
Economic Inequality: The Simplified Version - jordanlee
http://www.paulgraham.com/sim.html
======
joelrunyon
Original discussion here =>
[https://news.ycombinator.com/item?id=10839314](https://news.ycombinator.com/item?id=10839314)

------
HSO
> _But economic inequality per se is not bad._

Both essays feel like they are built on a strawman argument. Nobody serious
said inequality was bad or good, not even Piketty. The discussion is about
degrees, and PG adds nothing to it by arguing categorically.

That we are talking degrees of inequality is also the reason why economists
argue with statistics and do not differentiate much between specific causes or
mechanisms on the micro level. Sorry to burst that bubble but PG is not a
"creator of inequality" on the level that is interesting. Shifting a few
hundred people around means nothing given that we are talking about income and
wealth distributions over millions of households in the US alone (and
increasing inequality is a global phenomenon). Clearly, tax policy, financial
(de)regulation, labor market policies, even the fall of the Soviet Union, etc.
are more relevant than petty arguments over whether this startup or that high
freq trader made a few mega- or even gigabucks in a nice or not so nice way.

On a sidenote, the relative impacts of the trader vs the startupper on
aggregate welfare is not as clearcut as intimated by PG at all, once you take
second- and higher-order effects into account. Furthermore, creating wealth
for some individuals may also decrease overall inequality; it depends on the
starting and end positions of said individuals in the wealth distribution and
the other ongoing processes in the economy.

Lastly, economic systems have a lot of feedback mechanisms, both positive (ie
destabilizing) and negative (stabilizing). We should at least consider the
possibility that past a certain degree of inequality, wealth becomes self-
perpetuating. This is especially pertinent for US Americans, given the
degenerate nature of their "democracy".

~~~
dools
_Nobody serious said inequality was bad or good_

Lots of very serious people say that inequality is bad:

[http://digitalcommons.bard.edu/hm_archive/333/](http://digitalcommons.bard.edu/hm_archive/333/)

[https://www.youtube.com/watch?v=cZ7LzE3u7Bw&mid=5328](https://www.youtube.com/watch?v=cZ7LzE3u7Bw&mid=5328)

[http://www.economonitor.com/lrwray/2013/07/09/how-big-is-
big...](http://www.economonitor.com/lrwray/2013/07/09/how-big-is-big-enough-
would-the-basic-income-guarantee-satisfy-the-unemployed/)

[http://bilbo.economicoutlook.net/blog/?p=11245](http://bilbo.economicoutlook.net/blog/?p=11245)

[http://moslereconomics.com/2009/09/30/inequality-nothing-
to-...](http://moslereconomics.com/2009/09/30/inequality-nothing-to-worry-
about-according-to-summers-geithner/)

~~~
vasilipupkin
The issue is not static levels of inequality per se. The issue is why
inequality should increase. If the 60%th percentile incomes grew 40%, then it
is not clear why the bottom 20% percentile income also shouldn't grow 40%. The
fact that it didn't is suboptimal and studying this phenomenon makes sense.
That doesn't mean that every knee jerk attempt to fix this problem is good.

Let me try to explain it like this. It is a valid question to ask why, if one
income bracket grew X% over 20 years, did a lower bracket only grow 1/2 X. It
is not reasonable to simply dismiss this question as irrelevant by assumption.
Because society should want income to grow in all brackets, if possible

~~~
dools
There is an acceptable level of income inequality, the same as there is an
acceptable level of inflation. The determination of what that level of income
inequality is, is a complex social analysis task. It's somewhat arbitrary (for
example we currently view 3% as an acceptable level of inflation, but that
could well be 10% if we wanted it to and we could still make society work).
There isn't a single level of income inequality that is bad in all situations,
but for some given set of social conditions there exists a level of income
inequality that is bad (even if we can't determine precisely what it is ... )

~~~
chrispeel
this.

And the question is how do we get to that acceptable level. One option is a
progressive income tax with a universal basic income, or (equivalently) having
the progressive income turn negative at low incomes.

~~~
dools
I'm more of the opinion that a broad based consumption tax with offsets given
to people on a sliding scale would be more effective (after all, people are
way less likely to _refuse_ money than they are to try and get out of paying
it ... ) This would cause a (once off) inflationary bump as wages adjusted to
the price increase but this could be contained with effective fiscal policy.

Taxing consumption makes more sense since ideally we want less of it, but
taxing income makes less sense because we want people to work more.

I like Randall Wray's idea of taxing the volume of people's houses, too[1] :)
He also talks about abolishing all company and payroll taxes, because as soon
as you let go of the notion that taxes _pay_ for things, and that the role of
taxation is actually to drive demand for currency and control aggregate
demand/income inequality, your fiscal policy can get pretty wild.

It's funny how MMT can seem quite "conservative" at times because of things
like abolishing company tax, but when you accept the basic tenets of MMT you
can see that such things can be quite progressive (and good for society)!

[1] [http://neweconomicperspectives.org/2014/06/tax-bads-
goods.ht...](http://neweconomicperspectives.org/2014/06/tax-bads-goods.html)

------
hackuser
> economic inequality per se is not bad.

A lot of research shows that high society-wide economic inequality causes many
bad effects, economically, politically and socially. I believe that is the
basis of many concerns. According to that research, high inequality is per se
bad (I don't know enough to define "high", but many others have).

> [inequality due to startup founder success is good]

Generally I agree, but:

1) The question isn't whether _all_ inequality is bad but whether _current
levels_ are bad. Nobody argues for perfect equality.

2) It overlooks the problem that many are denied the opportunity of such
success because of their race, gender, social networks, or economic class,[1]
which deny them access to the important resources such as education,
financing, contacts, or jobs.

That's bad for the people who otherwise would succeed; it's bad for our
society socially and politically to have people who are and feel excluded; and
it's very bad for our economy to not utilize the >70% [2] of human resources
that aren't middle-class or wealthier white males.

\----

[1] AFAIK, plenty of research shows that education depends significatly on the
economic class of your family

[2] Around 33% of the U.S. population is white male and some of them are poor;
therefore 70% seems a safe estimate.

