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The Refragmentation (paulgraham.com)
852 points by urs2102 on Jan 2, 2016 | hide | past | web | favorite | 444 comments



A very fascinating article that I have truly enjoyed reading minus the last 10 or so paragraphs where Paul expressed it unequivocally that he's a status-quo warrior and that nothing can be done to remedy the problem of the ever widening gap of income inequality in the global economy and more specifically in the US and that it's a "natural" product of the state of affairs in our world. A classical example of « the naturalistic fallacy » [0].

Also, it's also worrying the degree of infatuation or affection for the early 20th century years with central planning of the economy, crony capitalism, robber barons, an all-powerful big government, centralization and concentration of power at the hands of a few, regimented and uniformed society ...etc.

No leftie is arguing or longing for any of these policies. What we're looking for is just more equality in economic opportunities and esp capital and that distribution of capital to be more fair across all the classes and not to be a privilege only for rich and highly connected people.

That's how we envision the solution to fix this problem of "fragmentation" as he put when it exactly is more like a "segregation" problem but not based on racial or cultural factors but on economic one into two completely separate societies between the haves and have-nots, between the 1% and the 99% of the population and it's getting worse and uglier by the day.

[0]: https://en.wikipedia.org/wiki/Naturalistic_fallacy


The last paragraph was the whole point:

>I worry that if we don't acknowledge this, we're headed for trouble. If we think 20th century cohesion disappeared because of few policy tweaks, we'll be deluded into thinking we can get it back (minus the bad parts, somehow) with a few countertweaks. And then we'll waste our time trying to eliminate fragmentation, when we'd be better off thinking about how to mitigate its consequences.

A few people making rules didn't cause this to happen. It was the entire world reacting to things the entire world did for the past hundred years. A few people making rules can't stop that kind of force, even if they have good intentions for everyone else.

>What we're looking for is just more equality in economic opportunities and esp capital and that distribution of capital to be more fair across all the classes and not to be a privilege only for rich people and highly connected people... That's how we envision the solution to fix this problem

He mentions this:

>You can mitigate this with subsidies at the bottom and taxes at the top, but unless taxes are high enough to discourage people from creating wealth, you're always going to be fighting a losing battle against increasing variation in productivity.

I think you're looking at a lower scale than pg. From how I read it, he's saying that yes, you can do a little bit to ease the inequality, but you're not going to fix it unless you stop all technology from happening or you stop paying people their market rate. He's saying income inequality is a feature of technology allowing people to be paid their market value and that you can't 'fix' that; the most you can do is take from people at one end and give to people at the other end.


> He's saying income inequality is a feature of technology allowing people to be paid their market value and that you can't 'fix' that.

The thing that I worry about is whether this feature is destroying the conditions that allowed it to become a feature in the first place.

He mentioned the example of Apple and IBM, which I see as illustrative in another way. Would personal computing devices have become popular in a highly fragmented world? According to Wikipedia, the Apple II cost over $5k, accounting for inflation. Absent a healthy middle class, which was created by the era of conformity and relative income equality, would there have been enough consumers to create a market for a $5k computer? As we see income inequality rise, are we not also going to see the opportunity for wealth creation diminish as capital congregates in the hands of a class that largely conserves it?

I think we're already seeing this. As an exercise, try to think of something non-niche that costs around $5k, the price of the Apple II, for which there isn't some form of financing (auto/home/college loans and such). I'm hard-pressed to think of something and I believe it's because there's an increasingly small number of people that can afford such a product. We're already losing the conditions that allowed Apple to introduce the personal computer. There's a long ways that this trend can go before it becomes untenable, but the end result of income inequality will be an environment where it's quite difficult to get paid your market value because the market that funds the employment market will have dried up.


>He mentioned the example of Apple and IBM,

And on that, as on so much else, he's more than a little wrong.

Apple and Microsoft simply couldn't have happened without the mega-corps - not least HP, but also IBM, and Fairchild and its spin-offs - which only existed because of post-war military and civilian "socialist" state support for technology.

By the mid-70s that support had been influencing economic policy for more than forty years.

Apple was a product of that system, not a cause of it. Companies like Apple do not happen in a pure deregulated neoliberal market paradise because markets don't have the kind of strategic intelligence that can fund projects like Whirlwind, TX-0, and the original Arpanet - all of which are essential steps on the road to making an Apple or a Google.

>Absent a healthy middle class, which was created by the era of conformity and relative income equality, would there have been enough consumers to create a market for a $5k computer? As we see income inequality rise, are we not also going to see the opportunity for wealth creation diminish as capital congregates in the hands of a class that largely conserves it?

And this is why they can't happen. You can't build your economy by impoverishing your customers with hand-wavey idealism about "market rates." If you try that, at best you run out of customers, and at worst you get a violent revolution.

The smart way to understand the economy isn't as a number of acquisitive centres for a vague thing called "money", but as a way of amplifying collective intelligence and distributing the gains as widely as possible. Status games for their own sake - which include most purely speculative and acquisitive activity - are the opposite of collective intelligence because they concentrate acquisition instead of distributing it.

You can get localised negentropic blips in a speculative economy, but the overall trend will still decrease collective opportunity over the medium/long term rather than increasing it.


Interesting perspective. Thanks.

Companies like Apple do not happen in a pure deregulated neoliberal market paradise because markets don't have the kind of strategic intelligence that can fund projects like Whirlwind, TX-0, and the original Arpanet - all of which are essential steps on the road to making an Apple or a Google.

Going even further, corporations themselves do not happen in the absence of regulation, and I think that the granddaddy of entitlements -- liability limitation -- is necessary in order to gather enough capital to form great ventures like chip manufacturing.


> Apple was a product of that system, not a cause of it. Companies like Apple do not happen in a pure deregulated neoliberal market paradise because markets don't have the kind of strategic intelligence that can fund projects like Whirlwind, TX-0, and the original Arpanet - all of which are essential steps on the road to making an Apple or a Google.

The book Doing Capitalism in the Innovation Economy [1] really hammers in this point. I highly recommend it to people who have an interest in this. I wrote a review that captures a lot of my reflections on the book itself and the subject matter [2].

[1] http://www.amazon.com/Doing-Capitalism-Innovation-Economy-Sp...

[2] http://www.amazon.com/review/R2SCHS5SXNDF30/ref=cm_cr_dp_tit...


>Companies like Apple do not happen in a pure deregulated neoliberal market paradise because markets don't have the kind of strategic intelligence that can fund projects like Whirlwind, TX-0, and the original Arpanet - all of which are essential steps on the road to making an Apple or a Google.

While I can agree that private entities/markets lacked the capability to fund transformative projects during most of the 20th century, I'm hard-pressed to reasonably apply that to the modern context.

It seems that the most forward thinking, transformative ideas are indeed coming from the private sector markets (e.g. SpaceX), and with the enhanced abilities that our technological age affords to solo individuals, it seems that even small teams may be able to create the next transformative, paradigm-shifting project.


Leaving the buzzwordy hand waving in the last paragraph aside, spacex gets the majority of its revenue from the government.


... for services rendered, at a price no one else is able to compete. Or so I've heard. Correct me if I'm wrong(the PR machines are not to be underestimated). Or don't, your choice.


I wouldn't call it buzzwordy hand waving, mostly because it actually means something intelligible. But regardless, so what if SpaceX gets the majority of its money from the government? It's operating as a private entity and it's revolutionizing space travel, and the funding coming from the US government is not for research and development, but for actual services rendered. Similarly, do you believe that the next giant leap forward in general AI is going to come from government? It may, but it also might come from the private sector. I'd say that the same goes for the future's version of Arpanet (something the public doesn't see coming but eventually changes everything).

Because technology enables small teams to make big changes that were once only within reach for large entities like the government, the idea that markets don't have the strategic intelligence to do big, long-term thinking, just seems bunk to me. Also, look at the AI lab announced by Altman and Musk, or look at YC's new long-term research lab project. These could conceivably produce the next Arpanet, don't you think?


> As of May 2012, SpaceX had operated on total funding of approximately $1 billion in its first ten years of operation. Of this, private equity provided about $200M, with Musk investing approximately $100M and other investors having put in about $100M (Founders Fund, Draper Fisher Jurvetson, ...).[47] The remainder has come from progress payments on long-term launch contracts and development contracts. As of April 2012, NASA had put in about $400–500M of this amount, with most of that as progress payments on launch contracts.

40-50% of funding from NASA contracts. Yes, this isn't necessarily the same as a direct subsidy, but, in fitting with the article:

"Many of the mid-century oligopolies had been anointed by the federal government with policies (and in wartime, large orders) that kept out competitors."


Great comment, especially the first paragraph. All one needs to do is watch the PBS documentary "Silicon Valley" to see how true this was. The space race was the driving force behind Fairchild and its many "children" that went on to become what is now Silicon Valley.


I doubt the Apple ][ was a middle-class good. Its killer app was VisiCalc, which households had little use for. Back then a computer was nothing but a toy for a household. The Apple ][ was a bargain for businesses, not households. Certainly it was not a middle-class good in the same way that an iPhone is.


The middle class has shrunk because more people have become rich. So it seems that today there are greater opportunities to sell expensive hardware, particularly since even the lower classes are (in absolute terms) richer than the middle class of the Apple II era.

http://www.pewsocialtrends.org/2015/12/09/the-american-middl...

As for 5k products, like fancy drones, 3d printers or high end bicycles, was the apple II non-niche?


> So it seems that today there are greater opportunities to sell expensive hardware, particularly since even the lower classes are (in absolute terms) richer than the middle class of the Apple II era.

What has happened is instead technology allowed some luxury products to be commodized and available to everyone. I doubt multi-billionairs build their own OS-es, cell phone towers, hardware, batteries, support from scratch. They buy an iPhone. Someone on food stamps could concievable save money and still get an iPhone. They both have a luxury product so to speak. But this is a cool anomaly. It doesn't happen with cars, housing, job opportunities, healthcare, clothes, safety, free time, food, etc.

So I think looking what kind of tech products are avaiable to everyone doesn't work as an argument regarding inequality. What about inflation adjusted salary, isn't that a better metric to look at? Or say the cost of healthcare or housing as percentage of wages... defintely not the type of computer and printers people can get.


75% of poor Americans own at least 1 car, and 45% own their own home. Most poor people have copious amounts of free time; only a fraction work.

http://www.census.gov/prod/2008pubs/h150-07.pdf

Of course, this is tangential to curun1r's claim, which is that somehow an inability for consumers to purchase new technologies would hinder innovation.


Are you sure "own" is the correct word? Those people are completely debt-free with no car liens or mortgages?


I looked at the linked document.

The figures are as follows (all in thousands):

14,157 units below the poverty line (12.7% of all units)

5,566 of those Owner occupied (39.3%)

3,191 of those owned "free and clear" (22%)

So his 45% claim isn't even true to start with. It falls to 22% when you consider full ownership.

Seeing yummyfajitas make factually incorrect claims is disappointing but not surprising.


Sigh, it is hard for me to imagine that this comment was made in good faith.

First of all, owning "free and clear" is hardly the expected meaning of ownership in the context of cars or especially houses in the US. I have a mortgage and I still say I own my house. When I told friends I was buying my house, I expect >90% of them assumed I was getting a mortgage. The government reported "homeownership rate" certainly does not exclude households with mortgages.

