
How Paul Graham Gets It Wrong in “Economic Inequality” - jordanlee
https://medium.com/@sethbannon/how-paul-graham-gets-it-wrong-in-economic-inequality-6cdb71c45136#.h8xfugfyw
======
sradu
Coming from a former communist country, I don't understand why smart, capable
people want to give away their money to a corrupt, incompetent state to manage
it for them.

The US is fundamentally different than Nordic countries, where socialism
appears to be working: * The Nordic countries are tiny compared to the US. *
They are highly educated. * Their society is homogenous.

It seems like everybody is assuming that there will be this rational actor
collecting money from the rich and distributing them to the poor.

What actually is going to happen is that instead of entrepreneurs becoming
rich, politicians will grow even richer than they are now. The politicians
will have more power, power that they want to keep, and the only way to do
that is to suppress the press and the people.

And that's how communism starts. It might sound like I'm taking it too far,
but it's happened a number of times already.

~~~
evgen
_Coming from a former communist country, I don 't understand why smart,
capable people want to give away their money to a corrupt, incompetent state
to manage it for them._

Because the state is neither corrupt nor incompetent; this is the big fear of
the cyber-selfish libertarians you will find on HN. Tell you what, why don't
you start your rant with a list of these rich politicians who will grow even
richer. Just a single name please.

No, this is not how communism starts. If you knew anything about the history
of your own country (doesn't even matter which country this is) this would be
readily apparent. Rich people becoming even richer and using the aparatus of
the state to enshrine the power of their family or tribe is usually the
outcome of a coup or war. Communism usually starts with a lot of rich people
who did not make the last flight out having a short lean against a dusty wall
somewhere after their family has spent several generations giving everyone in
the country a reason to want to see their spleen paraded around the capital on
a stick.

~~~
throwaway_51661
> Tell you what, why don't you start your rant with a list of these rich
> politicians who will grow even richer. Just a single name please.

Hillary Clinton.

[https://www.rt.com/usa/327689-clinton-conflicts-state-
depart...](https://www.rt.com/usa/327689-clinton-conflicts-state-department-
us/)

And BTW grandparent is 100% correct. This is EXACTLY how communism starts.
First they come for the people who are rich and successful ...

Throwaway account because it could hurt my career to declare my political
views on a public forum in the US if I'm not a liberal.

~~~
icebraining
You know, $8M for 200 speeches isn't that much. People like Seth Godin and
Malcolm Gladwell make ~$100k per speech, and they're not even former POTUSes.

~~~
throwaway_51661
The amount is not the point.

The point is, companies/lobby groups who directly benefitted from Hillary's
decisions as a secretary of the state, paid Bill a lot of money to give
speeches.

~~~
tim333
The amount is kind of a point. There are estimates of Putin being worth $200bn
[http://cnnpressroom.blogs.cnn.com/2015/02/15/putins-net-
wort...](http://cnnpressroom.blogs.cnn.com/2015/02/15/putins-net-worth-
is-200-billion-says-russias-once-largest-foreigner-investor/)

Now that's what I call enriching the politicians. The Clinton's money is more
like a regular CEO salary.

------
danhak
> Further, there are an abundance of studies that show that reducing economic
> inequality (even through redistributive means) actually boosts overall
> prosperity.

To me, this sentence and the ones that follow are by far the most salient
point.

How many Zuckerbergs, Gates, Brins, Pages and Bezos are we missing out on due
to the fact that huge swaths of our country do not have the ability to fully
explore and develop their talents? How many trillions in lost GDP does that
amount to?

To me, this entire debate is a missed opportunity to discuss inequality on the
basis of shared wealth, growth and prosperity. Instead we tend to debate these
things on a moral dimension which immediately politicizes and polarizes the
matter. See renewable energy for another example of how that works.

~~~
zappo2938
I can't think of anything more democratic than using money to vote on how to
best allocate resources. The reward for doing well is to get more money to
decide how that should then be allocated. This system works great until it
crosses a threshold when the most talented consolidate the ability to decide
how to best allocate resources into a small group of people. A small group of
billionaires deciding how to allocate resources is better but not by much than
a small group of people at the Gosbank in the Soviet Union deciding how to
allocate resources. Progressive taxation is a good solution. We just need to
tweak it until it works effectively. Unfortunately, we have gone in the wrong
direction for past couple decades.