~~~
zachlatta
Isn't he saying that the problem is that economic inequality is seen as the
cause, not the effect? I think that's in line with all of the points you
brought up.

~~~
hackuser
> Isn't he saying that the problem is that economic inequality is seen as the
> cause, not the effect? I think that's in line with all of the points you
> brought up.

The distinction is helpful; thanks. My first point is that it's a cause,
according to a lot of research.

------
nostromo
Most people I know that are concerned about economic inequality aren't super
bothered by self-made billionaires (Jobs, Zuck, and Gates to a lesser degree.)

Mostly they are concerned about dynastic wealth (Waltons, Kochs) particularly
when it's economic power intertwined with political power (Kennedys, Bushes,
Clintons, Romneys).

Outside of San Francisco, where many people feel real downward economic
pressure from tech, most of the US seems pretty happy with the self-made uber
rich. In fact, I think people are downright fond of these people. The real
discomfort comes when those oligarchs look to preserve dynastic wealth and
power for generation after generation using trusts and other tax avoidance
strategies.

~~~
massysett
Then they should stop saying they are concerned about "inequality" and start
saying they are concerned with "dynastic wealth". This sloppy rhetoric makes
it easy for opponents to attack. See, e.g.,

[https://m.youtube.com/watch?v=okHGCz6xxiw](https://m.youtube.com/watch?v=okHGCz6xxiw)

And she is absolutely right. Because if "inequality" is the problem then a
solution is to shape society so that everyone has $1 rather than the rich
having $3 and the poor having $2. If that's not a desirable solution then
"inequality" is not the problem.

~~~
cryoshon
People are concerned about egregious opulence while others are barely middling
along or are impoverished; there is currently no other configuration in which
income inequality exists.

The other stuff is a distraction until that isn't the case.

~~~
jdc
It would be wise to remember that we only speak for ourselves.

~~~
toomuchtodo
Except, cryoshon simply echos what a large proportion of the population feels.

[http://www.pewresearch.org/fact-tank/2015/07/23/around-
the-w...](http://www.pewresearch.org/fact-tank/2015/07/23/around-the-world-
dissatisfaction-with-economy-and-concern-for-its-future/)

> Americans and publics in Africa are less dissatisfied, but they are hardly
> happy about the way things are going. More than half of Americans (56%) say
> the U.S. economy is doing poorly. In the nine African nations surveyed, a
> median of 51% believe economic conditions are bad. Within Africa there is a
> particularly wide divergence of opinion. More than seven-in-ten Ghanaians
> (73%) judge their economy to be performing poorly, while nearly nine-in-ten
> Ethiopians (89%) believe their economy is in good condition.

[https://www.salon.com/2016/01/03/the_middle_class_is_just_th...](https://www.salon.com/2016/01/03/the_middle_class_is_just_this_screwed_janet_yellen_declares_victory_while_workers_drown/)

> Down here at the pedestrian level, between 2010 and 2014 poverty increased
> in one third of America’s 3,000 counties, when compared to the 2005 to 2009
> period, according to the U.S. Census’s American Community Survey. In fact,
> the “recovery,” that pastel-colored unicorn, was only seen in the 4 percent
> of the nation’s counties where poverty actually declined. The rest remained
> stagnant.

> It should come as no surprise. Millions of Americans lost their homes, and
> with them the foundation of their household wealth. During the “recovery,”
> census data documents that the median U.S. household income has actually
> declined for three years in a row and remains below its peak in 1999.

And the fact that the middle class has been hollowed out:

[http://www.npr.org/sections/thetwo-
way/2015/12/09/459087477/...](http://www.npr.org/sections/thetwo-
way/2015/12/09/459087477/the-tipping-point-most-americans-no-longer-are-
middle-class)

------
awakeasleep
>But economic inequality per se is not bad. It has multiple causes. Many are
bad, but some are good.

This shows the confusion of the original essay, and this response.

There is the thesis, "economic equality is not bad", and then the support for
the thesis, "some drivers of inequality are bad, some are good" that doesn't
actually support it.

Saying that some things that concentrate wealth are not bad overall does
nothing to shed light on whether vast disparities of wealth between classes of
people is beneficial for a society.

~~~
rntz
It's wonderful when simplifying an argument exposes its problems more clearly.
I now wish more writers would do this. Omit needless words, indeed!

------
jondubois
Economic inequality is bad because it has a profound negative effect on most
people's self-esteem and ability to enjoy life.

With high inequality, money becomes more valuable and people start to think of
everything in terms of money. Even romantic relationships become money-
oriented. It's not uncommon for marriages to break up because of financial
reasons. Wealth inequality causes more human suffering than moderate poverty.