Second of all, ignoring semantics, the original context was a conversation about whether a significant number of households being unable to afford technology like a $5K computer would stifle innovation. Innovation probably doesn't care whether customers are in debt or not, so this is still perfectly decent evidence to cite about the spending capacity of poor households.

"Disappointing but not surprising". Sigh.


I did misremember the 45% vs 39% number (my notes on that report transposed two separate stats), but I'm assuming that by "factually incorrect" you mean referring to a mortgage holder as an owner.

If so, do you also consider the Census (whose terminology I used) to be making "factually incorrect claims"?


The document (like most statistical documents published by the US Govt) defines it's terms - why don't you go to section A-1 and check yourself?


What those numbers tell me is that most retirees are considered "poor" as we currently measure such things. Also that they tend to own homes and not work. None of that is surprising.

Citing any sort of statistics like that without at least breaking it down by age band is pretty pointless, in my experience.


Source for that first sentence?


The link provided. Look at the charts, not the mood affiliation.


> As an exercise, try to think of something non-niche that costs around $5k, the price of the Apple II, for which there isn't some form of financing (auto/home/college loans and such). I'm hard-pressed to think of something and I believe it's because there's an increasingly small number of people that can afford such a product.

If someone can afford something with financing, they can afford it without. The difference here is not wealth or income, it's spending and savings habits.


So, someone who needs a car to get to work at their new job but has no existing wealth can afford the car equally with or without financing, just based on spending and saving habits???


Cars specifically excluded by the poster to whom I replied. But the sibling comment to yours made exactly the same point about housing. Should I have highlighted the quote from the grandparent post better?


Probably that would have been good. FWIW, I think it's preferable to never need financing ever, and it really ought to be only used for things that are investments (real estate, education, expenses that relate to accessing or building new work/business) and never for pure consumption.

So, I get your overall point.

The other thing to recognize is that being poor is MORE EXPENSIVE than being rich. This fundamental fact is often missed by richer (or just middle-class) folks who think that poor people could do better by saving and being frugal etc. Well, if you have no liquid cash at all, you can't even take advantage of quantity discounts or other opportunities, but you still need to eat and have clothes. A decent amount of wealthier people in our system get wealthy via taking advantage of the desperation of poor people, and until that changes, some amount of criticizing the personal financial decisions of poor folks is just victim-blaming.


I think financing - provided you can obtain it at a good rate, which of course you can't if you're poor - makes sense whenever the benefits of a purchase are expected to be spread out over time.


That's only ever true if you have other potentially-higher return investing your resources in other ways or if you're getting into talking about risk issues and bankruptcy law.

If you have enough cash to buy a car and enough left to be an emergency buffer and cover other needs and don't have something to do with that cash which promises a higher investment return than the interest on a car loan, then it does not make sense to get the financing. It doesn't matter that the value of the car to you is spread out over time. Buying the car outright is better unless you needed the money for something else or didn't have it or had some investment that would outpace the interest on the loan.


Allow me to introduce you to the 2008ish housing bubble.


> A few people making rules can't stop that kind of force

Can you elaborate please on what kind of force at work? Market forces?

Also, do you have any idea why he's bringing up the subject of "social cohesion" repeatedly throughout the piece? Is social cohesion a hot button issue in the US now that warrants more attention from the general public?

Because I believe that as long as the country is not at war with or in a national state of emergency or in other words, citizens are facing any kind of existential threat, the talk about social cohesion is meaningless and could be divisive as the term is tainted with not so favorable concepts from nationalism, nativism and the likes.

> unless taxes are high enough to discourage people from creating wealth

I don't want to discourage rich folks from creating wealth. I just want them for now to pay their fair share of taxes and close all the loopholes that fuel this income inequality gap and distribute more resources to the least privileged and most disfranchised groups in the society to alleviate their situation.

As for technology has an inequality bias to it, I have to disagree with this assertion and point out that the availability of capital or lack thereof is the main catalyst in this equation not technology.


> the availability of capital or lack thereof is the main catalyst in this equation not technology.

You mean if you can't afford a computer and an AWS account you can't get started? Sure, maybe not, but it's a far cry from the capital you needed in the 1960s to get started. I bet a lot of the readers of this forum know people personally that have made a million dollars or more with their laptop (to a first order approximation).


Most of those people received educations costing upwards of $60,000.


I love HN as much as the next person but suggesting that the people who hang out here are somehow representative of anything except for the most lucky, wealthy, and privileged members of our society seems a bit strange.

The point you're making about tech startup costs is true, of course, although it looks like statistically speaking the chances of hitting it big are only slightly better than 'will become a famous singer' or 'will play for the NBA.'

But even if we assume that an average human with a laptop and AWS can now make it big, it seems like in the meantime so much of the other things that working-class people had going for them in the 1960s -- being able to support a family on construction wages, for example -- are gone.


> he most you can do is take from people at one end and give to people at the other end

But he argues before that point that tax rates and tax receipts are very weakly correlated. This would seem to be a limiting factor governing how effectively a government can flatten inequality through wealth redistribution.


Seems more like a confusion over how much income to the top comes from wages vs. capital gains. Looking Graham's own income sources, he should have pointed this out.

The capital gains rate under Eisenhower was only 25%, while the top bracket was 91%.

And the corporate tax rate under Eisenhower was only 50%.

Very few of the great sources of dynastic wealth in America were built by accumulating wages under normal income rates.


> No leftie is arguing or longing for any of these policies.

This is not correct. If you read "Capital in the Twenty-First Century", the book most lefties are pushing nowadays, you'll see there is a chapter with recommended solutions.

The recommended solutions are things like government control of CEO salaries, confiscatory taxes on the rich (e.g. not taxes to pay for something, taxes to specifically change their status from rich to middle class, something the author even says wouldn't even bring in useful income for the government because there are so few rich to confiscate from), etc.. So their are central planning policies being recommended indeed.


> No leftie is arguing or longing for any of these policies.

To the extent they aren't being argued for (I won't comment on whether they are "longed for" except to say that you don't seem to have read many leftist writings), that's because they are now the norm, so the burden of argument is now on those who want to change them.

For example, it is now considered the norm that the government will mess with the money supply and the banking and financial system whenever it feels like it, in order to implement centralized control of the economy. Nobody has to argue for it; the burden of argument is on those who aren't sure things like the Fed printing money are a good idea (and most of the time their arguments aren't even heard, they're dismissed as crackpots, even though the worst depression in history occurred after the Fed took control of the money supply).

Also, it is now considered the norm that larger and more centralized government is better; the US Federal government, the EU, etc. People talk about a single world government as though it were a natural next step. Nobody has to argue for any of these things. The burden of argument is on those who think centralization of power has done more harm than good (and again, most of the time their arguments aren't even heard, they're dismissed as crackpots).

> What we're looking for is just more equality in economic opportunities and esp capital and that distribution of capital to be more fair across all the classes and not to be a privilege only for rich and highly connected people.

And Graham's point is that, even in a perfect world where economic opportunity and access to capital was perfectly equal, there would still be huge variations in wealth, simply because there will be huge variations in how well people take advantage of economic opportunity and access to capital in order to create wealth. And the more technology advances, the larger the variations will be, because technology amplifies the differences in productivity between people.

So by all means, fight for a fairer world in which there is equality of opportunity. But don't measure your success by equality of outcome. Unfortunately, equality of outcome is exactly how "success" is measured by basically everyone. And we have "lefties" to thank for that.


> No leftie is arguing or longing for any of these policies. What we're looking for is just more equality in economic opportunities and esp capital and that distribution of capital to be more fair across all the classes and not to be a privilege only for rich and highly connected people.

> That's how we envision the solution to fix this problem of "fragmentation" as he put when it exactly is more like a "segregation" problem but not based on racial or cultural factors but on economic one into two completely separate societies between the haves and have-nots, between the 1% and the 99% of the population and it's getting worse and uglier by the day.

This kinda reads like word salad to me -- I have absolutely no idea what concrete policy changes it's meant to imply.


Revert tax policy back from an effective sub 15% at the top to far more reasonable levels.

To start, SS taxes apply to all income levels. Next, you can't avoid capital gains by donating appiceated assets. Further, capital gains is taxed at the same rate as all other income.

And my personal favorite, there are zero corporate tax breaks of any kind.


And at the other end? The popular opinion seems to be that we just need to force companies to pay higher wages, i.e., put up the minimum wage. Now those low paying jobs are illegal and people end up unemployed instead, especially when the economy is bad. I'd be willing to try abolishing minimum wages and letting the government pay a subsidy to anyone making a genuine effort to work, so that they have a reasonable standard of living. I'm just not sure how you measure genuine effort, so that you don't end up subsidising people who pay each other $1/week to go surfing.


Guaranteed minimum income has a lot going for it. https://en.m.wikipedia.org/wiki/Guaranteed_minimum_income

U.S. politics has gotten strange, people complained about welfare mothers not working when that's shat the system was designed to do. IMO, hand out a small fixed amount every month, then flat tax everything last that point and get the government out of micromanaging the economy. Upside, no tax breaks makes everyone's taxes easy, downside would never get implemented.


Yeah, but I expect that to be rather expensive, requiring high tax rates with limited chance for evasion with everybody who bothers to work. The fact that it never seems to have been implemented on any large scale also makes me think it's unpopular, perhaps due to people not wanting to subsidise people who choose not to work.


There's no solid evidence that increasing the minimum wage will create fewer jobs. From Paul Krugman's review of Robert Reich's new book

> Other evidence points indirectly to a strong role of market power. At this point, for example, there is an extensive empirical literature on the effects of changes in the minimum wage. Conventional supply-and-demand analysis says that raising the minimum wage should reduce employment, but as Reich notes, we now have a number of what amount to controlled experiments, in which employment in counties whose states have hiked the minimum wage can be compared with employment in neighboring counties across the state line. And there is no hint in the data of the supposed negative employment effect.

> Why not? One leading hypothesis is that firms employing low-wage workers—such as fast-food chains—have significant monopsony power in the labor market; that is, they are the principal purchasers of low-wage labor in a particular job market. And a monopsonist facing a price floor doesn’t necessarily buy less, just as a monopolist facing a price ceiling doesn’t necessarily sell less and may sell more.

http://www.nybooks.com/articles/2015/12/17/robert-reich-chal...

There's also something similar to your subsidy idea today called the Earned Income Tax Credit [https://en.wikipedia.org/wiki/Earned_income_tax_credit]. Guaranteeing a minimum income does seem like a promising idea, but it will probably have to be tried elsewhere before the U.S. will adopt it (if ever).


> a monopsonist facing a price floor doesn’t necessarily buy less, just as a monopolist facing a price ceiling doesn’t necessarily sell less and may sell more.

The theory is that the buyers of labor in these cases will simply buy alternatives - specifically low-labor alternatives, like automation. Think of automated checkout stands at retail stores, but applied to fast food.

Time was, fuel filling stations all had attendants. Drivers didn't get out of their cars when they purchased gas. They drove up and were greeted by an attendant who operated the pump and took payment. We don't do that anymore - now that attendant job doesn't exist. There's nothing stopping that same kind of transition for many other service jobs.


This doesn't really affect your point, but gas station attendants aren't completely gone - in New Jersey, it's illegal for a motorist to pump their own gas. The purpose, of course, is to keep those minimum-wage jobs around.


