re-read _Rerum Novarum_ [1] (1891) and _Centesimus Annus_
[2] (1991), now and again:

[1] [http://w2.vatican.va/content/leo-
xiii/en/encyclicals/documen...](http://w2.vatican.va/content/leo-
xiii/en/encyclicals/documents/hf_l-xiii_enc_15051891_rerum-novarum.html)

[2] [http://w2.vatican.va/content/john-paul-
ii/en/encyclicals/doc...](http://w2.vatican.va/content/john-paul-
ii/en/encyclicals/documents/hf_jp-ii_enc_01051991_centesimus-annus.html)

------
ap22213
Why not just have one tax, a death tax? Set the barrier high enough so that
people may will their children and grandchildren enough money to do nothing.

------
arximboldi
Interesting rhetoric: first, PG ridicules people that fight inequality by
using a straw man, to then call then infantile (ad hominem) and call for an us
vs them, wolves and hunters, Silicon Valley against the world, in the most
Goebbelian style.

But most infantile is his metaphor of the chair maker. Yes, we know in fact
that economy is not zero sum game. But economic inequality is not generated by
chair makers that gain an advantage over those who don't make chairs. Economic
inequality happens because the owners of chair factories (who, are not, the
chair makers) get to own both the factory and the chairs that chair makers
make. Hence, while the chair makers get a salary to support themselves, the
owners accumulate the surplus value of the chair producing business allowing
them to expand their business, acquire more assets and, too, influence
politics to turn the game in favour of capital instead of labour. This is too
a simplistic metaphor, but hey, it's at least a bit closer to reality than
PG's view of the world.

Of course, he is a venture capitalist, not a chair maker. His way of living is
extracting surplus of founders that in turn extract surplus of engineers and
other workers and contractors that support their businesses. He is in the
business of selling ever increasing inequality.

This PG article is pure ideology. Ideological class war. It's a hoot--a
network of fallacies building some sort of implausible moral self-
justification. PG, you are not a wild animal in a room of hunters. It's more
like you are the hunter, and this is a bait that we won't bite.

I'm sure he would argue that my chair makers are exploited only because they
are not smart enough to start their own chair making business. His utopia is
one in which everyone is an entrepreneur--a CEO or a VC. I wonder who makes
chairs in that world (if it's machines, someone has to keep the machines
running). See, not everyone can be a winner. It's not about killing the rich.
It's about making sure that those that lose in the game--who are in fact, too,
valuable and indispensable to society--have a chance to a decent and realized
life in dignity.