People who lived in communist Russia will often tell you that people were
happier under communism, even though they didn't have much - Often, they had
to farm vegetables from their own gardens to supplement their diets. But they
were happy because they knew that they had the same as everyone else. Also,
people had no ulterior motives to do anything - When people liked you, they
liked you because of who you were. When people did something nice, they did it
because of purely altruistic reasons.

In capitalist society, money underlies the behaviour of everything done by
everyone. You can never know if a person is good or bad because you never know
their true intentions.

I think the media coverage of wealthy people is itself a bigger problem than
inequality itself.

The media motivates people to work harder and acquire more wealth. Without
media, only innately passionate people would launch startups. Today, most
people who start a company do it because they want financial rewards.

It is human nature to want equality. It reminds me of a Russian joke about a
man who finds a genie in a bottle. The genie tells the man that he can get
anything he wishes but that his neighbour will get twice as much of whatever
he gets. The man pauses to think for a moment and then says: "Take out one of
my eyes."

~~~
melted
Much of that "people were happy under communism" BS is just that: BS. As
anyone past the age of about 30 would tell you, you tend to forget the shitty
stuff a lot faster than the good stuff. As a result we often hold these
romanticized notions of how things used to be. Yet if you actually go ahead
and look at some videos from 20-30 years ago from those parts of the world,
you see North Korea. No one seriously wants to go back to that, except for US
"progressives" who believe rich people should not exist.

~~~
jondubois
A lot of what we (the west) believe about communism is shaped by western
propaganda (though western propaganda is more about exaggerations and omission
of facts than outright lies so you could argue that it's not as bad). If you
ask old Russian people who were around at the time, they will often tell you
that things were good.

~~~
melted
I've done just that, in fact. That lasts exactly until they start remembering
in greater detail how things _actually_ were, without all the unfounded
nostalgia. And things were pretty fucking harsh even by the modest standards
of today's Russia, both economically and politically.

------
dools
Economic inequality _is_ bad per se. Here's a good paper on the effects on
economic stability of income inequality:

[https://www.policyalternatives.ca/sites/default/files/upload...](https://www.policyalternatives.ca/sites/default/files/uploads/publications/National%20Office/2012/05/Instability%20Implications%20of%20Inequality.pdf)

Income redistribution is a valid goal of taxation -- not because the
government needs to tax the rich to fund the poor (the government can fund
whatever it wants since it issues the currency) but because tax policy can
reduce the types of extreme inequality that cause instability.

When people become wildly rich, they often misattribute that success to their
own hard work, ignoring the social conditions that made their success
possible, and the role that "good fortune" plays in all such success stories.
This talk by Michael Lewis is an excellent summary of why this "meritocratic
mindset" is dangerous:

[https://www.youtube.com/watch?v=CiQ_T5C3hIM](https://www.youtube.com/watch?v=CiQ_T5C3hIM)

So yes, we should definitely address income inequality directly through tax
policy.

We should also address the root causes of poverty, which are primarily lack of
government will to pursue full employment since the Friedman/monetarist view
of macro economics won out over the Keynsian economic theories during the
supply side inflation caused by the oil shocks in the 1970s.

------
ThomPete
I am kind of surprised that PG insist on confusing extreme economic inequality
(which is the one most people are talking about when they say it's bad) with
normal economic inequality (which most people are totally fine with.)

 _Edited to clear up confusion_

~~~
chubot
This comment doesn't make any sense without defining "extreme" vs "normal"
income equality. That is far from obvious.

Do you think that technology alone can't produce extreme income inequality?
Why?

~~~
chongli
_This comment doesn 't make any sense without defining "extreme" vs "normal"
income equality._

The argument is over economic inequality which I believe most take to mean
wealth inequality, not income inequality.

 _Do you think that technology alone can 't produce extreme income inequality?
Why?_

Of course not. You need people _using_ the technology as well. Extreme
inequality results from the simple fact (as exhaustively supported by Piketty)
that _r > g_. Capital, by definition, is technology.

~~~
mdcox
For any other casual viewers unfamiliar with but interested in economics, the
'r' refers to return on capital and 'g' refers to the growth rate of the
economy. This section of the wikipedia article on his book seems to give a
quick and decent high level overview that puts this (and a few other comments)
into perspective: [https://en.wikipedia.org/wiki/Capital_in_the_Twenty-
First_Ce...](https://en.wikipedia.org/wiki/Capital_in_the_Twenty-
First_Century#Contents)

~~~
viraptor
The whole book is great. It may be ~700 pages, but it's more of a story than a
heavy economy book. If anyone is interested enough to comment on this issue,
this book is definitely something you'd be interested to read.

------
sethbannon
Imagine a factory that's dumping large amounts of arsenic into the public
drinking water supply -- a factory that can't operate without doing so.
Imagine also that studies show small amounts of arsenic are safe, but large
amounts in drinking water can cause serious negative health effects.

Seeing these studies, someone comes along and proposes a regulation that
limits the amount of arsenic this factory is allowed to dump into the public
water supply, to keep it within safe levels.

A critic then comes along and says: "The amount of arsenic in the water is not
the root problem -- the root problem is that arsenic makes people sick. We
should focus on helping people not get sick when exposed to arsenic! That way,
we wouldn't have to hurt this job-creating factory."

This feels like what PG is arguing for here. In an ideal world, where
governmental systems were purely representative and incorruptible, and where
markets were efficient and impossible to manipulate, sure, focusing on huge
economic inequality wouldn't make sense. But we don't live in this world, just
like we don't live in a world where we can easily make people immune to large
amounts of arsenic.