Its also illegal to pump your own gas in Oregon too.

Both states are considering legislation allowing self serve pumps.


With so many exemptions to minimum wage laws (self-employed are exempted, family-owned businesses are exempted, waiters are exempted unless their tipping income does not put them over minimum, anybody working under 1099 is exempted) the comparisons become a bit muddled - a minimum wage worker who lost his position and decided to get some moving gigs or drive a few hours for Uber/Lyft certainly has "a job" for survey purposes, someone whose hours were cut certainly still has "a job", but the definitions have changed in-between.


Waiters and tipped employees are not exempt from minimum wage. They must be paid a wage greater than or equal to minimum wage for every hour they work. Tips can take that wage above minimum, but an absence of tips cannot drop their wage below.

https://en.m.wikipedia.org/wiki/Tipped_wage_in_the_United_St...


I'm aware of the mechanics, I am questioning the reasoning behind introduction of a special class of income. What's the economical argument against letting them earn minimum wage and tips?


> What we're looking for is just more equality in economic opportunities and esp capital and that distribution of capital to be more fair across all the classes and not to be a privilege only for rich and highly connected people.

My guess: Relax, what you want is well on the way. The biggies now, in Silicon Valley and Wall Street, are on the way to a land of commodity products, fungible work, high competition, and low profit margins.

Why? Because really powerful innovation they will need but don't much have.

The opportunity? For now, more in innovation.

The opportunity? Be the only guy who knows how to bake really good bread in a land of suddenly huge quantities of just dirt cheap wheat. Or, computer cycles, data storage bytes, data communications data rates per dollar are through the roof, and operating system, infrastructure, and OSS are all just dirt cheap. So, the challenge and the opportunity is to be innovative and make use of this dirt cheap wheat.

Or, 15 years ago, a Web server might have been on one or several single core processors with clock speed of 90 MHz. Now, for much less money can get an 8 core processor with a clock speed of 4.0 GHz. Let's take that ratio in performance:

      8 * 4000 / 90 = 356
So, now have one computer that does the work of ballpark 356 computers for less than the cost of one of those 356 old computers.

Find something really good for the new computers to do, guys!


"No leftie is arguing or longing for any of these policies. What we're looking for is just more equality in economic opportunities and esp capital and that distribution of capital to be more fair across all the classes and not to be a privilege only for rich people and highly connected people."

And what non lefties are asking is how do you solve income inequality without those policies?

And more fair? Fair by what metric exactly?


Income inequality is not the problem, it's a shorthand for the real problem, which is the mutual reinforcement of wealth inequality and political corruption. Rich people use their disposable income to buy political influence which they then use to get laws passed that allow them to collect rents.

The solution is to 1) roll back the corrupt laws (like the preferential tax treatment of carried interest and high-speed trading) and 2) get rid of the absurd legal doctrine established by the Citizens United decision that money=speech and hence the First Amendment applies to bribery.


"2) get rid of the absurd legal doctrine established by the Citizens United decision that money=speech and hence the First Amendment applies to bribery."

Unfortunately it's not that simple. The immediate question at hand in Citizens United was about a group of private citizens being prevented from releasing a movie criticizing a Presidential candidate during an election. A movie costs money to produce and requires a large number of people to coordinate, inevitably shading over into a corporate legal structure... just like, say, a union, or a political party, or a newspaper. So how are you going to decide which corporate legal structures are making "legitimate" political speech, whatever that means, and which aren't?


That's a fair question, and not one that can be easily answered in am HN comment.

Personally, I would have had no problem with CU if it had remained the narrow decision that John Roberts originally wanted it to be. Clearly, if the First Amendment protects Michael Moore's right to make and show a politically charged film close to an election then it protects Citizens United's right to do the same thing.

The problem came when this narrow decision was extended to a broader one that included for-profit corporations and labor unions. (For-profit) corporations and labor unions are legally "persons" in that they can act as legal entities in their own right (no pun intended) independent of any individual human. And they ultimately consist of groups of humans. But they are not humans. They are human constructs. They are technology. And treating them as if they were humans, entitled to human rights, leads to problems.

So personally, I would advocate retract CU protections (and Hobby-lobby protections for that matter) from for-profit corporations.

I'd also re-instate the historical lower limits on direct contributions to political campaigns.


When a for-profit corporation exercises free speech, it is actually the speech of its shareholders. Therefore, in the case of corporate speech it's still a group of individuals talking. The only thing you could do is put an individual limit on spending, which is then translated into a limit on corporate speech by summing up the limits of the shareholders, with foreign shareholders contributing zero, and domestic ones seeing their limit divided over their shares.


> When a for-profit corporation exercises free speech, it is actually the speech of its shareholders.

No, it's the speech of the management. The shareholders only have indirect control. The only power they generally have is to replace board members. And sometimes they don't even have that. Google, for example, is completely controlled by Larry and Sergey. Facebook is completely controlled by Zuck.


Media are all corporations, and so is ycombinator.

If you want "truth" commissions, go right ahead with removing CU, but unless that, this was a great decision.


You don't try to make the distinction, you just regulate all political speech. During election time, you set aside fair slices of media time for every candidate, where they can make their case, and forbid all political speech outside of those times. Same thing with billboards, magazine ads, google ads, etc... The different candidates will police each other. Never going to happen in the US but definitely practically achievable as it is somewhat how elections work in belgium.


That just kicks the problem up one level: now you've got to figure out the distinction between political speech and non-political speech. I'm not familiar with how things work in Belgium, but in the United States Hollywood has released a large number of explicitly political movies in the past fifteen years, such as Lions for Lambs or Bowling for Columbine or Munich, and that doesn't even get into the political subtexts that are often present even in mass-market blockbusters. Would those be forbidden under this policy?

Assuming that you do come up with a plausible way of drawing a line here, you also need to have general trust that this power will not be abused. Given the heavy politicization of regulatory agencies in the United States, a large portion of the population is worried -- not without substantial justification -- that "is this speech opposed to the party in power" will be one of the factors used to draw that line.


Political speech is jot forbidden as a whole, just political speech that appears directly related to an ongoing election.

For example, right now, you should be allowed to make a movie about how Reagan sucked, but not one about how Hillary Clinton will suck if she gets elected.


So in your ideal world, Paul Krugman is banned from writing editorials? John Stewart can no longer discuss contemporary politics?

And if a citizen notices that all the politicians are lying, he needs to just shut up about it?


> And if a citizen notices that all the politicians are lying, he needs to just shut up about it?

Honestly, does it even matter? Everybody knows all politicians are liars. It's common knowledge; it's beyond being a trope and basically a synonym. But then somehow a large part of the population still cares about what politicians have to say. They know that the politician they oppose is full of shit, and yet they feel obliged to engage with said politician's arguments. And they support another politician, conveniently forgetting that... he is a politician too, so he won't make good on their promises.

Basically, everyone got the memo. Those who were to heed it have already done so.

This is something that confuses me about humanity. The amount of denial and cognitive dissonance going on in general population's interaction with politics is so great you could fuel a power plant with it.


>Honestly, does it even matter?

It matters because, if Trump says he wants to deport all Muslims, I should be able to say thats a terrible idea without fear of reproach.

Despite the fact that all politicians may be lairs (although I personally believe thats horseshit), there are people who take the word of them very seriously.

>The amount of denial and cognitive dissonance going on in general population's interaction with politics is so great you could fuel a power plant with it.

Bull fucking shit. Just because Obama didn't end up closing Guantanamo, doesn't mean its all a farce. Political groups have a real effect, or we wouldn't be talking about this. Were the people who fought for gay rights for the past 20-odd years, living in denial? Are those pushing for marijuana reform, living in denial? Are the lobbyist pumping billions of dollars into the system living in denial?

Despite the fact that the system moves a snails pace (which may or may not be the intended goal of the system), the system does have very real effects that are caused by the tiniest nudges in certain directions.


I understand that it's common for a politician to commit to some action during his campaign, and for it not to happen when he's later elected. To that extent, I agree that it's common for politicians to be liars.

But I tend to think that it's not so much that they were planning to con everyone all along, but rather that they tried to push their ideas and failed to convince the rest of the legislature to go along with it. Maybe it died out because nobody cared about it in that year's Congress, and then the politician gets busy with other things while another year passes until the next legislature.

I imagine it's the same mechanism at work in large companies: Haven't you ever had a new manager come on board, go gung-ho on changing a couple widely visible organizational thing and getting everyone's feedback, and then calm down a year or two later once they're busy with their work? I've probably seen that at least 5 times.

However, there's a key difference: In the above situation, I would expect a politician to keep to the same general platform even if he fails to perform some specific action. The simpler statement 'all politicians are liars' leaves open the possibility that he might completely change his platform and starts actively pushing for things that he never mentioned. I don't know that I actually believe that about all or most politicians.


You act as if the problem is solely because of the politicians. In a large democracy such as the United States, many people are unfortunately simple minded and politicians that regular espouse nuance and contemplation in their campaigns are rarely successful, so the people are really getting the sort of discourse they want.


I would decide that NO corporate legal structures are making "legitimate" political speech. I am 100% comfortable with political discourse taking the form of (volunteer) blog posts, etc... rather than major motion pictures (even if "crowd" funded). Money is not speech. Speech is Speech!


A consistent point of view, but you'll have to apply it to newspapers, book publishers, and television too, just for starters. Money in politics is going to migrate towards any method of advertising that it isn't completely banned from.

I'm not convinced that content-based restrictions can be easily applied, either, even putting aside one's confidence in the regulators. To take the above example of a documentary attacking Reagan, it would be easy for it to have the subtext of "and don't vote for Mitt Romney this year, he's just like that Reagan jerk."


I don't have an online source, but paper version of Business Week magazine did a graph on monetary value of each loophole for US Treasury, and carried interest impact was miniscule (remember that it's still taxed at 23.8% vs 39.6% if it was treated as income, and with so few people taking advantage of it, the total rake-in is rather small). Not that the loophole itself makes any sense.

If you want some major impact on government revenues (which would also open doors to things like public finance of campaigns, subsidized tuition, subsidized healthcare, etc.), remove the mortgage interest deduction and standard deduction, but then you quickly find out that one man's loopholes are another man's "Washington reaching into our pockets yet again".


How are those solutions feasible when the system is captured by the wealthy?

I don't think any solution that involves politics can work. We have to solve it outside of politics by making it too difficult to use money to influence politics. We have the technology to do this without winning any votes in Congress. Instead, we need to build tools and educate people.

http://meritcapitalism.com


This is easy -- any person working a full-time job should be able to pay rent in safe, decent, legal housing, afford to feed themeselves and their family and put clothes on their back.

If this condition isn't satisfied, our economic system doesn't work, period.


The appeal to nature fallacy us to claim that something is right because it's "natural". It's not necessarily wrong to say that something can't (practically) be changed because it's natural. In this sense, natural means "an (emergent) property of nature". For example, as much as we may dislike it, people will continue to fall to their death in the near future, as gravity and its associated risks are natural.

I believe Paul means that these economic properties are to be expected because they arise naturally and it is not practical to eliminate them.


It's a useless way of thinking because many things seem natural until they're proven not to be. We though being tied to terrestrial transportation was natural for a very long time, but it turns out there's no natural law preventing human bodies from taking flight after all.