But even in a legal and political system that are very much (and increasingly)
biased towards capital, I've seen coops, foundations, institutions and other
forms of sustainable and non-exploitative businesses that succeed and provide
real value pushing the game out of the zero sum. We can also see this in the
libre and open source world--it's an outcry from software makers to
collaborate on producing value in a way that they still own (instead of the
proprietary firms that they work for). It provides collectively a leverage to
our society that very few SV startups can claim to. In a way, in this other
utopia, everyone is as well a business owner. A business owner and a maker,
organized in the democratic networks of both competition and cooperation. No
VC's needed though. Sorry Paul.

~~~
gotchange
> PG, you are not a wild animal in a room of hunters. It's more like you are
> the hunter, and this is a bait that we won't bite.

I like this line very much. Paul has this notion that he and the rest of the
members of his social class that they're victims of the persecution of
commoners and that he and his fellows have the right to defend themselves
against those evil poor people who want to do them harm when it's actually
them and their economic policies that he's championing that are damaging and
hurting people occupying the lower rungs beneath them.

------
analtaccount
I have two points against this piece. The first in substance and the second in
style.

> The real problem is poverty, not economic inequality.

This was in the footnote, and I will consider it, hopefully without creating a
strawman, to be the boiled-down thesis.

Economic inequality and poverty are different problems, as PG noted, and both
will never truly be solved barring dramatic and horrific solutions. But, the
people I know, aren't talking about poverty. My friends, all of whom grew up
in middle class life styles, aren't thinking about falling into poverty, which
they consider to be the idea of barely making ends meet. They're thinking
about why they can't afford to buy a house at age 30 like their parents did.
Or why they have to put off having a kid until they're much older. Or why
wages don't seem to give as much disposable income as they once did. Or why
they're so in debt right after college, without a good job to speak for.

They're talking about the end of the middle class. And, while poverty swells
from the middle class's withering, we can't just focus on its growth. It's
like if you had three buildings. The first is tiny and barebones. The second
is nicer and much larger. And the third is super glitzy but the smallest of
all. Now imagine that neglect by the building owners has lit aflame the second
building. Most people from the second building are now forced to overcrowd
into the dilapidated first building.

People in the first building exclaim that we need more room. People in the
third building close their blinds. The people in the second building are too
proud to admit they have to stay in the first building.

Meanwhile, the second building turns to ash. And then the first and third
buildings right next to the second start to catch on fire...

Metaphor aside, I believe the real problem is the withering of the middle
class, i.e. where opportunity is most equal. It is the engine of our society
and, in the economic view, probably what has made the West great.

While I do not know what set of specifics solution will work, I do know that,
paraphrasing PG, the most important thing is to focus on the right problem.

Style: > So when I hear people saying that economic inequality is bad and
should be eliminated, I feel rather like a wild animal overhearing a
conversation between hunters. But the thing that strikes me most about the
conversations I overhear is how confused they are. They don't even seem clear
whether they want to kill me or not.

This paragraph set a dubious tone, and made me seriously question the
objectivity of this piece.

I completely believe that PG has heard of these conversations: as a high-net-
worth person, he must have been accused of exploitation and other capitalist
ills a thousand times over.

But by including this paragraph, the spectrum stretches from "reducing income
inequality" to "ending income equality", which portends violence. Not
metaphorical violence. Real violence. PG is studied in history, so his words
about death strike me as not apart of a metaphor but a real, sincere worry.

There's fear here; fear seems to be slightly and subtly tinging the rest of
the essay. I appreciate PG's methodical, calm, purposeful writing. But the
tone of this one clouds the message of "treat the disease, not the symptom".

I agree with a lot of what is said later on, but I had to do outside research
first, and then coming back once I was sure I wouldn't be learning a distorted
point or view.

Normally PG's editors are great at refining his words: but out of all them,
only one seems to be studied in Income Equality (Max Roser). The others are
either apart of the same class or social cohort: which may very well be why
the general consensus from his editors was that this piece should go out as we
see it now.

------
mike429
With this comment I'm answering both PG's post and an answer to his post that
can be read here: [http://cryoshon.co/2016/01/02/a-response-to-paul-grahams-
art...](http://cryoshon.co/2016/01/02/a-response-to-paul-grahams-article-on-
income-inequality/)

What really matters is that __* being taxed doesn 't remove the incentive to
start startups or innovate in general ___. Because Sweden. Because Denmark,
because Norway, and because basically every european country plus Canada and
Australia, etc etc etc. That 's all. Debate closed for me. Sure startups, and
innovation in general, is what made people better off since prehistory and we
want to keep that exponential trend going. But is it true that people need to
starve and be in debt so we can have startups? People need to get screwed
over? No, on the contrary! GET TO THE GIST OF THE ISSUE! People arguing that
we need a lot of inequality to have innovation and startups are misinformed,
and/or brainwashed by the media.

One fun fact: there's more _poor* smart kids than _rich_ smart kids, in raw
numbers (despite kids from rich households being more likely to be smart, on
average). Allowing these poor smart kids to waste less time at small jobs and
spend more time in school and on startups is what we want. So actually it
might even help innovation to have less poors.

Other fun fact: the computer, the internet, the web, GPS, touch screens,
modern encryption, and most things we rely on today aren't coming from
startups (see TED talk on that issue). Most tech innovations were done by
regular employees with no financial stakes, working for a country's government
or a university. And there's more ... I wouldn't count an employee innovating
at Google, IBM or Facebook in the "startup" category. Artificial intelligence
at Google or IBM or Facebook happens mostly because people are ___smart and
passionate_ __. These people are often knowledgeable academics, often coming