~~~
gwright
This analogy doesn't work for me. You are equating different amounts of wealth
(generally considered a good thing at any level) with different amounts of
poison.

You also repeat a concern made by many critics of Graham's essay, the
connection between wealth and the ability to influence public policy, access
to politicians and so on. Positing that the wealth is the source of the
problem and suggesting the limiting the wealth would limit the influence also
doesn't hold together for me.

I'll repeat I comment I made a few weeks ago:

> There is another way to look at this problem though by asking why there is
> so much money being directed towards elections and politicians? One cause is
> the increased size and scope of government. When the role of government
> expands into more aspects of our lives via various taxes, regulations,
> subsidies, penalties, and so on it creates an incentive to influence the
> creation of those taxes, regulations, subsidies, and penalties.

> A smaller role for government, in particular a reduction in policies that
> try to pick winners and losers explicitly (e.g. taxes or fees that favor
> particular companies or industries), could reduce the incentive to influence
> the creation of "targeted" legislation.

~~~
punee
Oh wow, I'm sorry I missed your comment because for the last few days I've
been wondering why no one was asking that.

Why on earth is no one pointing out that the excessive influence of the rich
on politics is a problem that has to do with institutions being corruptible,
and not with money?

Don't want rich people to influence politicians? Don't give so much power to
politicians in the first place.

------
geofft
Why do startups _necessarily_ increase economic inequality? I agree that they
do now, but is it impossible to have the good of startups without also
increasing economic inequality?

Out of the usual reasons people encourage you to either found or work for a
startup, "get rich" is not the primary motivator, and "get richer than other
people" certainly isn't. (To claim that "get rich" implies "get richer than
other people" is to invoke the pie fallacy, which Paul Graham debunked
recently.) "Change the world," "have more freedom / creative control than a
traditional job", etc. are, and those don't seem to require economic
inequality.

For instance, Paul Graham writes in
[http://paulgraham.com/mit.html](http://paulgraham.com/mit.html) :

"For nearly everyone, the opinion of one's peers is the most powerful
motivator of all—more powerful even than the nominal goal of most startup
founders, getting rich. [...] Even if you start a startup explicitly to get
rich, the money you might get seems pretty theoretical most of the time. What
drives you day to day is not wanting to look bad."

If you want to imagine startups not causing economic inequality, one approach
is a radical restructuring of society, probably involving heavy taxes, as I
suggested in a comment previously. But another simple one is to have more
people do startups, and to explicitly invest primarily in people and
communities that don't have other easy routes of getting rich.

~~~
jamiequint
Is it impossible to have the good of startups without also increasing economic
inequality?

Yes.

This is discussed in detail in the original essay and in The Refragmentation
essay here: [http://paulgraham.com/re.html](http://paulgraham.com/re.html)

~~~
vasilipupkin
I don't think that is correct. For example, a startup could make its founder a
billion dollars, but if hundreds of millions of people are able to raise their
incomes because they became more productive as a result of using that
startup's product, then overall inequality would decrease. Does Coursera lower
or increase inequality? I would argue it lowers it in the long run.

------
Mikeb85
The reason that economic inequality has become such a talking point is that
economic inequality has far reaching ramifications for our society. Many see a
return to higher levels of inequality as a reason for slower growth and social
problems.

The reason why inequality is the problem and not simply poverty is because
when the 'target' is poverty, all we do is basically put a band-aid on the
problem. We look at the poor with pity, segregate them, throw a minimal amount
of money at them, maybe a social program or two, and forget about them.

However when you study inequality as a whole, you begin to see a bigger
picture - one where the erosion of the middle class, the widening gap between
those with capital and those without, and how that relates to poverty levels,
economic growth, living conditions across society, etc...

As PG and others have said, back in the day you could be a factory worker, or
any sort of blue-collar labourer and afford to have a stay at home wife, 4
children, a house and a car. Now that lifestyle is a luxury only the rich can
afford. What's the difference? We know it's inequality, yet for some reason
people make up all sorts of excuses and reasons for why this inequality is
somehow 'better'.

Anyhow, economics is hard enough without trying to come up with overly simple
explanations like "inequality is good because start-ups". There are start-ups
in socialist countries (France, Sweden, Finland, Denmark, etc...), in less
socialist ones (US, Canada), even in countries that barely have functional
governments. Not to mention, all the research that shows a safety net actually
contributes to entrepreneurship (in the US, that means upper-class family).

~~~
s_tec
It seems like you are actually agreeing with Paul Graham. You see the
concentration of political power and the resulting erosion of the middle
class, and you want to fix them. Great! Those are the kind of "bad" sources of
inequality the original article is talking about.