I don't think Graham is being a status quo warrior here at all and I would have to reread carefully to see if he was really committing the naturalistic fallacy, I think that is an odd reading. I think his reasoning is fairly sound here. He actually laments that solving income inequality is very difficult, which it is. A lot of lip service is paid to this topic and usually all an politician has to say about it is something about manufacturing jobs.

I almost feel you may change the entire field of economics with committing the naturalistic fallacy under your reasoning ...


> the degree of infatuation or affection for the early 20th century years with central planning economy, crony capitalism, robber barons...

I think you 're being deliberately inflammatory here. He's probably well read about the period but there is no "degree of affection" for that kind of capitalism.


> [...] he problem of the ever widening gap of income inequality in the global economy [...]

It's exactly the opposite, and even acknowledged in the article: on an international scale, the world is getting more equal, not less.


Central planning of the US economy & powerful big government (1930s & beyond) was a Progressive Era initiated reaction to the era of robber barons & crony capitalism (1870s-1910s).


The U.S. had plenty of centralized planning in the form of protectionism well before the 20th century.


Correct. The United States was strongly mercantilist throughout the 19th century: https://en.wikipedia.org/wiki/American_School_%28economics%2...


I've been thinking about this a lot lately and will ride your coattails for a moment by pointing out that if economics is darwinian, then a possible way out of this situation might be human planning.

It doesn't have to be central, it can be a way of living that amplifies the changes you'd like to see in the world. So for example, say a person acquires a certain amount of wealth and wants to make his or her home solar to stop feeding investment in the fossil fuel industry. He or she should consider installing double the number of photovoltaics necessary and give back to the grid to lessen someone else's burden.

Now apply that philosophy of cooperation to our daily lives and I think that we can achieve a fairly rapid change in the status quo, and that we are seeing it happening all around us.


"if economics is darwinian"

How can economics be Darwinian? The outcome of economic interactions is not a zero sum, whereas a lion who kills and eats an antelope is engaged in a zero-sum interaction. The antelope gets nothing out of it. As a point of contrast, if you buy a car from Toyota, you have not harmed Toyota, nor has Toyota harmed you (hopefully). It is theoretically possible, when humans engage in trade, for both parties to end up better off. But in nature, in the competition for finite resources, one often sees exchanges in which all species end up worse off. There are many documented cases where predators have been too successful, and killed off all their prey, and then gone extinct themselves -- a negative sum scenario that has no obvious comparison to economic exchanges among humans.


The only way Darwinism can be considered zero sum is from a energy perspective - there is no beating the laws of entropy. That perspective is not very useful in the context though, as the darwinian perspective fueled the growth from singular cells living off energy from geotermal vents in the sea to photosynthesis to plants and animals living above ground. This has greatly expanded the amount of resources in the ecosystems and the abilities to use accessible resources.


> a lion who kills and eats an antelope is engaged in a zero-sum interaction

When we apply economic thinking, this interaction is actually not zero sum - antelopes in general benefit from the signal that they need to be faster.


But they only need to be faster to avoid being eaten by lions, so this seems to be begging the question.


I agree that predation is not zero sum.

The antelope loses its life. The lion gains nourishment for a week.

Clearly the total number of utils in the system has decreased.


Since when is "Darwinian" synonymous with "zero sum"? Even social Darwinism, a corruption of Darwinism, isn't zero sum.


The outcome of economic interactions is not a zero sum

If that were true nobody would ever feel ripped off. People irrationally engage in inefficient transactions all the time. For example, people who smoke cigarettes are more likely to be (and admit that they are) acting irrationally than truly deriving so much social or chemical utility from puffing on cigarettes that it exceeds the risk-weighted disutility of lung cancer, emphysema and so on.


The fact that someone got ripped off in an interaction doesn't say this interaction was a zero sum. It only says that said interaction was unequal.

Generating value out of nothing and ripping people off are not necessarily incombinable things.


Weath is never created from nothing.

Nature is zero sum, economies are not valued in those terms because people prefer houses to trees etc.

But, be careful: http://www.smbc-comics.com/index.php?db=comics&id=2569


> Weath is never created from nothing.

You can make this statement being true by moving your definition of "nothing" from economics to lay-people common sense, but then we'd be outside of a territory where we can obtain any actually reasonable observations.

> Nature is zero sum

What is "nature"? Observable universe from now to heat death of the universe? Yes. Earth in near hundred years? No.

> Robbery is also an economic transaction, and it can be positive sum if for example you don't notice.

What? How does the outcome of a transaction change depending on whether it's observed or not? Does it involve quantum particles of trees falling in the middle of desolate forests?

> That does not mean it's a good thing.

My comment didn't state anything about good or bad: these are very stupid terms and using them can't bring anything but loud voices and hurt feelings into a conversation.


I edited my comment for clarity. The point is measuring economic activity is subjective. And people have huge incentives to lie.


"Obviously the spread of computing power was a precondition for the rise of startups."

If you live in San Francisco (or are visiting) you can visit the USS Pampanito - a retired WWII submarine.[1]

One thing I think you will notice is the manufacturers plaques attached to every little piece of equipment in the submarine ... every one of them the plaque of some tiny little supplier that you have never heard of. Some little Detroit Turbine Supply Company or American Radio Corporation of Maryland ...

Seriously - every single component has a label on it from a firm you have never, ever heard of.

I guess I don't have a deep knowledge of military procurement and supply circa 1942 (or whenever) but it sure looks like startups to me ...

[1] http://www.maritime.org/tour/index.php


Good observation. Paul's definition of "startup" seems to be "company that grows explosively to a massive size/valuation in a short number of years". The sort of businesses you cite seem to fall under the "small business" moniker, and would probably be one of the mouse-sized companies he referenced in the essay as one that tried to avoid trampling by the elephants of BigCo.


Here's the specific part in question:

" People did start their own businesses of course, but educated people rarely did, because in those days there was practically zero concept of starting what we now call a startup: a business that starts small and grows big. That was much harder to do in the mid 20th century. Starting one's own business meant starting a business that would start small and stay small."


>Starting one's own business meant starting a business that would start small and stay small.

And what's wrong with that?

Besides it being false of course.

If anything it's more sustainable and more productive (as these business MAKE something, don't just eat VC dollars or at best sell ads) than today's "startups" model, which is based mostly on a speculative bubble + ad money.

All the thousands of major companies, from IBM to Bell and from HP to Apple, Boeing, McDonalds and Kodak, and countless others in all lines of business started as small and grew from there.

It's a perversion (and counters the rest of PGs rhetoric) to narrow startups to "companies funded with VC money for a few years to get enough users/eyeballs in the hope that they can be sold for a few billions" which is more or less the modern kind.


Or start small, grow to a modest, profitable size, and be sold. A friend of mine recently retired (in his 40s or 50s) after selling his high-end catering business for a few megabucks.


Yes. "FU money" is a surprisingly low amount compared to what some startup owners think they need to make (and suffer the lower odds for it).


>And what's wrong with that?

I think pg would likely answer "Nothing". Whenever he brings up that sort of entrepreneurship, it's generally to showcase the rarity and timescale with which these small businesses (IBM, Boeing, GE) got huge in a time before the internet.

I'd agree that the Internet hasn't made big businesses get any more substantive, but it has allowed them to get bigger faster.


That part is a bit questionable. Educated people starting small companies that grew big is not something new in American business. Not even educated people starting small technology companies that grew big. It's possible there has been a quantitative change, with it being more common now (I'd need to see numbers to be convinced of that, but it's possible). But "practically zero concept" prior to the 1980s?


Actually, the rate of new business creation has been falling ever since the 80's. According to [0], “Unfortunately, new firm formation has waned since the 1980s, and the recession accelerated the decline."

[0] https://www.washingtonpost.com/blogs/on-small-business/post/...


Hmm so explain Fairchild and Intel and all the spin out companies in SV.


I don't know what you're talking about. I didn't write the article. I just quoted the guy where he laid out the definition or his understanding of the term of « startup » which IMO is in line with the current common and broad idea of startups in that they're a special breed in the small businesses category that possess specific qualities that make them rather distinct from other business ventures and establishments.


Hewlett-Packard, founded in 1939, in a Palo Alto garage. By academics. They were educated at Stanford, go figure.


Like Fred Koch, Post and Kellogg, Hughes, JP Morgan, and Du Pont?

I guess a difference would be that now you don't need employees.


Multiple studies have shown that startups are dying in the USA. The great era of startups in the USA was in the mid 20th Century. At least since the 1970s, new business formation has been dying:

http://econweb.umd.edu/~haltiwan/dhjm_jep_5_17_2013.pdf

http://www.brookings.edu/~/media/research/files/papers/2014/...

Here is the abstract of that last study:

"Business dynamism is the process by which firms continually are born, fail, expand, and contract, as some jobs are created, others are destroyed, and others still are turned over. Research has firmly established that this dynamic process is vital to productivity and sustained economic growth. Entrepreneurs play a critical role in this process, and in net job creation. But recent research shows that dynamism is slowing down. Business churning and new firm formations have been on a persistent decline during the last few decades, and the pace of net job creation has been subdued. This decline has been documented across a broad range of sectors in the U.S. economy, even in high-tech."

And here is the start of the first:

"The pace of business dynamism in the U.S. has declined over recent decades. The decline in business dynamism is evident in a pronounced declining trend in the pace of both gross job creation and gross job destruction. An important component of these declining trends has been the decline in the firm startup rate. The decline in the startup rate has yielded a significant decline in the share of employment accounted for by young firms – this share has declined by almost 30 percent over the last 30 years. "

And please, please, please note that a country can have an incredibly dynamic, innovative industry, but that nation can still be in long-term decline. See here for details:

http://www.smashcompany.com/business/if-the-usa-is-the-most-...


Are those studies equating "starting a small business" with "startup"? Paul Graham only uses "startup" to refer to business that start small but grow large is a short time, as he says in the OP article itself (and elsewhere). If you equate those two ideas, you won't be able to talk clear about this topic.


When he refers to "the spread of computing power" he seems to be talking about software startups in particular. But when he says "The ultimate way to get market price is to work for yourself, by starting your own company" he is either talking about every imaginable form of business, or he is talking complete gibberish. If everyone goes into one sector, the economy would soon suffer an abundance in that sector, and a relative lack in other sectors. So his point is either true of any business that one might start, or he has no point at all.


It's not unreasonable for everyone to go into one sector, and then for that sector to eat the entire rest of the economy (a la a16z's "software is eating the world" investment thesis). Imagine that software is an innovation akin to assembly lines. If you started a company in 1840 that used assembly lines, you were going into a very specific industry: textiles. If you started a company in 1890 that used assembly lines, it could be one of dozens of industries: textiles, steel, oil, tobacco, meatpacking, etc. If you started a company in 1930 that didn't use assembly lines, you were insane and destined for failure.

What's happened, historically, is that as a technology diffuses into new ways of doing things, old industries simply die out, and then the new industry differentiates into replacements for it. Specialized production in the middle ages was divided into guilds (many of which are family names now): you had smiths, cobblers, bakers, butchers, weavers, etc. When the industrial revolution happened, there was simply "industry"; it was only later that this differentiated into the steel industry to replace smiths, the meatpacking industry to replace butchers, the textile industry to replace weavers, etc.