from other countries where education and health care is free. Startups are the
tip of the iceberg for innovation. People don 't usually innovate just to get
rich. They did it because they are smart, it was their job, and they got lucky
to combine two old ideas together -- they were at the right place at the right
time with the right knowledge.

Other fun fact: a strong middle class is necessary for innovation. Otherwise
no one will buy smartphones and use the apps. (see excellent "banned TED talk"
by venture capitalist Hanauer)

It's not looking good for the neo conservative ideology, the "we need
inequality" and no tax for the rich idea. How can people still be convinced
that we need higher inequality to have a healthy economy and get innovation?
The only reason it's still widespread is because of American media owners.

What this means for anyone with half a brain is that socialism works, when
done right, done smart, ... No offense to PG, who is otherwise a smart dude,
but he didn't completely nail it in this article, on this specific issue. He
is trying hard though and that's admirable. He is a brainwashed neo-
conservative, to some extend, trying to make sense of things. It's admirable
that he is trying really hard to make sense. Some of what he says almost makes
sense. We can feel the neo con ideology from the early 2000s Bush Jr era still
running in his neurons and preventing a fair appraisal of the problem, but he
is trying. Also, he is inherently in conflict of interest, one should point
out here. It's ok PG, neo cons do seem to have a lot of strong points, mostly
that the USSR and China failed with communism. Economic freedom also seemed to
make sense. And it's on TV. And most people agree. And it does feel kind of
uncool to tax companies and successful people. But with a bit of reasoning and
at this point in history, we can say for sure that "a lot of inequality isn't
necessary for startups". Just a bit is sufficient. Taxing companies and
personal income is fine, it's done in most successful countries.

The current state of technology (affordable smartphones and laptops,
programming languages that are easy and affordable, and more people than ever
in history with some free time and extra money on their hands, etc) is what's
allowing the startup phenomenon, today in history. It wasn't superhuman levels
of effort, that could only be triggered in an individual by the promise of
millions. Kids innovate by having fun and having free time and no debt -- so
peace of mind. High inequality (and the neo con ideology that promotes it)
isn't necessary for startups and is even detrimental. Having lobbyists
influence the government isn't necessary for startups. Dumb, bro-ish and
psychopathic wall street practices and (lack of) laws aren't necessary for
startups. Taxing the rich less than the poor isn't necessary for startups.
Spending most of the budget on wars isn't necessary for startups. Not having
free health care isn't necessary for startups. Having a bunch of psychopaths
screw people over isn't necessary for startups. On the contrary. Guaranteed
basic income has been tested and empirically didn't remove incentive for
people to work (see TED talks on basic income). Do things smart for God's
sake. The variability in innovation rates and GDP per inhabitant between
countries __IS NOT DUE TO SOCIALISM __(contrarily to what the economic freedom
index people would want you to believe). Russia is still a shithole for the
most part after 25 years of capitalism, maybe even more, and it always has
been and shithole anyway. It 's probable Canada or France would have fared
just as fine in GDP with more or less socialism -- they'd just have more poors
and more stress, and less kids in school given less socialism. Nordic
countries are killing it in innovation despite their small size and "despite"
being very socialist. But then you have examples like West vs East Germany
which do seem to indicate that socialism (or communism) can be bad for the
economy in some cases. Success for a country is complicated, isn't just
defined by whether it's socialist. Important to point out that there's smart
socialist policies and dumb socialist policies. Look at empirical evidence.
Free school and free health care happen to work if done right, and exist in
countries that have a lot of startups per capita. You can verify that in
countries that tried it.

The bottom line is, we want innovation, and we want less inequality. We can
have both. Why are we even debating this? Because people are dumb and the neo
con ideology is spread far and wide by the American media, and some of its
arguments can seem to make sense (the "lazy communist worker" argument and the
"economic freedom index" argument are two). People have very little time and
cognitive resources to spend on this issue and are easily manipulated.
Recently Hillary was declared winner of the democrat debate in the news, when
__every __online poll indicated that Sanders won. Talk about corrupted,
communist-style use of the media -- media owners trying to influence the issue
of elections, straight up. People better wake up. Hopefully the internet is
making things better and making people more informed over time, and avoiding
the biased news. Brain time is a scarce ressource.

Now some more thoughts. Most current jobs will likely be automated in the next
20 years, including lawyers and truck drivers. Now that's inequality right
there! But is stopping exponential innovation the solution? Of course not. We
want to speed it up, but benefit from it. How? Spread the risk. Like
capitalists in Holland did in the 1600s investing on ships to India that had a
high risk of not coming back. Like YCombinator does. This form of spreading
the risk basically amounts to taxing the successful ones. Countries can invest
by spreading the risk or tax successful companies on behalf of their citizens
and then provide guaranteed basic income. I know it doesn't feel cool to tax
successful people. But that's what we gotta do to deal with the concentration
of wealth inherent to capitalism (see TED talk on capitalism and the
concentration of wealth).

SUMMARY: \- startups and innovation happen just as much with socialism \-
startups and innovation might happen more with socialism \- to keep the
historical trend of exponential innovation going, we need to maximize quality
brain time spend on startups and other intellectually challenging ventures \-
this can be achieved with socialism (free school for selected kids, free
health care, basic income, wall street regulation, less money spent on war, no
subsidies to oil companies, etc) \- to benefit from the exponential tech
evolution trend, we need anyway to tax companies that succeed, otherwise they
will concentrate all the wealth by automating most current jobs existing today
…. we're insanely lucky to have some billionaires give their fortunes to
charity, in smart ways currently, but people can't just count on that in the
future to have jobs and an income when everything is automated.

If anyone disagrees with these, please tell me why, I'm ready to change my
mind! I hope you have good points.