Paul doesn't want to ignore these problems, he just wants to call them what
they are. The only problem I see is that we don't have a good term to cover
all these related concepts. Alternatives like "creeping feudalism" don't have
the same ring as "inequality", even if they may be more accurate.

~~~
Mikeb85
I agree with some of what he says. His second (? the one before this) post was
pretty decent.

I disagree with what he thinks are the causes of both poverty and extreme
wealth. An apt proverb is that the plural of "anecdote" is not "data".

Generally speaking, people do not 'become rich' through entrepreneurship, nor
do they 'become poor' because they were incarcerated. We can see through
actual data, that being poor makes one more likely to commit crimes, and being
rich (or at least in the top whatever % of the population) makes one more
likely to become an entrepreneur.

PG's goal is desirable, but that doesn't make his analysis any more correct.

------
vasilipupkin
economic inequality is a mathematical fact referring to the idea that growth
in outcomes in the US has diverged over the years between various income
brackets. see this
[https://www.cbo.gov/publication/42729](https://www.cbo.gov/publication/42729)

when people say that inequality is bad, what they are talking about is that it
is bad that, even though average incomes grew a lot, incomes for the lower
brackets grew a lot less than incomes for the higher brackets. As you can see
from my link, even taking out successful startup founders ( by not looking at
1%) shows the same trend.

It is a separate discussion whether or not startups increase income inequality
( just because startup founders get rich, it doesn't mean overall inequality
has to increase because their products could raise average incomes in other
brackets by raising productivity, for example ).

But, focusing on startups is just not terribly relevant for the inequality
debate, again, as demonstrated by the fact, that there is a lot of inequality
in the 60%th percentile vs 20th percentile, which has nothing to do with
startups

~~~
vasilipupkin
I am curious which specific point downvoters think here is incorrect. I am
backing up what I am saying with data

Edit: to those downvoting, here is some more data

[http://www.motherjones.com/mojo/2011/10/one-percent-
income-i...](http://www.motherjones.com/mojo/2011/10/one-percent-income-
inequality-OWS)

does it look like income growth of the 1% has much to do with startups from
this data ?

------
Alex3917
> economic inequality per se is not bad

So let's grant that economic inequality is good in some cases.

Even if this is the case, reducing economic inequality may be the most
efficient way to solve a wide variety of societal issues. E.g. how many
societies are there with high inequality where the poor aren't discriminated
against or pushed around by those with money?

Sure, in theory inequality isn't the same as:

\- Regulatory capture

\- The political system being owned by the super wealthy

\- Endless war

\- Environmental atrocities

\- The dismantling of public infrastructure

\- The completely dysfunctional healthcare system

\- The privatization of public resources

But 'not the same as' doesn't mean unrelated, since inequality is what enables
these things to occur. E.g. the rich can bribe politicians to pass laws that
make them richer by allowing them to poison low-income minorities or whatever.
And while reducing inequality may not be the perfect solution for the reasons
stated, it's not clear that a better solution exists. (Sort of like how
democracy is the worst form of government, except for all others that have
been tried or whatever.)

Even if economic inequality is intrinsically good, which I think it is, it
doesn't follow that reducing inequality is bad.

~~~
jamiequint
Its almost certainly true that well-implemented policies of reducing income
inequality would fix some of these problems, but that completely ignores
negative side effects. The negative side effects are what makes that type of
high level policy making bad.

~~~
Alex3917
> that completely ignores negative side effects

What I'm saying is that if you take all the possible wealth distribution
curves, the efficient frontier probably won't be at the extremes. That's not
ignoring the negative side effects, rather it's cost-benefit analysis.