Similarly, when software got started in the 50s, there was only the "software industry". Now, 60 years later, it's differentiating into search, social, messaging, e-commerce, developer tools, homesharing, adtech, fintech, ridesharing, delivery, etc. And it's likely there's more to come: if I had to locate us in the history of the industrial revolution, I'd say we're around 1890 or 1900. At that point, the great industries of the mechanical age (mass-produced automobiles, airlines, plastics, radio, television, recorded music) had yet to be invented.


There are "tech startups" that serve lots of "non-tech" sectors of the economy. One of the major beliefs in SV is that this is going to happen more and more, with companies making tech that augments or replaces entire sectors of human work. There's obviously a ways to go before this will be possible with some areas.


Yes.

This concept of small manufacturers that excel in their niche has been the oldest business model in history.

Especially in Japan and Germany many companies have existed for over a millenium like that, and even today half of the made profits are by small, (50 people or less) companies that are hidden champions.

You probably never heard of http://www.walterwerk.com/en/, but they’re the world’s leader in machines that produce ice cream cones.

As you said, it’s not just since computers that these companies existed – they’ve existed for centuries.

But what is different this time is that for the first time investors are trying to invest in these small businesses, and try to make a huge profit out of them.


That seems to be just small businesseses, not startups. Startups either go Facebook or go bust, they're not created to stay stable at small scale.


> Startups either go Facebook or go bust, they're not created to stay stable at small scale.

Nonsense. Plenty of companies start out as small companies and suddenly find themselves on the upwards slope of a hockey stick, others start out as aiming for that hockey stick and end up being 'just' sustainable businesses.

This whole start-up naming thing denies 125 years of objective reality. You can't start a scalable company deliberately any more than you can reliable write an evergreen book. Time will tell what you've got, not your label of it.


But wait, some people start a pizza place or a grocery store or something similar. Those kinds of businesses are definitely new businesses, and people who start these kinds of businesses is what was traditionally meant by the word "entrepreneur".

But startups are qualitatively different - they are usually started with the express (and usually only) purpose of growing very large, very fast.

Call them startups or not, but we definitely need a term for the kind of company that behave in this "go big or go home" fashion, and startup is the generally recognized term for it.


Sure, but a start-up is more of a determination after the fact than something you decide to build. The only reason it works out for YC is because they start so many companies that a few of them due to the expected distribution end up being home runs. They still influence things as much as they can in that direction but there are absolutely no guarantees and quite a few of the go-big-or-go-home companies end up going neither big nor home, they end up being normal companies.

So unless you're willing to apply the start-up label only after the fact to the successful companies you're going to have to be a bit more inclusive than to just use it to describe Facebook, dropbox, google, Uber and AirBnB.

> But startups are qualitatively different - they are usually started with the express (and usually only) purpose of growing very large, very fast.

No, that's the exception. The rule is that start-ups were started to be companies like any other. At some point during their life span they found a groove that supported the property of very fast growth (almost always these are companies with some kind of network effect) and then retrospectively applying your criteria you can call those companies start-ups.

Anyway, no need to believe me, you can simply prove me wrong by deliberately starting a start-up that will scale. I'll bet you 1:50 that you won't make it.

The hard part then is this: your company has a fairly good chance (10% or so) to become just another company. Now supposing this is the case, will you then follow through on your 'go big or go home' slogan and go home and kill that company? Or will you do what everybody else does in that situation and just run it and milk the cow?

And even pizza places or grocery stores can end up scaling way beyond the original aim of the founders. McDonalds is a nice example.

If you want a single word that identifies companies that are growing very large, very fast I'd suggest this one: lucky.


Another angle is that the label "startup" is being applied retoractively to companies that, at their beginnings, were in no way similar to contemporary startups. I can't picture the founders of Google, Apple or Microsoft frequenting "startup events" of their time, spending time on figuring out valuations, or "growth hacking" strategies, or drinking beer together and dreaming out loud of the world domination they're going to achieve. From what I remember reading, the founders of those companies simply did the work and were focused on it. They didn't dream of taking the world until they already found themselves in the groove, being half-way into orbit and already after first stage separation.

Contrast that with what we call startups today - companies that deliberately attempt to be that "evergreen book", trying out every trick in the book to force themselves onto growth path. They live within an ecosystem, a big part of which is a mutual adoration society, with additional large layers of parasitic actors trying to suck out some money and status by just hanging around. And surely a good strategy was found - hence contemporary standard business plan of bullshiting customers with half-made shell of a product to quickly reach the point of getting acquired. It seems to work better than "just" starting a company, at least for the founders. Not necessarily for the world at large.

In a way, I think that early Apple and Google had more in common with a pizza place than with a contemporary Instagram clone.


The Steve Blank definition of a start-up is "a startup is a temporary organization used to search for a repeatable and scalable business model."

It's possible to form other successful businesses of course. But I like the way this definition calls out the scalability as an important factor. It doesn't make you point about betting against it working any less valid though.


I agree with a lot of what you wrote, but I do disagree quite strongly on your first (main?) point, as I understood it.

You wrote: "[...] a start-up is more of a determination after the fact than something you decide to build."

I totally agree with your point about companies normally not being able to "grow fast", and I agree with you that luck is a major factor. However, I think you're wrong in saying that people don't try to deliberately build "grow-big" companies.

Believe me, I'm a proponent of building small-growth "bootstrapped" companies, and I've had many conversations with founders about going that route. The vast majority, who had it in their heads that they wanted to be a startup, were deliberate in pursuing "grow-big" strategies. As one easy example, almost every company that raises VC money is either implicitly or, often, explicitly, chasing a grow-big strategy.

I completely agree that the vast majority of companies end up not being able to grow big, and have to decide between becoming a small company and "milking the cow" as you put it, or closing the company. This doesn't mean that they didn't set out, in the first place, to build a "grow big" company! In fact, you can see that this is true in the way that so many of these companies choose not to continue the small business, which could be profitable, but instead choose to fold the company instead.

In fact, reading the writings of YC, or talking with most honest VCs, will easily prove my point - they constantly tell you they are aiming to fund companies striving for $1b+ valuations, and they're fine with 99% of the startups they fund not getting there as long as 1% succeed. They are quite explicitly optimizing for "grow big" strategies.

Btw, I'd like to point out nl's comment below about Steve Blank's definition of a startup, which I always thought was the absolute best definition. A startup is an organization in search of a business model. When someone opens a pizzeria or a software consultancy, say, they're not searching for a business model - they're just executing one. But VC-backed "grow big" startups are very explicitly trying something new.

EDIT: Just to make sure we're not arguing over definitions - I'm claiming two things:

1. That what people, especially on HN, mean when they startup is a company pursuing a "grow big" strategy, and deliberately so vs. a non "grow big" strategy.

2. Regardless of 1, I also think that the majority of modern-day companies (let's say founded in the last 20 years?) that have grown big were deliberately started with the intention of growing big, ala Amazon, as opposed to say FB or Google, which wouldn't fall into this category. I'm less sure about this point, but it is a factual question that we should probably be able to answer.


"But startups are qualitatively different - they are usually started with the express (and usually only) purpose of growing very large, very fast"

Usually a startup is understood to be any venture in search of a sustainable businessmodel.

To grow very large, very fast requires only lots of capital. A lot of companies have confused a large capital investment with a sustainable businessmodel and gone bust soon.


VC-funded companies, almost 100%.


I was thinking exactly this. How many articles are we reading about extreme VC preferred stock, raising such high valuations that the only option is to go public after the first months. Raising so much money on terms that you require a big exit.


Amen, brother.

It's odd to me that people assume that just because you've got a small business you won't jump at a market opportunity that could lead to something bigger...even Apple at one point was just a few folks selling stuffed PCBs and doing drugs.


He's not debating the merit of fast growth vs taking it slow, he's just pointing out terminology.

pg's 2012 essay http://paulgraham.com/growth.html suggested using the term "startup" for hypergrowth-oriented company, and the term "small business" for slow-and-steady approach.

Both types exist, deserve to exist, and are nown to end up at a different place than the original goal they had in mind. But using suggested terminology saves us from the replay of the same argument over and over.


'Startup' has come to mean too many different conflicting things.

You're describing what I would call a "VC backed startup", where you'll either get big or wither away.

The other end of the spectrum (for people here) would be something like a Bootstrapped Technical Startup. Where you're trying to build a cashflow positive business leveraging technology in some way.


Facebook or bust. If this is the definition that we're expected to accept, I will say that as a consumer and human being, I prefer interacting with and being a part of small businesses more than startups.

It would seem this definition paints a startup as a proto-bigcorp. If the prevalence of big corporations is not a cycle we want to repeat, would we not favor businesses that do not intend to become big corporations?


For employees: salary/responsibility growth, bigger impact more quickly

You might be right about the customer side, that non-"startups" are more likely to be around in 5-10 years, which makes a difference when investing in a new, mission-critical area of your business (e.g. replacing email server)


Oh, but most startups are not trying to become big corporations. They're trying to be bought by one. This is the "get rich" part of the startup get-rich-quick scheme. Which is even worse for customers, because you can at least somewhat trust that a successful wannabe-big-corp will at least try to still sell/maintain their original product for a while.


"Startups either go Facebook or go bust" For me, this reflects the problem with the current Startup mentality.


Seems like it might be a kind of survivorship bias. A hundred years from now, will people look at our era as one with a rich ecosystem of startups, or as one dominated by a half-dozen Facebooks and Twitters?


How many startups from 1995-2001 are still around that took seed-money and a few rounds and then stagnated (newer took off) since 2001? How many small companies (self funded) survived from the same timeframe? Startups have usually a goal IPO or get bought or the disolve themself after some time - right?


The point is that Bob's Bearing and Brass Knob Corporation, even though they did contribute some parts to the submarine (a) probably failed shortly thereafter and (b) probably wholeheartedly intended to become the next General Electric.


No, I've worked for several small businesses over my 35 years after college, and none of them aspired to meteoric growth. I think they're the lions share of new businesses, but consistently overlooked because the media is interested only in businesses with meteoric growth or products that become the next new new thing.

I think the willful blinkering of business interests toward only the .001 percent business that's exploding RIGHT NOW is a greater contributor to the fragmentation of business today than the fading priorities of WWII ever was. The idolization of the Gambler on Wall Street (or in SV) has misdirected our priorities away from respecting those who seek to build a sustainable business where normal people want to make a sustainable living. Now the prevalence of jobs at yet another ephemeral startup or large corporation awaiting it's next merger/buyout has greatly destabilized the workplace, much less made the job of corporate leader/ visionary/ innovator next to impossible. Instead of creative invention, corporate CEOs now focus instead on cost cutting destruction, and Wall Street applauds.

I wouldn't call that fragmentation so much as disintegration.


The 'History' page of the Gorman [precision magnetic coil winding] Machine company is a fascinating read. http://www.gormanmachine.com/history.htm

There used to be many thousands of such manufacturing-based small businesses in America. They tended to stay focused on their competency or branch out tentatively into related products, flexibly grow and shrink to meet demand, or sometimes get acquired. But I don't think many of them planned to become the next General Electric.


I strongly disagree. As an entrepreneur and a mentor, to me a startup is just a new business that is pioneering something new.