I grew up in a scientific community. People innovated and did research because
they were passionate about knowledge and learning. Of course, some of them
went on to create startups like Biogen but money was never the biggest
motivator. I don't buy the argument that taxing the wealthy slightly more than
now stifles innovation.

~~~
zo1
Progressive taxation is a perfectly acceptable solution. Somewhere, there was
some notion that said: "Already-rich people probably make money faster than
the less well-off", therefore: "We should tax them more to even things out a
little and have an upward push for the less well-off. And on the upside is we
have a bit more funding for the state/infrastructure/services.".

The problem now comes that society in general are not happy with the outcomes
of the above. It's now less about how to provide for a stable, secure society
and infrastructure, and more about how will we "fix everything". I believe the
very existence of a state means people will want it to fix things, because
it's there.

And now, someone needs to pay for all the "fixing".

~~~
danhak
But taxes on inheritance and investment are totally regressive (and have
become even more regressive), which undermines the benefits of a progressive
system for earned income.

~~~
mamon
Inherited wealth shouldn't be taxed at all: the testator has already payed the
taxes when he was earning all those money he left. Taxing it again is just
plain robbery.

~~~
ryandrake
If you're worried about "double taxation" I've got some bad news for you: That
money was taxed many, many, many times before. When it was earned through
labor? Taxed. When it was spent in a store? Taxed. When the store owner made
an investment in a company? Taxed. When that company issued a dividend? Taxed.
"Taxing it again" is the normal state of things.

------
OmarIsmail
It is insane (and also very educational) that so many people are completely
missing pg's point - author of this response included.

I blame pg a little for using the phrase "income inequality" at all since it
seems to be a trigger for many people and shuts down their critical reading
and reasoning abilities. Let me try to phrase it in a clearer way.

If you focus on reducing "income inequality" then you will reduce income
inequality, but that will have many negative unintended consequences (killing
startups at the extreme, etc). Instead, people should focus on the _REAL_
problems which is lack of economic opportunity, crushing poverty, and
political corruption.

The real solutions all come from helping the people at the lesser end of the
inequality equation without having to touch many of the people at the greater
end. Universal healthcare, universal education (day-care/pre-school/public
schools/job retraining), universal basic income. Just those three policies
alone would have an unimaginable positive impact on whatever country
institutes them. And my guess the money for these things already exists if you
eliminate ridiculous wasteful spending, subsidies, etc.

If, at the end of day you eliminate wasteful spending and there is still a
shortage of funds for these programs, then sure increase taxes on the
wealthiest. My guess is that many would be fine with it (since it's going to a
"good" cause).

~~~
js8
I know you mean well, but here's a counterargument. The more unequal societies
tend to be less socially coherent and less interested in pushing universal
whatever. So it's probably a chicken-egg problem, and the standard way to
address a problem like that is to fix both ends at once, little by little.

And it's insincere to think that universal access doesn't affect the
wealthiest at all. In many cases (not all, it's probably not the case of Y
combinator kind of people), the wealthiest got where they are by abusing the
poor.

~~~
csallen
_The more unequal societies tend to be less socially coherent and less
interested in pushing universal whatever. So it 's probably a chicken-egg
problem, and the standard way to address a problem like that is to fix both
ends at once, little by little._

If the rich are the primary actors against social and economic progress
("universal whatever") and are powerful enough to prevent it, what makes you
think we have any chance at stripping them of their wealth? It's akin to
attacking the enemy's main castle in order to weaken their small fort. Why not
just attack the small fort? If you win against the main castle, then your
theory that the small fort was too strong must have been false.

 _In many cases (not all, it 's probably not the case of Y combinator kind of
people), the wealthiest got where they are by abusing the poor._