------
hcayless
I don't buy the assertion that startups increase economic inequality. I mean,
I suppose some of them might, but a few people getting rich by producing
something of value doesn't equate to an increase in general poverty. A startup
might even improve economic inequality. Depends what it does. The whole
argument seems to boil down to a fear that improving the general welfare might
involve slamming the brakes on innovation, but I don't see anyone making the
argument that we should do that. If anything, poverty, and its associated
problems, is itself a huge brake on innovation. How can you innovate if you're
worried about feeding your family tomorrow? Wouldn't people be more likely to
take risks like startups if they were less worried about the downsides, like
losing their health insurance? Wouldn't there be more innovation if people
didn't have to worry about starving because of going without a steady income
for a couple of years?

~~~
romaster
I'm a little bit surprised that the closing remark of his blog post was "even
if you remove all the bad causes, the good causes far outweigh the bad and
will cause inequality to further increase."

I guess if one so brazenly believes that to be true, then it must naturally
follow that PG would support further inequality.

So it is not that he is against economic inequality per se. He is simply sure
(perhaps falsely) of its causes, and believes that if those causes are the
majority drivers, then the benefits outweigh the cost.

If he were to be proven wrong about the breakdown of these causes... his
opinion might shift.

------
jarjoura
If I'm not mistaken, Paul Graham is asking to leave "us poor" startups alone
because they _need_ the freedom for founders to get rich, otherwise few would
do it. Am I understanding that right?

Quoted from his original essay: "And while getting rich is not the only goal
of most startup founders, few would do it if one couldn't." [0]

I just can't sink my teeth into thinking that's a universal truth. It's true
right now because that's the current rules of the game. You build a company
and then make a ton of money, otherwise, you failed. Yet, there are 500+
reasons someone or a couple of people go into a company together, but money
being the default driver, seems really cynical to me if you think that's
needed to keep people starting companies.

[0] [http://www.paulgraham.com/ineq.html](http://www.paulgraham.com/ineq.html)

------
namenotrequired
> But economic inequality per se is not bad. It has multiple causes. Many are
> bad, but some are good.

It also has multiple consequences. Some are good, but some are bad.

Something doesn't become good or bad by its causes, but by its consequences.

------
BenoitEssiambre
Ok but startups don't get a free pass in this debate.

Startups that capture wealth by creating value that wouldn't exist otherwise
are, in my opinion, unquestionably good, even if they increase inequality.

But don't some of them try to capture wealth by striving to get monopolistic
positions using network effects, mergers and acquisitions and such? Didn't
Peter Thiel even write a book promoting this?

Capturing wealth through a monopoly on things that would otherwise have been
created by competitors and that would yield lower margins if it wasn't for the
monopolistic features of the specific market, is not that ethically different
from theft.

A lot of technologies are a small jump from previous building blocks. Bob Kahn
and Tim Berners-Lee are responsible for a huge core part of the innovations
Facebook and others rely on but it's Zuckerberg who made all the money because
he captured a natural monopoly, not because he created more value than Kahn
and Berners-Lee. Twitter is a simplistic and obvious product that someone else
would have created a long time ago if it hadn't already existed. If it wasn't
for network effects, how do we know there wouldn't be another social network
providing 10x the value to its users than the current ones? The monopolistic
network effects _prevents_ this kind of innovation through competition.

I'm not saying people shouldn't get a chance to be well compensated for the
risk they take and the effort they put but even in startup world, at a certain
level of very high inequality, when inequality reducing free market
competition forces don't seem to be materializing for long periods of time,
suspicions of an unethical and detrimental ecosystem can reasonably be
justified.

------
rntz
> And in the unlikely event I left no holes, some will say I'm backpedalling
> or doing "damage control."

There's nothing particularly wrong with doing damage control if you think
people have misunderstood or misrepresented you. And PG _is_ doing damage
control here. Why else post such a "simplified version"?

------
jgalt212
PG is still out of touch. His cited example about a plan to move forward:

> For example, instead of attacking economic inequality, we should attack
> poverty

The problem in America, and the world, is not poverty. In fact, by some
metrics poverty rates have never been lower[1] and by others it's near all
time lows.

The problem is the oligarchs avoiding taxes, while everyone else (even plain
old millionaires shoulder the burden for them). PG reaps obscene levels of
benefits from the carried interested tax loophole, so he avoids citing a plan
to attack this specifically other than saying tax loopholes in general are
bad.

Shame on you PG.

[1] [http://money.cnn.com/2015/10/05/news/economy/poverty-
world-b...](http://money.cnn.com/2015/10/05/news/economy/poverty-world-bank/)

------
pfooti
_" And unlike high incarceration rates and tax loopholes, startups are on the
whole good." \- pg._

I'm not sure I buy that claim outright. I'm not sure I like asking whether
THING is good based on claims about the goodness of CAUSE OF THING. If hugs
caused cancer, would that make cancer good? Not certain, but I do believe it
would make hugs less common.

The problem with an argument like this is that it does nothing but preach to
the proverbial choir. Either I buy into pg's worldview about where notional
value is derived, or I don't. If a startup founder gets rich creating some new
piece of technology, do they _deserve_ the sudden windfall cash that they
received? Did the VCs who provided the capital deserve that windfall? Do the
workers who actually created a lot of the value in question through their
labor get compensated proportionally to the value they built?

It's not an easy question to answer in the long run. Regardless of the
goodness of income itself generated from VC processes, it continues to be
worthwhile to question the economic engines that run off of global income
inequality. When it makes economic sense to grow cotton on one continent, ship
it to another for manufacture, and ship it to yet another for sale as a
T-shirt, there's something fundamentally inequitable about how we pay people
for their labor.

That isn't to say I've abandoned capitalism for outright marxism. But it is
hard to really think about "attacking poverty" in any meaningful way that
doesn't address the marked difference in wealth and potential to earn wealth
between rich and poor, especially in a globalized, post-(and still)-colonial
world.

So, sure generating _any_ income in any way will cause income inequality by
pg's formulation, whether it's billions from a lucky unicorn IPO or tens from
a day's labor at a US minimum wage job, or far, far less making shirts in
Bangladesh. The disparity is still something to remark on, especially because
that disparity is really one of the major markers of power over one's own
future opportunities.

~~~
giardini
_> do they deserve the sudden windfall cash that they received? Did the VCs
who provided the capital deserve that windfall? Do the workers who actually
created a lot of the value in question through their labor get compensated
proportionally to the value they built?_

And does the owner of capital (investor, banker) _deserve_ the profit (s)he
gains? As jivardo_nucci said once on this very forum:

 _The simulation studies of Bouchard & Mezard show that, regardless of initial
conditions, wealth distribution ends up a Pareto distribution with a small
percentage taking almost all of the goods. The take-away of Bouchard &
Mezard's studies: the very rich aren't rich because they earned it (i.e.,
because they are skillful or knowledgeable), they are rich mostly because they
are lucky.

All my life I've assumed that, when people had a going concern or were rich,
that they _earned_ their wealth. But Bouchard & Mezard says they're, for the
most part, simply very lucky.

If luck, rather than skill, is the source of one's wealth, then has one
"earned" that wealth? How can one lay exclusive claim to something given by
chance? I would contend that no such claim can be made.