~~~
prostoalex
If the premise is correct, the countries with high levels of income equality
(I sorted this table by CIA GINI, as it seemed to have most data points
[https://en.wikipedia.org/wiki/List_of_countries_by_income_eq...](https://en.wikipedia.org/wiki/List_of_countries_by_income_equality),
and it came up with Slovenia, Hungary, Denmark and Czech Republic) would
overtake countries with low income equality levels (and that obviously
happened when you look at the bottom of the table with Lesotho, Botswana and
Sierra Leone, but it's still lacking dominance over US or Canada or China
startup scene).

Things that come to my mind on why it's not happening

* social expectations change, as more people are simply looking to fit into the societal demands in brave-new-worldy kind of way, there are fewer "rags-to-riches" stories and less media attention paid to entrepreneurs

* financial reasons - countries at the top of equality list don't seem to have a lot of free capital floating around looking for high risk. No venture capital volume to speak of, so the few options left are either through academic or government grants (Germany's Fraunhofer Institute is a good model here) or some foreign entities with bundles of cash looking for higher ROI.

* taxation reasons - under US tax code investing in startups from a taxable account is interesting (as an asset class) mainly because it's taxed as long-term capital gain, and the shareholder can choose the timing of the tax event (it's only taxable when sale of securities happened). With taxation rules changed, investors will re-crunch the numbers to judge the potential ROI as compared to risk, and perhaps some other asset classes (commodities, real estate, emerging market bonds, energy) will look more attractive.