If that's true, why don't we just target those abusers?

~~~
js8
I think you have a good point. But I still think polarization of the society
is an obstacle that has to be overcome in sync with this. Things like people
supporting Donald Trump. I wish I had a good recipe/idea how to reverse that
(at least some of these authoritarian trends), but I don't.

So it's more like a distraction is needed at the main castle in order to take
the small fort.

------
Pyxl101
Is economic inequality a problem in and of itself? Why?

Economic quality seems like a red herring for actual issues like how well off
people are. Is the actual concern about how poorly off the poor are? Imagine a
thought experiment where aliens come to earth and give every human 100x the
resources they have currently (or 100x a year's min wage), as an annuity. The
poor are all now rich, and the wealthy can buy their own space stations.

Is this _intrinsically_ a problem, and why?

If the actual concern is about how well off the lower and middle class are,
then that's reasonable: we're talking about the welfare of actual people. But
actual people are not harmed or affected directly by some mega-rich person
being much richer.

I expect that someone will reply to explain that inequality is the symptom of
or cause of some other dysfunction, and it is the actual problem - and that's
great, that's what I'd like to understand better. Whatever the actual problem
is, let's talk about it. If the problem is about lack of adequate education,
opportunities, etc. then let's discuss those concerns directly.

~~~
danhak
The issue is always inequality and not absolute wealth, so your hypothetical
of everybody having 100x the resources is not fundamentally different than the
current situation.

The issue is that wealthy people do not have a monopoly on talent, good ideas
or intelligence. But they have a monopoly on power and influence. Society
therefore suffers when the best ideas do not necessarily compete on an equal
basis within the marketplace or the political arena, if they make it there at
all.

~~~
Pyxl101
Excellent! Thank you for clarifying. It sounds like the concern is that some
people hold a monopoly on power, such that good ideas don't compete on their
merits. Is that a good way of saying it?

I ask because that problem does not seem to me to be directly related to
income equality.

In communist societies everyone had very similar income, and yet a small group
had all the power and functioned as kingmakers in business. Or even outside
communism, simple corruption: for example, until the 90s you needed a very
hard-to-get license in order to start a business or do business at all in
India (known as "license raj"). This stifled their business environment and
innovation for decades. This type of problem still affects many countries
today, especially corrupt ones.

[https://en.m.wikipedia.org/wiki/Licence_Raj](https://en.m.wikipedia.org/wiki/Licence_Raj)

It seems to me that good ideas are capable of flourishing in the US without
any gatekeepers getting in the way. It's easier than ever before to start a
company. Why do you believe that good ideas aren't already competing
effectively on merit? (Examples?) Take Google, Microsoft, Facebook, Uber, etc.
Did these not win on merit? Is there a legislative barrier to you starting
your own competitor to one of these services?

~~~
danhak
> In communist societies everyone had very similar income...

Again we're reverting to the straw man of 100% (or nearly) equal society.

Our society must be unequal to some extent because capital is a reasonable and
effective reward for figuring out how to best allocate resources. But extreme
inequality prevents a large % of the population from fully developing,
exploring and disseminating their talents, shutting them out of this virtuous
cycle altogether.

You bring up Google, Microsoft, Facebook and Uber as examples of companies
that succeeded on their merits. All four of those companies were started by
straight white men with upper middle class upbringings. Do you believe that's
a coincidence? Or are there some "lost Zuckerbergs" out there who never had a
chance to fully explore computers when they were kids? Is a family's ability
to afford the latest technology a material advantage for the next Zuckerberg /
Gates / Brin / Page / Kalanick? In your original example, who is going to
invent the next great space tech? Probably the kid whose family is buying a
space station.

~~~
Pyxl101
It's not a straw man. I'm not saying that any argument for income equality is
tantamount to communism. I'm simply saying that you can have income equality
and _still_ lack a healthy business environment where ideas compete on merit.
So the problem is whether ideas compete on merit, not income equality. Income
equality is neither necessary nor sufficient for those other things.

Regarding Brin, I don't think he has as privileged a background as you seem to
believe. He had a pretty humble beginning, beginning with his birth in Soviet
Russia (where his parents were discriminated against for being Jewish), after
which he immigrated to USA at age 6:

[https://en.m.wikipedia.org/wiki/Sergey_Brin](https://en.m.wikipedia.org/wiki/Sergey_Brin)

~~~
danhak
> I'm simply saying that you can have income equality and still lack a healthy
> business environment where ideas compete on merit.

And I don't dispute that at all. What I am saying is that society's prosperity
is optimized somewhere between total equality and extreme inequality, and that
we seem to be drifting further away from that point.

------
anateus
Although PG makes a few turns of phrase, one of which is quoted in OP, that
implies a straw-man who wants to end all economic inequality, he also talks
several times about tackling the effects of economic inequality. The footnote
in OP referring to studies that cover the negative effects on economic
inequality supports rather than disproves PG's stance on this: economic
inequality has multiple negative effects.