In particular, I would contend that income gained through luck is fair game
for government acquisition through taxation, and if it is possible to
distinguish that portion of wealth due to skill from that due to luck (and
such appears possible), then the "lucky" portion is open game for acquisition
to be spent or redistributed as decided by the powers-that-be.

Wealth Condensation: Why the Rich Get Richer (and the poor poorer):
[http://iwillknow.jesaurai.net/?p=387](http://iwillknow.jesaurai.net/?p=387)

The Mathematics of Inequality:
[https://www.austms.org.au/Jobs/Library4.html](https://www.austms.org.au/Jobs/Library4.html)

FWIW Bouchard & Mezard are not the only researchers whose models say this:

Chance helps the rich get richer, simulation study finds: [http://www.world-
science.net/othernews/110722_chance.htm*](http://www.world-
science.net/othernews/110722_chance.htm*)

------
pervycreeper
Really the correctness of this argument hinges on what definition of
inequality one uses. A single factor like standard deviation, for example,
tells one much too little. Outliers have a disproportionate effect on this. On
the other hand, the gap between what might be called "poor", and "middle-
class" affects almost everybody, and the power imbalance that results from
this difference leads to many negative effects for those who can't keep up. In
summary: the disproportionate influence of the super-rich, and the relative
condition of the lower classes are separate issues that are both sloppily
discussed using the term "income inequality".

------
analog31
Obviously, nothing with multiple disparate causes and effects is bad _per se_.
But inequality does have at least one negative effect, which is that it
distracts the attention of institutions (government, press, academia) towards
serving and protecting the interests of the wealthy.

In my view the rhetoric of "attacking" inequality is overblown, even if I'm
guilty of having used it myself. Instead, let's just say that some form of
redistribution -- to use a broad term -- is not an "attack" _per se_ , but
simply a practical way to maintain a decent society.

------
rudi-c
This is a pretty neat response to a debate that has had a lot of strawmen and
arguing against statements nobody said.

The longer an essay is, the further apart the main arguments are and the
easier it is to forget parts of the essays. The ones we remember most
saliently, of course, are the controversial claims that trigger an emotional
response, not the paragraphs of simple history fact-stating that builds up to
the conclusion. As a result, responses to the essay tend to strip out the
context of claims and argue against them in a vacuum.

------
ilostmykeys
In its effort to empower the individual, capitalism has failed to scale. It's
not a good design. If it was it would scale to empower most of the 7 billion
inhabitants of this planet. What it has managed to do is empower a tiny
fraction of the population at the expense of the rest of humanity. Those whom
it empowered are neither the most intelligent nor the most helpful. They're
just skilled opportunists; our genetic inheritance from our reptilian cousins.
(Please no jokes about PG being a retile)

~~~
giardini
_Unfettered_ capitalism has problems. Proponents like it's clean, easy models,
but capitalism needs restraints. To blindly claim otherwise at this time in
history is foolish and shows one is in a state of denial.

 _They 're just skilled opportunists; our genetic inheritance from our
reptilian cousins. _

More likely from our primate ancestors, don't you think?

------
nso95
People want higher taxes in the rich. They also want better access to
healthcare, education, and higher wages. This is what the people complaining
about economic inequality want.

------
balsam
Only the last paragraph is original, but it is probably also wrong. So PG is
saying that the major cause of inequality is technological advancement. But
for example see that economic inequality decreased after WWII, but is it
really that farfetched to imagine that technological power did not decrease
during the war years? (E.g. Manhattan Project.) It is also not hard to imagine
that wars would distribute technology more evenly.

~~~
tempestn
There are multiple factors that affect inequality, so a short term decrease in
inequality can certainly still occur while technology continues to advance. In
his other recent essay[1], pg goes into more detail on why inequality
decreased in the postwar years, despite advances in technology.

[1]: [http://www.paulgraham.com/re.html](http://www.paulgraham.com/re.html)

------
giardini
_> "But economic inequality per se is not bad."_

Nope, it's not bad until you need to buy something!

(BTW is this PG post not some strange form of denial?)

PG seems to forget about the infrastructure (bankers, financiers, venture
capitalist firms, etc. - the entire financial industry) built around startups,
as if the entrepreneur were a Jesus figure responsible for it all and who
might somehow be crucified for it all. Psychologists call this a "grandiose
delusion". Nonetheless it is glorious hogwash - an entrepreneur w/o the
infrastructure is merely yet another nutball to be kicked off the front
doorstep of venture capitalists. And as the dotcom boom and bust showed us, no
entrepreneur is necessary at all - greed and a placard with a catchy ".com" on
a door was often enough to make a fortune!

Good news: PG need not be concerned that he will be run to ground ("hunted",
in his terms) before his bankers are; there are far more (and far wealthier)
bankers, profiteers, and their employees than successful entrepreneurs,
certainly enough to keep the masses busy for a decade should the French
Revolution visit Silicon Valley!

 _> "The great concentrations of wealth I see around me in Silicon Valley
don't seem to be destroying democracy."_

They are: they work for the NSA, the CIA, the FBI, for hundreds of government
agencies, for Google and Facebook. They have blindly destroyed privacy in both
in our personal and social behavior. They want more. One need only open one's
eyes.