As a side note, when people mean "income inequality" they typically imply
better and more universal access to things like food, housing, health care and
education. Perhaps the focus should be on making those cheaper and accessible,
making the income portion irrelevant. I.e., if someone suddenly had that extra
income, what would they spend it on, and why can't we make _that_ cheaper?

~~~
mike429
Are you really surprised that countries with high levels of inequality
(Lesotho, Botswana and Sierra Leone) aren't doing that well in innovation
compared to the ones with low inequality (Slovenia, Hungary, Denmark and Czech
Republic) ... ?

That map of inequality around the world is very interesting, thanks for
posting, it totally confirms my point. For me the conclusion looking at it is
straightforward, countries that have high inequality are overwhelmingly
shitholes, sorry to say, and high innovation rates per capita are not coming
out of them. On the other hand countries that have low inequality seem to me
to be the ones that on average have high rates of innovation per capita.

At worst the data is inconclusive and low/high inequality doesn't have an
effect on innovation (which means we can go ahead and be socialist if we want,
it won't hurt!) -- and at best it indicates that low inequality and a healthy
middle class generally __favors __innovation (which means we should be
socialist to stimulate progress!). Anyone disagrees with this?

For the idea that "free capital floating around looking for high risk isn't
available in low inequality countries" .... I would say, well give incentives
to high-risk investors, and/or spread the risk more. This is what the
state/government is good at, spreading risk on lot of people, taking on risky
business, big challenges, borrowing money, etc. As you pointed out, there is
already such an incentive in place in the US. Btw, isn't that technically
speaking a form of "socialism" and "government interventionism"? That's good,
there's nothing wrong with doing that if it works. I'm not sure this is a big
problem, worth voting neo con for. I think socialism might even deal well with
that problem. I'm not sure socialist countries have problems with investing in
startups. More data welcome.

The idea with socialism and interventionism is to tweak the current system,
capitalism, to make it work better. Capitalism was already in the first place
an idea to make everyone's life better through cheaper products. It's pretty
clear that there is an evolution of political systems throughout history and
as someone has pointed out earlier in the comments, taxation in the 20th
century was an improvement on capitalism that helped create more wealth for
everyone, while keeping innovation going at an increased rate, and avoided
revolts and revolutions that were common in previous centuries at the same
time.

An interesting metaphor: I think it's a good metaphor to say that exponential
tech progress is the result of the interaction between 1) smart people that
invent and discover, 2) investors excited by profit 3) middle class buyers ...
If this is correct, increasing any of these 3 things will improve the output,
i.e. more innovation.

According to neo cons, the bottleneck to improve in priority is 2) investors
excited by profit. Which is important indeed, but I don't think it's the
bottleneck currently. It might be the least urgent of the three. It might be
that the 3) middle class and 1) more smart scientists and engineers are more
the bottlenecks currently.

It's possible also that no matter what we do at this point the exponential
curve will continue unaffected. What controls that curve exactly? One thing
Ray Kurzweil notes about all the exponential tech trends is that they are very
steady, continue unaffected during periods of war or peace, growth or
recession. So could it be that those 3 "ingredients" that generate "tech
progress" don't matter that much? I.e. that we already have enough of the 3
and there is no bottleneck? Kurzweil states that more existing technology
leads to more possible combinations, thus more possible innovations (which I
think is in rough terms the "law of accelerating returns" if I'm not
mistaken). It's possible that law alone is sufficient to generate the
exponential curve, and that we are not even near a bottleneck on any of the
three factors mentioned.

So in the end, it might be that there is a bottleneck in one or more of the 3
ingredients, or that we are not even close to a bottleneck on any of those 3
ingredients, and in that case, we do what we want. We can be socialist or not,
and the tech trend might still continue unabated.

In any case, I think 1) more engineers and 2) more middle class are the things
we should focus on, if there's a bottleneck. That's my impression. I think
it's our best bet. Happy to hear other opinions.

I'd like to hear other people talk about exponential tech progress and see if
they believe there more than 3 ingredients and how they think it can be
accelerated more besides just the law of accelerating returns.

More data about tech progress would be great, to see if in some cases
something can slow it down, or accelerate it more (besides just a paradigm
shift).

~~~
mike429
some info on the law of accelerating returns that could be the only thing that
really drives the exponential tech progress curve:
[http://www.singularity.com/BookExcerpts/SingularityisNear_Ap...](http://www.singularity.com/BookExcerpts/SingularityisNear_Appendix.pdf)

------
johnchristopher
How can the pie fallacy be true and false at the same time (and from one
paragraph to the next) ?

------
crimsonalucard
> To kids, wealth is a fixed pie that's shared out, and if one person gets
> more it's at the expense of another. It takes a conscious effort to remind
> oneself that the real world doesn't work that way.

I think paul has a distorted view of wealth. Wealth is NOT a fixed pie. But it
is NOT an infinite resource either. To see what wealth is let's follow where
it comes from.

All wealth is extracted from nature or produced by man.

What one man is capable of producing/extracting is limited by his hands, feet,
physical strength and mental abilities. Since physical strength, mental
ability and natural resources are limited... wealth must also be limited.

Billionaires exist in this world. Does one billion dollars represent the
wealth that one man can produce? By common sense and intuition... No. For
example, Let's say a 747 airplane is worth one billion dollars. In short, one
billion dollars in cash symbolically represents a 747. It is impossible for
one man to build a 747 yet it is possible for one man to accumulate a billion
dollars. Both one billion dollars of cash and a 747 symbolically represent the
same value but it is possible for a single human to generate one billion
dollars of cash but not possible to generate a plane. How is this possible?

By logic, since wealth comes from people and one person is incapable of
producing a billion dollars then for the billionaire to even exist he must've
taken wealth from other people.

The question is... how was the wealth taken? The answer is not obvious.

No single man has the physical or mental ability to run a company just like
how no single man has the ability to produce a billion dollars in wealth. Thus
to create 1 billion dollars in wealth (or a 747) many people MUST work
together. A lot of people working together are often called Corporations
(Sound familiar?). Corporations are essentially massive groups of people
producing massive amounts of wealth.