One of PG's core arguments is that while the inequality is caused by a lot of
factors, a big one of which is the snowball effect of capital, when all those
factors are removed, the wealth creation aspect will still remain. He
explicitly says that attacking the non-virtuous feedback loops that increase
economic inequality is desirable for him, he's just interested in targeting
those as well as specific negative effects (e.g. poverty) rather than have the
conversation framed around "economic inequality".

~~~
gkop
> The footnote in OP referring to studies that cover the negative effects on
> economic inequality supports rather than disproves PG's stance on this:
> economic inequality has multiple negative effects.

No, that's the inverse causation of PG's stance. PG said "There are lots of
things wrong with the US that have economic inequality as a symptom."

If we all agreed that economic inequality _is_ the cause then nobody would be
complaining about framing the conversation around economic inequality.

------
zxcvvcxz
> Bill Gates gave an excellent summary of the argument against unchecked
> levels of economic inequality[2]: High levels of inequality are a problem —
> messing up economic incentives, tilting democracies in favor of powerful
> interests, and undercutting the ideal that all people are created equal.

This is the problem right here. The "ideal that all people are created equal."
The truth is, they are not. There are differences in IQ, differences in
emotional capacity, differences in physical strength, differences in
programming ability, etc. Because every human has a unique set of DNA -- that
will only ever occur once and never again be repeated -- they will have unique
combinations of various skills and traits.

People are not equal and you cannot make them so. Thus they will have
different outcomes economically. It couldn't be any other way.

What you _can_ do is provide _equal opportunities_ to those with objectively
worse environments, i.e. those in poverty. Attacking this problem will be the
most meaningful solution. But economic inequality is still _not_ the yard
stick to use for this.

How these obvious issues get conflated through the use of the trigger term
"economic inequality" is beyond me. Perhaps it stems from the self-esteem
movement where we started giving trophies to every kid who could kick the
ball. Do people complain about "soccer inequality" because they don't play on
FC Barcelona? And should one blame Messi for such a thing, or should they find
ways to sponsor youth soccer leagues instead.

~~~
AnimalMuppet
> This is the problem right here. The "ideal that all people are created
> equal." The truth is, they are not. There are differences in IQ, differences
> in emotional capacity, differences in physical strength, differences in
> programming ability, etc.

Here's what that phrase originally meant: European-style nobility is a
mistake. It's not that you are better than me, not because of IQ, emotional
capacity, physical strength, or anything of that nature. Instead, the idea was
that you were better than me because your great-great-great-grandfather helped
the king put his trousers on every morning, and got rewarded with a hereditary
title, and you inherited it, and therefore you are my "better" because you
have a title and I don't. And the older the title, the better it was, even
though that means the less it had anything to do with you!

So when the Declaration of Independence says "all men are created equal", it's
not talking about IQ or physical strength. It's not even talking about
different economic outcomes. It's talking about social/political standing
conferred by birth.

I'm not saying that you are wrong in your conclusions...

------
dools
Universal income and job guarantees/full employment are PRO STARTUP but ANTI-
VC.

Given PG makes all his money from the glorified HR scheme that is the VC
industry, it's not surprising he is against a system that empowers people to
take risks on starting companies that don't require any investment.

If people are able to start companies without risking the health of their
family, or their long term prosperity, they don't need as much investment and
there wouldn't be room in this world for VC funding, and thus not as much
money to trickle down to the inaptly named "super angels" like PG and the YC
crew.

------
solomatov
>while this report by the OECD found that “income inequality has a sizable and
statistically significant negative impact on growth.

Actually it doesn't do this. It shows that income inequality is associated
with lower economic growth. Mixing correlation and causation.

~~~
lisper
Except that the data support a particular theory: extreme income inequality
limits growth because growth is ultimately driven by broad-based consumption.
If there's a plausible theory purporting to explain how the causality could
possibly be the other way around, I haven't heard it.

~~~
solomatov
There might be other factor affecting both inequality and economic growth. For
example, consider culture, natural resources, climate, etc. If you can't find
a plausible way to explain something (inequality causes lower economic
growth), it doesn't mean that there's no other way to explain it. Actually,
the history of science shows that explanation of effects might be very
surprising.