------
nickbauman
Economic Inequality Simulation: The Simplified version

[http://nbviewer.ipython.org/url/norvig.com/ipython/Economics...](http://nbviewer.ipython.org/url/norvig.com/ipython/Economics.ipynb)

"Many have preconceptions about how economies work that will be challenged by
the results shown here"

~~~
rudi-c
This is cool. One pet project that I want to do (one day...) is to generate
what a wealth distribution graph based on answers to a questionnaire such as:

\- How much more should a 50 year old earn more than a 20 year old on average
ideally? \- How much should the lifetime earning of someone holding a PhD be
over someone with only a high school degree - there should be at least some
premium for going through extra years of school right? \- What's a reasonable
amount of inequality due to people choosing a career in which they will be
happier, at some cost to the paycheck? \- Should people be allowed to work
more (e.g. 50h/week) if they wish? This will increase inequality. \- etc

A lot of those questions would be very difficult to model, but I bet the graph
would look a lot more inequal at the end than most people envision their
"ideal" graph to look like (which is shown in this classic video on wealth
distribution:
[https://www.youtube.com/watch?v=QPKKQnijnsM](https://www.youtube.com/watch?v=QPKKQnijnsM))

------
x5n1
Power corrupts. Absolute power corrupts absolutely. Money is power.

It's a very complicated issue. The Capitalist class does deliverer Capitalist
development. But at the same time it immediately captures most of the value
that it delivers leaving a system of servitude called employment... and
systems which are homogenous but yet are functional in the form that is found
acceptable to its logic of production and consumption through efficiency.

On the other hand the Capitalist class because it has money and therefore
power, at times acts in corrupt ways destroying the environment, taking away
people's rights, making things unnecessarily hard.

Given its fight with Communism, it was not as if it played it cool, sitting
back and watching and saying, maybe Communism can do certain things better.

Instead it immediately went to war demonizing and fighting it as much as it
could.

It seems as if the Capitalist class can only be subdued when it feels that its
own game is over. And it seems like we have to let it do just that.

People are greedy and have many social problems. This was one way of ordering
them. There are a million other ways of ordering them. Whose time will soon
come.

Just sit back and watch the show.

Paul is fan screaming for the home team, when the game is over and they've
won. But soon there will be no more games. Their time has come and gone.

------
gajomi
I agree with the basic claim of this response: economic inequality itself it
not a problem. I don't really think I would care too much about an extravagant
billionare class if the lower classes had 100K household incomes in a robust
democracy where the proletariat would have have fair representation. The
problem of poverty, generalized, is a problem of access to essential
resources. What counts as "essential" of course might be debatable, but the
metric for improvement should be about reducing the fraction of the population
that doesn't have access to essential resources. However...

>We will not do a good job of fixing the bad causes of economic inequality
unless we attack them directly.

I would replace "will not" with "may not". If the "good" and "bad" forces at
work are sufficiently correlated in their ultimate causes then a blunt metric
of reducing overall inequality might turn out to be a nice strategy.

EDIT: In particular if per capita income is known then the total variance and
behavior in the tail may place strong constraints on the fraction of the
population below a threshold.

------
wamatt
I think for me a large part missing from the discussion is power inequality.

Which, as it happens, nearly always is entwined with wealth and income
inequality.

The ultra-rich get to have a megaphone for their agendas, ideologies and
opinions, with a level of political influence none of us will likely ever come
close to seeing.

------
spydum
'I didn't have time to write a short letter, so I wrote a long one instead.'
\-- Mark Twain

------
balsam
But it is the relative balance of technological advancement versus
technology/knowledge distribution that matters here. Technology distribution
would decrease inequality and not necessarily at the expense of technology
advance either.

------
LordHumungous
>startups are on the whole good

Are they? Seems to me that question is far from settled.

------
balsam
A better last paragraph which would make sense is: if technology distribution
lags behind technology advancement, economic inequality would increase. But
that seems like a tautology.

------
midnitewarrior
This is a disappointing article. Economic inequality created by startups is
~0.0001% of the problem.

~~~
vasilipupkin
exactly the point I tried to make with very specific data above and got
downvoted :)

------
egusa
great article. i know it was written to clarify earlier misinterpretations,
but i really found i took away more from this one than from the prior article.
it reminds me of the mark twain quote "If I had more time, I would have
written you a shorter letter.”

------
tedmiston
I wish we had a cliff notes version for every PG essay. It's a nice way to
make good ideas and arguments more approachable when you have just a few
minutes to read.

------
spikels
Paul Graham TLDRs Paul Graham because people can't resist misinterpreting him.
Doubt it will help...

------
sly_foxx
How about fixing dating/sexual inequality? You know, one guy sleeping with 15
girls is not fair to all the losers/ugly_guys like me who can't get a date. We
have to redistribute partners and make sure that even the unattractive guys
can get a date. We'll have to kidnap women who are into attractive/successful
guys and then take them to losers like me. You think this is rape? It's not,
just like taxes on goods are not theft, because the only reason attractive
people can get partners is because a lot of unattractive people like me
contribute by building roads, bridges, apps, infrastructure, schools, which
enables attractive people to arrange dates and then use roads to get there. We
are also in the friend zone all the time, while the attractive guys are
getting deep inside our female friend. They have to give something back. I am
proposing a 'sexual tax'.

ALSO, since pretty people inherited good genes and didn't work for it, I also
propose taxing physical beauty by making pretty people look uglier by
30-40%(call it 'inheritance sexual tax'). That way, already ugly people will
look great in comparison.