We can also agree that by logic that the wealth produced by a corporation or a
startup is bounded by the sum of the TOTAL WEALTH that the employees of the
startup are capable of producing. But what does this have to do with wealth
inequality?

Where wealth inequality comes into play is the DISTRIBUTION of the wealth
produced by the corporation. The startup owner, the CEO, the C-level
executives get an exaggerated portion of this wealth. It's basically a million
dollar salary for a CEO who has the work output a single human being. A
million dollars pays for 10 human engineers!

But it gets worse then this. At the most extreme case comes the Corporate
owner (aka shareholder). Here we have a human that can contribute ZERO work.
The owner contributes nothing to the corporation yet by virtue of being the
owner he can extract an extreme amount of wealth. As a stock owner you do ZERO
work in increasing the value of the company yet you as a stock owner benefited
directly from it.

This is where wealth inequality comes from. It does not come from one person
working harder than another. If this was the case then people would be
relatively more or less equal in terms of wealth as one person can't really
produce much more than another person no matter how hard he works, how strong
he is, or how intelligent he is. The problem I describe here is a FEATURE of
capitalism. Capitalism is the foundation of human civilization.

I'm not making this stuff up. This phenomenon was first noticed by a person
called Karl Marx. Karl Marx developed this thing called Communism to combat
the above problem. While communism didn't work out in practice, what Karl Marx
noticed about it: that wealth inequality is an inevitable consequence of
capitalism, was very true. Karl Marx is still considered a genius among many
academics today because he was able to identify this critical flaw.

>So when I hear people saying that economic inequality is bad and should be
eliminated, I feel rather like a wild animal overhearing a conversation
between hunters. But the thing that strikes me most about the conversations I
overhear is how confused they are. They don't even seem clear whether they
want to kill me or not.

That's because no clear answer exists. Why forcefully make up an answer?

The benefits of wealth inequality are numerous. Capitalism is an
anthropological phenomenon. The dawn of civilization started because hunter
and gatherers developed the ability to accumulate wealth. Once wealth exists,
you get wealth inequality. With wealth inequality you get poor people and rich
people. Rich people can pay poor people to build amazing things like boeing
747s and the great pyramids. Rich people will also by virtue of having other
people work for them, have a bunch of leisure time to play with subjects
unrelated to survival like science, math, and art leading indirectly to the
technological civilization we have today.

There is no doubt, that capitalism (aka wealth inequality) has lead to the
advanced technological society that exists in the world today. The question of
whether or not it is justified is more of a moral question. The thousands of
workers who were paid pennies to build the Great Wall of China or the Great
Pyramids... Did they get their fair share of the wealth? Do the
workers/engineers who made the 747, did they get a fair share of the wealth?
There is no question, that from a moral standpoint, the answer is
unequivocally: NO. But from a infrastructure and economic standpoint, for the
advanced technological civilization that live in today to exist, it was
probably necessary.

Looking towards the future I would ask, is there a better way? Is there a way
to make a society that is both efficient and moral? Communism was one possible
answer, is there a better answer?

~~~
mike429
Pretty good reasoning. I'm not sure though that income inequality is necessary
for progress. I think it's a side effect of progress but not a cause for it. I
think it might be possible to obtain hard work from smart people without a lot
of inequality. Of course rewards are important, and in that sense some amount
of inequality is necessary for innovation to happen. But if you look at the
bulk of major breakthroughs in technology throughout history, they were done
by academics or government employees. Sure we need investors to get excited.
But for that we don't need insane levels of inequality.

The bottom line for me is that "taxation doesn't remove incentives". We need
people to get excited about making money, and investing in startups, but we
don't need most of the crap that neo cons are trying to push on us. 99% of
problems we face that have to do with inequality won't affect rates of
innovation and startups.

We can see that nordic countries have even better rates of startups and
entrepreneurship per capita than the US as a whole. What this means is that we
can deal with the inequality problem in a smart way and be better off. There
is fundamentally no difference between taxation of successful people or
companies, and spreading the risk like YCombinator does. This is the solution.
It's just the smart thing to do. The reason we're not doing it is not because
"we don't know what to do", or because "inequality is necessary for progress"
but because people are dumb and are being brainwashed by the media.

Please read my comment (mike429) and answer any point you disagree with. You
sound smart so I'd like to see if you make more sense than me on the things I
pointed out. Thanks.