Most new businesses are replicating an existing business model. E.g., if you open a new corner store, it's probably going to end up being like every other corner store. If you're starting a games company, you're probably going to end up like a bunch of other games companies.

Startups, on the other hand, are tackling something deeply innovative. That means early on you have to optimize for learning: understanding customers, iterating on product, seeking product-market fit. It's a very different set of behaviors for the entrepreneurs than the normal new business.

I think you're thinking of venture-backed startups, which require a large enough amount of high-risk capital that nobody will fund them unless they expect to be worth $100m+. But there are plenty of smaller startups that are self-funded or bootstrapped. They can be perfectly stable at small scale, although many of them do choose to grow substantially.


The definition of a startup is a reoccurring theme here and I'd really wish pg would reference it every time he uses the term. For him, a startup = growth [0], and as you can tell by this quora answer[1], not everyone agrees with that.

[0] - http://www.paulgraham.com/growth.html

[1] - https://www.quora.com/What-is-the-proper-definition-of-a-sta...


"Startups either go Facebook or go bust, they're not created to stay stable at small scale."

I started rsync.net with the intention of staying stable at small scale.

It's worked out so far.


Congrats! (Seriously). This just means it's not a start-up.


You've created a false dichotomy, leaving out a major "Startup" class: get acquired. There are also many other options.

"Startups" in this context exist to get VC's an acceptable exit.


Interesting. That reminds me of the fact that, after WWII, US domestic producers, to a far greater extent than today, satisfied the US domestic market for all kinds of products. (I think this was largely due to the literally bombed-out industrial base of some US competitors.)

And that amounted to a large number of jobs which are no longer available to US workers.


This idea:

"Obviously the spread of computing power was a precondition for the rise of startups."

seems closely related to the concept behind the book "Design Rules" (2000, isbn 978-0262024662). Here's a summary from the book flap:

"[The computing industry] has experienced previously unimaginable levels of innovation and growth because it embraced the concept of _modularity_, building complex products from smaller subsystems that can be designed independently yet function together as a whole. Modularity freed designers to experiment with different approaches, as long as they obeyed the established _design rules_. Drawing on the literatures of industrial organization, real options, and computer architecture, the authors provide insight into the forces of change that drive today's economy."

https://scholar.google.com/scholar?q=related:L9DylaW-KYkJ:sc...


You can extend this point to the first wide-ranging standardization efforts. Those plaques and part numbers were mandated to facilitate not openness, but interoperability.

https://en.wikipedia.org/wiki/United_States_Military_Standar...


The thing to me is Silicon Valley is the place in the US that still looks like that post WWII America. Large monopolies like Google, Apple and FB utilizing fantastic profits and paying amazing perks to employees. Everyone working in and on the same mission acting as a social fabric tying people together. Glass Door and the Internet in general replacing trade unions by helping balance a knowledge imbalance so that workers can maximize their benefits.

The irony of regularly lecturing the rest of the country and world about what the future holds from the position as a final bastion on unassailable US hegemony of last century (2nd only to Hollywood?) perplexes me.


Agreed 100%, that was one of my take aways from the article as well. I suspect that this dominance is next to fall, and I feel that SV has already passed its zenith, perhaps some time ago, and that locals and those intimately tied to its fabric like PG will not be the first to notice. I think the talk of the last few years about a "bubble" may have been noticing symptoms of this rather than a true "tech bubble". There was a WP article the other day about how people are priced out of homes in SV, with the median home price at nearly a million dollars. We are in the early, possibly mid crisis of student debt, and despite a certain lauding of the dropout culture in the tech industry, this debt has fueled its rise over the last 40 years. It is unsustainable.


But that only happens because automation and globalization are barely harming the US. And its not like the oligopoly is not trying - why are there so many appeals for more H1Bs?

If you need skilled workers and the varying skill of a worker produces magnitudes of difference in wealth created of course you need to both be huge enough to afford them and centralized enough to take advantage of them.

The article itself seems like a blinders on interpretation of the US tech industry. Corporate consolidation is at all time highs in areas like food processing, farming, finance, raw materials, and industry. Mom and pop shops the world over are bellying up for Walmart and Starbucks. Startups and creative culture in the tech bubble are against the general grain. Its why money in politics is being considered such a larger problem now than twenty years ago - as dozens of economic effects interact, from people having less spending money to companies consolidating and having guaranteed revenues to regulatory meddling in their favor.

Fundamentally I think that newer generations growing up on the Internet are turning out much more hive minded than their grandparents, because there are just more of them as a fraction of the population. The perfect white nuclear family of 1970 still only accounted for a stark minority of the American public - it is just strange that a disproportionate number of people on HN ended up coming from that class. There was still extreme social unrest throughout the century - prison camps for the Japanese, the KKK, segregation, and the banning of many chemicals due to being "foreign" like opium and marijuana. Just because one microcosm of the American economy that produced most of us was homogenistic doesn't mean the era was exclusively defined by it.


How do you know the race and sex distribution of hacker news users? Or are you just assuming they are like you? (or unlike you? I have no way of knowing what group you might identify with)


There have been a number of informal polls over the years. Here's a link to an aggregation thread. https://news.ycombinator.com/item?id=4397332


You are only mentioning the tech industry in Silicon Valley, which I admit is pretty utopian. This description excludes everyone else in Silicon Valley. You can't talk about income inequality while only looking at those with high income (everyone in the tech industry), and forgetting about those with lower income is a huge reason why income inequality is problematic.


That's very true. And quite frankly, the housing rents, the overstuffed infrastructure, the student suicide rate in Palo Alto, and so forth make SV look pretty dystopian, even for most tech industry workers. The only thing tech has is what Michael O. Church so eloquently said: "Software engineers aren't a privileged set. They're just less fucked than the rest of the U.S. Former Middle Class."

https://www.quora.com/Why-do-software-engineers-make-so-much...


In what way is Apple a monopoly?

(I'm also not sure if Google or Facebook are either, but at least in those cases it's obvious what you mean)


Yep fair point. In tech most are duopolies or oligopolies. iOS and Android, Google and Bing. FB and? Maybe Twitter. Maybe SnapChat one day.


It's certainly true that SV's days as a big tech hardware manufacturer are past.

I am not at all certain, but I have to wonder if something magically keeps SV software innovators glued to SV. This is something I've never understood. But there must be SOME reason why software innovation/work didn't completely disperse from SV ten years ago.


One very simple answer is VC money. They want you local and their talent network (of people for your growing startup) is local. Who knows how different Boston would be if Facebook stayed there? (Just one small example)


People overestimate how quickly unacceptable conditions arise. The Bay Area can get even more congested and expensive than it is today, and most people will make do. Cambridge and some surrounding areas have San Francisco pricing now. It won't so much be a "dispersal" but a hunt for talent, which is why you get Uber and other SV companies in Pittsburgh, where you can live in a steel magnate's castle for the price of a condo in Palo Alto.


"And as long as it's possible to get rich by creating wealth, the default tendency will be for economic inequality to increase."

This seems to be the ontological point of his essay, which reads as a loosey historical narrative manufactured to defend his belief that the fight against "economic inequality" will undermine innovation by disincentivizing the next Zuckerberg.

But it misses the underlying point of wealth creation: if more people create more wealth, then naturally, there should be less poverty. Adding value to the world makes the pie bigger. The real issue is distribution. Our current economic model distributes wealth as a factor of capital, which is hoarded at the top and systematically protected. It would be silly to say that the top 1% of the population, which owns more than the rest of the 99% combined, creates more wealth or is more productive than everyone else on the planet. They just have a monopoly on capital.


Exactly, no matter how much some people try to mystify everything, the "rich get richer, the poor become slaves" is something that history told us happened even before the democracy was introduced to the Ancient Greece, some 2600 years ago. It's nothing specific for the current times. The golden age and democracy we adore since then didn't start with the "more of that inequality" but with the total opposite:

https://en.wikipedia.org/wiki/Seisachtheia

"the relief of burdens"

"The seisachtheia laws immediately cancelled all outstanding debts, retroactively emancipated all previously enslaved debtors, reinstated all confiscated serf property to the hektemoroi, and forbade the use of personal freedom as collateral in all future debts. The laws instituted a ceiling to maximum property size - regardless of the legality of its acquisition (i.e. by marriage), meant to prevent excessive accumulation of land by powerful families."


>But it misses the underlying point of wealth creation: if more people create more wealth, then naturally, there should be less poverty.

There is tremendously less poverty in the world now than 50 or 100 years ago: https://www.washingtonpost.com/news/worldviews/wp/2015/10/05.... There's only more poverty if it's defined in a purely relative sense, but the relative definition of poverty is only relevant to ideological arguments and pandering to peoples' envy, not to describing peoples' actual material quality of living.


> his essay [...] reads as a loosey historical narrative manufactured to defend his belief that the fight against "economic inequality" will undermine innovation by disincentivizing the next Zuckerberg

Well put.

The argument that general taxation disincentives innovation has never made any sense to me: no matter how high the tax rate, your post-tax income still scales linearly with your gross income. If your object is to make increasing amounts of money, how does a tax give you less incentive to do so?


Devil's advocate: If more income takes more work, and I'm already rich, then the extra work is only worth it to me if I get a really substantial return, not just some minor increase.

(In reality, only totally naive people believe that any billionaire cares at all about making more money for the sake of the money. It's actually about power and about irrational desire to be higher in the rankings compared to other billionaires… unless they have other motivations that aren't related to their profit, of course)


Which is also in contradiction to Grams perspective. Its insane to claim that you need to keep wealth concentration uncapped to incentivize innovation, because a supermajority of novel innovation comes from people at the bottom becoming rich, not the rich getting richer.

Its important to distinguish enabling upward mobility through entrepreneurship and incentivizing that with reasonable taxes and stopping billionaire bank tycoons from buying houses of legislature with overseas bank accounts and ownership stake in half the multinational corporations in town.

It also contributes to why that wealth concentration is a problem, because it snowballs - in an unbiased economy with modest inflation the rich must reinvest somewhere to maintain their relative wealth or lose it. When you have enough to use force of law to distort the market so you don't have to take the same degree of risk in those investments, or even make them at all, you break the system.

So while wealth inequality is a symptom of globalized economic forces, that wealth inequality perpetuates itself in how it will be used to stymie innovation and promote selective growth for those first to get there.


> a supermajority of novel innovation comes from people at the bottom becoming rich, not the rich getting richer.

Citation needed? As PG points out, most startup founders are not poor. They take the risk of innovating not because they are desperate, but because they see a large upside. Reducing that upside will certainly reduce the motivation to innovate at the margins. The only question is how much does it reduce motivation, and do the benefits outweigh the costs?


Poor is relative. We are talking about the difference between having a safety net at your parents house where they have a combined income of 300k and might have a cleaning maid every weekend versus a billionaire CEO with penthouses in four cities and his own airplane. One is middle class, the other is extremely rich.


So the focus on "inequality" is a focus on large wealth at the expense of thinking about poverty, to the degree that you call 6-figure earners "people at the bottom". I'm still not convinced that a "supermajority" of innovation does not involve the very rich. Much innovation today comes from companies like Google, Apple, SpaceX, lead by very wealthy leaders.

Even if you were right, the point remains that limiting the upside of risk-taking also reduces the incentives for middle-class people to innovate.


You're confusing causation and correlation even if your premise is valid (which is totally questionable).