P.S. My comment doesn't support one side or the other. I am just pointing to a
logical mistake.

~~~
lisper
> If you can't find a plausible way to explain something (inequality causes
> lower economic growth), it doesn't mean that there's no other way to explain
> it. Actually, the history of science shows that explanation of effects might
> be very surprising.

Indeed so. But the central principle of science is that at any time you
(tentatively) accept the best available theory that is consistent with the
evidence. Right now, AFAICT, that's the theory that concentrating wealth in a
small minority reduces growth because it reduces demand.

------
trav4225
"I’m going to be charitable here and assume that PG is not arguing against
those that want to, literally, end economic inequality completely [...] I’ve
never met anyone arguing for this."

Interesting. Perhaps I'm misinterpreting their rhetoric, but my impression has
been that many people are arguing for precisely this.

~~~
totalrobe
I've also never seen anyone arguing for this. Many argue for specific issues
and policies like estate taxes, single payer health, cost of housing and
education, but I've never met anyone that thinks everyone should have the same
income.

~~~
krainboltgreene
Hey, it's me. The person arguing for this.

~~~
totalrobe
Oh, hi! How would that work?

------
gkop
dang: would you consider un-burying this please? It's constructively in
dialogue with PG.

------
Thriptic
Out of curiosity, would it be possible to mitigate most of the perceived
negative effects of inequality (unequal access to opportunities) by simply re-
allocating our existing tax revenue? For example, instead of paying for costly
wars in the US / silly development projects like the F35, could we use that
money to grant our citizens free college education, better access to health
care under a single payer system, basic welfare, and job training programs?
Could we employ an infrastructure development program to put people to work at
good wages?

~~~
jgord
That really would be the rising tide that lifts all boats - trickle up from
the bottom.

------
aminok
It takes a special type of arrogance to support using violent force to take
from some group of people to give to another, who you believe to be more
deserving of that plot of wealth. Bill Gates has it. Paul Graham doesn't. And
thus the supporter of income inequality is the more humble of the two.

------
brushfoot
This seems like the exact type of confusion Graham mentions. E.g., what does
Bannon's insistence that public education is necessary have to do with
Graham's essay? Graham clearly is not arguing against social programs or a
mixed economy.

------
appleflaxen
Why not a death tax?

Give a flat amount to the family (capped at say 5 million), then a flat 100%
tax after that

No living person pays more taxes

Children can get an incredible windfall, but not eye-popping.

Tax revenue goes through the roof.

~~~
marvin
While this might look like a superficially good idea, this means that the
government gets 100% ownership of all businesses after 50 years or so. There
are multiple reasons why this would be very bad, for example politicians would
not have the specialized knowledge required to make the owner decisions of
every business. It would also give politicians an unprecedented amount of
power.

------
ZenoArrow
As I said last time this came up, the answer is a maximum wage. We can still
set the maximum wage beyond the level of most people (e.g. $1,000,000 per
annum after tax). I don't see how it would discourage innovation, but I do see
how it'd help curb financial inequality.

~~~
jblow
If you set a maximum wage like that, a lot of what is good in society would
not happen because people would not be able to amass capital.

For example, you would not have a SpaceX or a Tesla. You would not have Y
Combinator as it exists today. You would not even have the video game that I
am about to release next month.

Yes, there are a lot of jerks who amass capital and do nothing with it or who
do irresponsible things. But you also have people who use it to work very hard
to make positive change in the world, and even if those people are in the
minority, their impact is very large.

~~~
tahssa
Capital accumulation can still happen without wage accumulation. Just don't
pay yourself too much and keep the money inside the business. Naturally the
money will get spent on building things like tesla.

~~~
PeterisP
Tesla happened because individuals were able to take extremely large sums out
of an unrelated business (Paypal), as did a huge part of early stage tech
investments, funded at that point mainly by individuals who got multimillion
exits in their previous businesses. If the money had been kept inside
business, then you'd have the innovation rate that internal subsidiaries of
IBM achieved, not the innovation rate of the Silicon Valley.

~~~
Apocryphon
Or perhaps with sufficient tax revenue in its coffers, the federal government
would be able to properly fund NASA, or a Manhattan Project aimed at reducing
oil dependency.