~~~
mike429
I meant please read my _other_ comment

(the one that starts with "With this comment I'm answering both PG's post and
an answer to his post that can be read here:
[http://cryoshon.co/2016/01/02/a-response-to-paul-grahams-
art...](http://cryoshon.co/2016/01/02/a-response-to-paul-grahams-art..."))

------
PSJ707
Strawman Paul Graham's Conversation with the Poor

Man: I am worried about my next meal and seeing my children move up in the
world past my station.

Graham: Well I can't relate to that I live in one of the best school districts
in the world with some of the country's highest housing prices. My primary
concern is what I will choose to eat at Sweetgrass or Chipotle.

Man: The school's in my district can't afford enough desks for students and
are using Textbooks from the 90's. If the government was better funded by the
taxes of the wealthy it could help to alleviate poverty.

Graham: Are you anti-startup? We have brought you Snapchat: the foremost
service to allow upper-middle class teenagers to share pictures of their
genitals, and Uber: a taxi substitute that makes it easier to get home after
drinking yourself silly at the local gastropub. We created wealth, don't blame
us for fighting tooth and nail to keep from paying our fair share into the
government while we benefit from it's protection and services.

Man: I don't use any of those services, in fact I don't even have a phone or
Internet services.

Graham: Well that's okay provided you fit into a model I have chosen to
explain away the guilt I feel at becoming the thing I vowed to disrupt and
change for the better as a young man, let me tell you about The Polynomial
Curve. That should make you feel better for not being able to send your
daughter to college.

------
hammerandtongs
I LOVE that Paul Graham posted this just a day after posting Mark Twain's
"corn-pone opinions" with no sense of irony or self awareness.

""" "You tell me whar a man gits his corn pone, en I'll tell you what his
'pinions is."...

The black philosopher's idea was that a man is not independent, and cannot
afford views which might interfere with his bread and butter. If he would
prosper, he must train with the majority; in matters of large moment, like
politics and religion, he must think and feel with the bulk of his neighbors,
or suffer damage in his social standing and in his business prosperities."""

This billionaire's opinion of wealth inequality, his own part in it, and the
straw men he battles are the very essence of corn-pone based thinking that
Twain is speaking to.

Graham's (toxic and highly biased) opinion about wealth inequality is a
condition of how he gets his corn-pone every day. To him, however, this corn-
pone opinion becomes the very essence of rational thinking amongst himself and
his peers (like Marc Andreesen and his periodic twitterisms).

~~~
cryoshon
I noticed this exact same thing. Funny how awareness of a cognitive trope
doesn't confer protection, eh?

Anyways, hypocrisy haunts us all.

~~~
hammerandtongs
It's particularly disturbing when his wealth makes him influential.

He has the material means to not need corn-pone opinions but instead holds to
them and encourages them in his followers.

------
rustynails
The article is reasonable in the scope it addresses. It's ok for some to be
richer than others. We get it. Where it's not fair is that the system is
rigged (as other commenters have said). I'm very surprised it's missing from
the article.

Maybe, the author should talk about inequality of taxation and the good old
Dutch Sandwich. No, the top 1% don't play fair or even remotely pay fair
taxes. Pick the top 100 on NASDAQ. I'll almost guarantee they pay less than
10% tax.

If you addressed taxation, you'd eliminate almost all valid criticisms.
There'd still be outsourcing, legal system bias (eg. White collar crime such
as the GFC where there was little or no accountability) and monopolistic
issues, but tax was meant to be the great liberator.

I'm curious why the author skipped the Dutch Sandwich and tax rate paid by the
top 1%.

~~~
p23
And even if some super rich guy has a tax rate lower than 10% measured in
absolute dollars he probably still pays much more than you or I. I have yet to
see any kind of justification that percentage based taxation without getting
more in return when you pay more (in absolute dollars) is fair in the first
place - even though somehow everybody seems to believe that.

~~~
jungturk
Despite the difficulty in norming on fairness, the arguments I've seen put
forward are:

1) The progressive taxation stance suggests that since you're taxing the rich
higher rates for money with less utility, that tax is less burdensome, so
everyone is experiencing a similar or fair level of inconvenience or economic
pain from the tax.