First, Google and Apple have nothing to do with personal wealth, they are corporations. The fact that have lots of corporate wealth means they have resources to put into innovation. They can do that completely independently of whether they pay absurd salaries or stock-dividends. Corporations can profit off their activities and put the profits back into innovation, and when that happens they are business expenses that aren't even taxed!!

So the entire issue about taxation of wealthy incomes is only about wealth that people take home as personal profit and do not reinvest in business.

Now, let's accept the questionable premise that these people with high incomes produce the greatest innovation. That simply means that innovation correlates with high income. It does not tell us anything about cause. Maybe these are people who would be innovative no matter what and our system happens to reward that with riches. If that hypothesis holds, then higher taxes would have zero impact on their innovation. There's tons of evidence that innovative people are motivated in other ways besides getting richer, i.e. that the promise of further riches isn't the cause of their innovative work.


> First, Google and Apple have nothing to do with personal wealth, they are corporations.

When Steve Jobs returned to Apple, he made it far more productive, and he was personally paid to do so. If his personal wealth was capped he may not have found it worthwhile to do this work that he was clearly exceptionally qualified for.

> Maybe these are people who would be innovative no matter what and our system happens to reward that with riches.

You can only believe this if you believe that people (or just "innovative people") are not even slightly motivated by money, which is clearly absurd. I certainly believe that people are motivated by many things besides money, however at the end of the day money is what gets you many of the things you want. I know that I personally am much happier to work hard when I know I will be amply rewarded.


> Even if you were right, the point remains that limiting the upside of risk-taking also reduces the incentives for middle-class people to innovate.

No, it doesn't: relative to middle-class net worth, hitting it big makes you orders of magnitude richer. Even if you taxed that level of wealth at 95%, it would still be absurdly rich compared to the mean.


I think the argument is more that it will disincentivize innovation in your tax jurisdiction.


Besides, one can pour money into the business and grow the crap out of it, largely avoiding the tax.

It's a question of liquidity.


> top 1% of the population, which owns more than the rest of the 99% combined

http://www.levyinstitute.org/pubs/wp_589.pdf

This study that I found (after just 3 minutes of googling, btw) says that top 1% own only 34.6%. Do you have a source for your figures?



Note that this is global wealth, whereas golergka's link is about the US specifically.

Turns out, the world in general has a lot more poor people (both absolute, and as a fraction of the population) than the US does, so globally more wealth is concentrated in a smaller population fraction.

I agree that for the world at large the wealth distribution is clearly not good. The good news is that it's been getting a lot better in the last few decades, largely due to India and especially China moving people out of poverty by the hundreds of millions.

For the US specifically, things are less clear.


Thanks. However, I found that original source for the wealth distribution figures, the Credit Suisse Global Wealth Report, to be a much more interesting read:

https://publications.credit-suisse.com/tasks/render/file/?fi...


I think this is one of the most interesting essays he's written in a while, and it echoes many of my own thoughts better than I could express them.

PG seems to argue that the fragmentation of society is a question of efficiency. A natural effect of this is that the world will become more cut-throat. Efficient systems turn hyper-competitive, as seen in university admissions, startups, financial markets. It seems to me that too much "liquidity" mostly causes burnout, depression, dumb risk-taking, and a few really successful winners. Tech is really guilty of this phenomenon by tending to produce one winner for every thousand losers.

In many ways the 20th century was an anomaly -- the wars were more violent, the rate of growth was faster, the cultural shifts were huge and multifaceted -- but we still use tend to see it as a normal state of things. A hundred years into the future we'll be looking at an entirely different world and consider it normal.


PG's perspective is quite US-centric. The aftermath effects of WWII in Europe or Asia was rather different. Among most nations' peoples there's long been little cohesion due to the lack of unifying forces like media or of ethnic homogeneity.

I agree that the economic dynamics of 20th century America won't repeat. But I'm not sure most countries will enjoy a stable predictable trajectory this century. Asia and China are far from being mature ecosystems (economically or politically), and the likely loss of jobs due to further globalization and automation, just as the promise of US-style consumerism is arising portends a bumpy ride, especially for totalitarian-ish societies like China, Saudi Arabia, and even Turkey.


In other words and to paraphrase that now famous paraphrased. It's the technology stupid


I think this essay ignores the impact of the Civil Rights Movement and feminism in undermining the 1950s. The world of the 1950's wasn't one where women could work, despite that having been the case since the 1920's. It was also the world in which Brown v. Board of Ed. lead to federal troops being deployed in the south to safeguard the rights of citizens, and ultimately lead to the Freedom Summer which radicalized a lot of New Leftists. So perhaps the 1950's was a world based on certain kinds of exclusions, that once removed, broke down.


There's no real reason/mechanism for the exclusions to have made anything work better. Compared to the US being the Arsenal of Democracy, the economic effect of liberalization was very small, ignoring long-term government debt.

The New Left in the 1960s mostly just failed outright. Any change then was due to judicial or executive action.


Partially devil's advocate: Women not working en masse means single-income households as a norm, which means all the real economic value of someone staying at home to take care of home issues and a general supply-and-demand situation where workers needed to be paid enough to make things work on a single income. Flood the market with twice as many workers, wages go down and the expectation becomes two-incomes, and thus people end up working harder (there's still work at home to do), but they aren't richer for it.


IMO, this was principally expressed in raised real estate price/value.

Some of this is hedonic in nature; if you watch "Fargo" second season, you see in pretty good detail how people lived 35 years ago. I'm pretty sure this would be considered something much more like poverty now. Of course, I'd be ignoring any inflation in price of the homes shown, by design.


Exclusions certainly make things work better from the point of view of the excluders.

Slavery, for example, worked wonderfully for the slavers. When we abolished slavery but kept former slaves from full participation in society, they mostly ended up as underpaid servants and laborers. Women restricted from earning a living on their own still had to survive somehow. Which in the 50s often meant attaching themselves to men and providing them with a lot of unpaid support.


Nope. The economy is bigger than you are, and it's keenly in your enlightened self-interest to have each other person in your economy producing at maximum.

The "excluders" in the antebellum South lived under a rather delusional post-hoc rationalization of slavery. John C. Clahoun wrote of this belief system at length. This was minimally modified in the Reconstruction South and after.

My maternal grandmother raised 9 kids during the Depression without the assistance of any men after divorcing her husband. She worked very hard; so did the kids.


Your comment aggressively misses my point.

In a broad, idealistic sense, yes, I would like each person in the economy producing at maximum. (Assuming we could agree on an ideal value metric, which I'm not sure we can.) There we agree.

But if I am narrowly self-interested (which many humans are), and if I value positional success over absolute wealth (which many do), then I am better off participating in a system of oppression where the value of other people's production is diverted into my pockets. Which is why the great bulk of human history takes place in those sorts of conditions.

> My maternal grandmother raised 9 kids during the Depression without the assistance of any men after divorcing her husband. She worked very hard; so did the kids.

Good for her, and I mean that sincerely. But it's not proof of anything. The question to ask isn't, "Can you name an outlier?" Instead try asking, "What was the average condition of women during the Depression." Or, "Would your family have been better off if women's labor hadn't been systematically devalued for centuries?"


It's quite clear that the cognitive dissonance necessary to buy into membership in a truly* privileged class is very costly. You can't value positional success at the expense of the success of the others in your economy without incurring greater cost.

*the present-day use of the word seems incoherent at best - so let's stick to easier-to-see versions for now.

Narrow self-interest appears to be completely at odds with enlightened self-interest. This isn't some ascetic protestation of moral superiority; it's a purely practical mechanism for personally having things that work.

I'm not sure how an average is better (or worse) than an outlier; I meant simply to show what was possible. She was able to use institutions other than marriage for support.


PG you may want to rethink the idea of networks of cooperating companies work better than a single big company. Just finished reading Ashlee Vance's biography of Elon Musk.

Real revelation for this Michigan boy was that at both Tesla and SpaceX Musk had failures trying to use existing supplier networks. By doing a lot of manufacturing in house Musk not only realized cost and time savings but gained an agility and nimbleness that blew away his competitors. Granted Musk didn't need to manufacture his own raw materials. But in doing his own manufacturing he was able to gain a further competitive edge by making his products better. For example the Big 3's supplier networks add to their sloth and look-alike products.


Actually, Tesla and SpaceX are outliers. They are not so much natural offspring of our time as are the outcome of an ambitious person with resources. They started in a desert. There weren't really neither a serious market for them¹ nor a sturdy supply structure that could have gained maturity with the market support. Besides the difficulty of getting into the high-barrier entry and heavy-regulated automotive industry, the existing electric cars related businesses were under constant attack by petroleum cartel. It was only natural to have difficulties in finding healthy suppliers for his Tesla. SpaceX? Well, the existing suppliers for space-ware were not the result of a free market, because there didn't really existed (or still exists) one (for that matter). What existed was either imported from overseas or come from only a narrow circle of small design labs that use to custom-build pieces required by someone for which the cost didn't seem to be an issue - NASA. This obviously doesn't count for something SpaceX could rather rely on.

¹ Here I expect at least some people to bring up something like Henry Ford and his horse & carriage replacement offering as a counter-example in favor to Elon Musk's enterprise. The car vs. existing livestock-based transport and the electric car vs. existing fossil fuel car are not really comparable.


I think big single companies work when you are creating a new market and innovating with new technology. As a market and technology matures, the network takes over.


Great essay. I would quibble with the following though:

> [Technology] means the variation in the amount of wealth people can create has not only been increasing, but accelerating.

The problem with this is that success = ability * motivation * opportunity. There's no question that technology is increasing ability. But it's less clear what's happening with opportunity.

Networks tend to be winner-take-all, which means that technology actually depletes opportunity at the same time as it increase ability. Which I think means that we're actually going toward integration, not fragmentation. Only this time we don't need another WWII to integrate society because it's already happening, it's just less visible.

E.g. the vast majority of the traditional media is controlled by the same six corporations. And to quote Fred Wilson's 2015 wrap up, "10 of the top 12 mobile apps are owned by Apple, Facebook, and Google."

There's no question that individuals are way more free than they were in 1950 or whatever. But I think it's more analogous to free-as-in-beer, as opposed to free-as-in-speech.


Opportunity has increased massively.

When I was a lad I got my hand on a great prize: a copy of Delphi 3 (already obsolete by then), which got me started coding. Today anybody can download much better tools (Visual studio, IntelliJ, etc for free). Any question you have can be searched on the internet, etc. Opportunity has increased _massively_ the last 20 years.


That's ability, not opportunity. (Ability is what you can do, whereas opportunity relates to markets, regulation, social capital, etc.)

My argument is that everyone has the same 15 or 20 basic human needs, and increasingly each of those needs is being met by two or three global corporations, as opposed to two or three local or national companies. Which means that even if you as the individual are more talented or whatever, there is actually less opportunity to use those talents to fulfill human needs at scale in a profitable way. That's why such a large percentage of employees today work low wage jobs in the service industry, as opposed to physical/digital manufacturing.

And network effects are only one way in which technology has decreased opportunity. Another is environmental degradation. E.g. 300 years ago anyone in manhattan could feed themselves just being sticking their arm in the Hudson river. But now all 100% of those (edible) fish are gone, and all the profits that were made from dumping industrial chemicals into the river have been privatized by the wealthy.