2) The disproportionate benefit stance suggests the rich should pay more
because they receive a disproportionate benefit from the state through its
investments in protecting their wealth, deploying the infrastructure that the
rich need to get richer, negotiating trade agreements, and providing tax
relief deemed corporate welfare.

------
pinaceae
fits nicely with the stuff @pmarca has been tweeting and retweeting recently.
taking absolutely asinine stuff from the likes the national review (everything
the left ever did was wrong, starting with the french revolution) to grover
norquist (government employees get more money from the government than they
pay in taxes, this is disgraceful).

there is some massive headfuck going on, don't know if its because of the
upcoming presidential election or what. the ghost of ayn rand is wandering the
halls of rich white guys again.

~~~
cryoshon
For the record, Ayn Rand wouldn't support the kind of capitalism we have right
now: she was very much against crony capitalism, and very much in favor of
workers being able to live comfortably if they were willing to sell their
labor in a truly competitive fashion.

------
calibraxis
The usual bizarre thought processes:

> _So when I hear people saying that economic inequality is bad and should be
> eliminated, I feel rather like a wild animal overhearing a conversation
> between hunters. [...] They don 't even seem clear whether they want to kill
> me or not._

Doesn't consider the obvious conclusion: they want to improve society to be
more egalitarian. The opposite of killing/hurting anyone: no longer needing
police/military to maintain a world based on radical inequality. (Police to
ensure wage-slaves obey bosses for food/shelter tokens; military to ensure
other countries don't build more successful societies which cause everyone to
question the status quo.)

His sentiment apparently is sincere. Despite having government protecting the
wealthy [1], with police and military, privileged people often fear that the
dominated will beat them up. But in reality, it is the dominated who must fear
armed men daily.

> _You can 't end economic inequality without preventing people from getting
> rich, and you can't do that without preventing them from starting startups._

Startup startup startup. Half the time, "startup" is the small-business boss's
pet magic word to justify low wages.

An improved world can obviously have "startups"; if that means a team of
people supported to automate away drudge work, research immortality drugs,
etc. Note that our current system doesn't do this: nowadays, technology means
we work more hours, not less. [2]

> _Variation in productivity is far from the only source of economic
> inequality_

Many highly productive people would happily work with compensation equal to
everyone else. Was Einstein or Chomsky driven by the profit motive, for their
greatest accomplishments? Many enormously "productive" people find it
insulting to be considered animals doing it for material rewards.

To do well in a market, you must get money from those with money. Such a
system predictably caters to those with more power. In contrast, many highly
productive people rather focus their energy on those with no money nor power
to compensate them. (Though there are startups which find ways to siphon money
from government/funders for it, in return for surveillance or ensuring those
in poverty remain in a handout-system...)

No, when you're successful, you need to defend it from higher-productive
competition by building a "moat" [3]. This isn't new; 19th century economist
Friedrich List called it "kicking away the ladder". The wealthy obviously try
to do this.

[1] Adam Smith: "Till there be property there can be no government, the very
end of which is to secure wealth, and to defend the rich from the poor.")

[2] Anyway, real tech advances come from the government sector: taxpayers.
Then it's handed to private power to reap the profit.
[http://marianamazzucato.com/the-entrepreneurial-
state/](http://marianamazzucato.com/the-entrepreneurial-state/)

[3] YC's leadership literally look for a "moat". [https://www.quora.com/How-
does-YCombinator-affect-the-succes...](https://www.quora.com/How-does-
YCombinator-affect-the-success-of-a-company-that-it-funds)

------
stefantalpalaru
> If one woodworker makes 5 chairs and another makes none, the second
> woodworker will have less money, but not because anyone took anything from
> him.

Are you sure? What about that limited supply of high quality wood required to
"create wealth" by shaping it into chairs?

------
marcoperaza
I love this short clip of Margaret Thatcher being confronted about rising
income inequality. She makes the argument against that kind of thinking as
well as anyone ever has.
[https://www.youtube.com/watch?v=okHGCz6xxiw](https://www.youtube.com/watch?v=okHGCz6xxiw)

~~~
mike429
Please text-search Thatcher in the comments and answer my comment about
exactly that idea that "if the poor are better off, but the rich are even
better off, it's still fine". Thanks!