A third way is legal regulation. Every time a new technology comes onto the market the government has to regulate, which often shuts out everyone except the super wealthy from competing. (Want to start a cell phone company? Good luck with that.)

There are more one-in-a-million lottery ticket opportunities than ever before. But for the average person, there is actually much less opportunity for them to be successful. And not just less wealthy relative to the rich because the rich can gather sticks faster or whatever, but less wealthy on an absolute scale because there are no sticks left to gather.

It's nice to talk about making furniture and fixing up cars or whatever, but I think the number of fortunes that have actually been created by making wealth without externalizing massive costs onto the poor and middle class are probably few and far between.


Seconded. I learned assembly code on a DOS 2.0 machine by disassembling tons of random bytes and making a hex->assembly lexicon that I could use to write programs in hex. Not because I was trying to be hardcore, but because I was in an information, and software, and hardware desert. My kid, on the other hand, has a 24-hour, 50 gigabit connection to any information he wants, a computer made in 2015, and his choice of nearly any IDE and any programming language he could possibly want.

> Opportunity has increased _massively_ the last 20 years.

The only problem is that it's increased for everyone else, too. Used to be you were a king if you had a board with a nail in it. Now everyone's packing Uzis.


And a significant joy of those 'desert' years was the need for and rise of the hacker community which brought learners and tech fans together socially and educationally. That sharing of common experiences and cool hacks is gone now, replaced with near infinite code repositories that send a clear message to neophytes, "There be no dragons ahead, only well trod pavement".


When I made a shareware game using Delphi in the 90s distributed via BBS, tens of thousands of people downloaded it. Now there is so much "stuff" that I have to pay or beg for downloads.


> success = ability * motivation * opportunity

success = (ability * motivation * opportunity)^hugeDoseOfLuck

There is no guaranteed formula for success, it is heavily luck dependent. Those who think otherwise are suffering from survivor-ship bias and/or the just world fallacy.


The opportunity is the luck though, since its out of your control, if you take it that the constituent parts of personal behavior that present you with opportunities come from your own motivation.


Luck is far more than just opportunity though; luck is also all the things that didn't happen that could have, things that caused others who followed the exact same path to fail. Sudden disease, unexpected deaths and disasters, all of which are invisible luck for those who haven't been affected by them.


>The ultimate way to get market price is to work for yourself, by starting your own company.

see... this (and the implication that people working at large companies get less than market rate) doesn't ring true for me. The real "free markets" of labor, like craigslist and the rent-a-coder marketplaces pay about 20% of what you get if you go through a recruiter who has "a relationship" with a large company... for doing essentially the same thing, and from what I've seen, contractor pay (after the middleman takes his cut) is about the same as base pay (for the same work) at a large company.

Now, when I started contracting in the early aughts, base pay was basically the same as total comp, and so I subtracted the payroll taxes and health insurance and could pretty much directly compare contract vs salary wages. In the early aughts, it was pretty unusual for individual contributors to get big bonuses or even stock refreshes (or that was my perception; I was considerably less senor at the time.)

But, from what I've seen, if you are full-time at a big company here, you get a pretty significant bump now, in terms of bonuses and stock.

My point here is just that my experience has been that when I'm selling my labor, the further I move away from "the free market for labor" and the closer I get to a system of rank and privilege as pg describes 20th century corporations, the more I get paid.


True, but PG doesn't consider selling your time as starting a company, you're not talking about the same thing


right, but running a company requires a rather different skillset from working for someone else as a programmer. It's a different job.

My point is just that as a full timer at a big company, you are at the top end of "market rate" for programmers.

If you start your own company, you are on the 'business person' payscale, which is a rather different thing.


Your point makes sense, however look :

You develop a software and are the PM / product lead. You get paid 8 months, while your client makes $8,000 per month during the next 5 years. This is the market rate.

The market PG refers to is not the labour market but the consumer market where the metric used is not time but value.


Yeah, but "value" as measured by the market is a funny thing... you can write an advanced compiler and it will generate "zero value" as far as the market is concerned, because all the good compilers are open source, or you can setup a couple jabber servers, and the market values you at billions.

I mean, I use scare quotes to convey my scorn, but the point here is that agree with it or not, the market doesn't value technical skills very highly.

Sure, as a modern business person, you need to have some technical skills; but technical skills alone? technical skills alone gets you one of those rent-a-coder jobs.

Most of this "value" is... well, if I understood business well enough to tell you why a couple of jabber servers was worth Billions of dollars, I'd be making a lot more money than I am.

but my point is just that a lot of that "value" to the end customer is something that happens between a business person and the customer; it's something that the technical people are not very involved in.


Yes you got it all, now the next logical step is : "Stop being a technical person only", this is what PG is saying.

My advice is keep doing your stuff, but aggressively start building your product-based business on the side.

I encourage you to bookmark my blog and read the categories : "Startups", and "Software Engineering" (coming very soon) for free and valuable information. In 2016, there'll be new essays almost daily.

http://read.reddy.today


>My advice is keep doing your stuff, but aggressively start building your product-based business on the side.

I've been trying to do that for the last decade. I apparently have what it takes to do rather better than rent-a-coder, but my business skills aren't nearly enough to be "opportunity cost profitable" - I can make rent, but I'm not paying myself nearly what one of the local big companies would. Hell, right now I'm contracting to one of the big companies, and spending the money getting my own company back up to snuff. (and again, it's an education. Contractors, if you do the math, make about what 'base salary' would be for the position as an employee. A decade ago, this was also true... the difference being that a decade ago, base salary was pretty much total comp. These days, bonuses and regular stock grants are the norm and make up a large part of compensation. And if you are a contractor? you don't see that money... either it goes to the middleman or contractor bill rates haven't risen with full time compensation. Either way, it's another example of how technical people get paid worse the closer they are to a "free market")

From my observations? (and always consider "you shall know him by his fruits" when listening for advice; People who aren't successful, obviously, don't know how to become successful. So look at successful people, and look at what they did not what they say) From my observations, a lot of business is like getting a $BIGCO job. A whole lot of it is who you know, not what you can do.

My next project, actually, is to get myself into an elite college. Now I don't know if I can pull it off, I'm not saying it's going to be easy... but if I want to get rich, as far as I can tell, the contacts one acquires at an elite college are far more valuable than any amount of actual skill or effort I put into an actual product-based business.

edit: re-reading, I sound kinda bitter, and I'm not, or I shouldn't be. I have a comfortable place in this economic system; I'm certainly not at the top, but I'm pretty far from the bottom. I'd probably be doing worse in almost any system that most people would consider "fair"

Further, if I really was great? or, for that matter, if I hadn't made two or three of the mistakes that I made, I would very likely have become rich off of my own product business. You can succeed that way; I was close enough to see the possibility. But the point is that I did not. I wasn't good enough, while I am good enough to get a pretty cushy $BIGCO job.


If you've done it once you can do it twice.

I wouldn't go back to college, I actually dropped out from a top tier college 4 months before completing my MSc. To me there's only one good reason an informed entrepreneur would go to college : buy the alumni directory in order to have leads - not a job.

You become good at things by doing them often, do more business. Work on your business 2 to 5 hours every day and hold yourself accountable. I don't believe in MVPs but I believe in flexible revenue models, initially iterate this model as fast as you can.

http://read.reddy.today/read/4/flexible-revenue-model-vs-mvp...

I'll quote Donald J. Trump "Most entrepreneurs fail because they fail to see their business as their business school".


so... tell me, are you making more from selling your 'how to be an entrepreneur' stuff as you would from working full time as a programmer at a top-tier bay area company?

My experience is that getting to that level of revenue is pretty easy. Anyone can sell something if it's actually a good deal. Getting to the point where you can actually pay yourself that much? pretty difficult. My observation is that most people who got to that level as entrepreneurs got there more through the contacts they had than through their technical skills they had. Of course, not all; I can certainly come up with counterexamples to that rule.

Working at a big company, on the other hand? in my experience? it's really pretty easy.

most of the value of college, yes, is the contacts. But having a list of names is to contacts what one of those scammer emails promising to wire you money is to having a bunch of money actually in your bank accounts.

It follows then that if I'm right that it's mostly about contacts and the assumptions people make about you, you would have gotten nearly all the value you could have gotten from your college experience if you quit four months early.


I have a SaaS startup, my "how to be an entrepreneur stuff" are free ;)

The answer is no ; as for today. But I believe that the difference between an entrepreneur and an employee is the number of hours an entrepreneur is willing to work for free. That being said, I also expect to start cashing in and make 5 figures a month by the end of this month.

I agree that contacts are key but I also feel you don't have the right perspective here. Business is all about contacts. Even employees have contacts. The key thing is what you do with these contacts and how you seek them.

Reading your comment, I have a sense that you believe a bit too much in perception, luck, and in general passive opportunity. Being an entrepreneur is about influencing people and choosing your destiny, that's why most people do it. If you think like you think, even with the right contacts you probably won't make it as an entrepreneur.

Sorry if there was a communication issue, I don't think the only thing to take from college are contacts. I learned many stuff there. I actually left when I decided I learnt everything I was seeking there and it was no longer worth paying money for it.

What I was saying was that when you are a real entrepreneur, college credentials don't really matter for you.

Well, my impression is that what you really want is security and a constant flow of high income. However what I want is to make the impact I decided to make on the world and become rich by doing so. I'd 100 times prefer to have 50$ left after paying my bills by developing my ventures, than 6000$ left by having a 50 hours a week corporate job.

It's not only about money for me, it's also about how I make it. I want my wealth to be the result of my entrepreneurial success, it's in my DNA, I am driven by that. I refused several CTO positions, and resigned days after being promoted to certain roles that you seem to be aiming for.

As far as my career is concerned, I don't do it for the money, I do it for the success and I hold myself accountable to reach this success. This success is achieving wealth by delivering the unique value I can deliver to the market, using my unique insights and my unique worldview.


>Well, my impression is that what you really want is security and a constant flow of high income. However what I want is to make the impact I decided to make on the world and become rich by doing so. I'd 100 times prefer to have 50$ left after paying my bills by developing my ventures, than 6000$ left by having 50 hours a week corporate job.

I don't know where you're getting a need for security... I'll almost always take what I perceive to be the higher total expected return option, modulo emotional attachments and ethical baggage. My point is just that if you have the skills to get a big corporate programming job, that's probably going to be your highest total expected return option, even if you don't value security.

when I started going into business for myself ten years ago? I could have been you, only, you know, less slick. (And "slick" is interesting, because rhetoric that plays well with one group plays poorly with another. I would have used "plain language" and I wouldn't have quoted an entertainer, but even if the words we used had different connotations, the denotations would be similar) I spent many of those years living as you suggest (having $50 left over after paying my bills... I exaggerate some... but not that much.) Sure, it was pretty exciting, but... it's also exhausting after a few years. I mean, I'm not saying you shouldn't try it for yourself, it's just that you shouldn't fool yourself into the idea that it makes any kind of financial sense at all.


One taboo on HN is pointing out that even though software is a huge lever, there's no sign of the end of raw human labor. In every industry you can point to jobs being lost to automation, yet you still need many, many people in health care, or construction, or manufacturing, or police, or teaching, or mining, or working for utilities, etc. It's complete speculation to suggest that jobs are disappearing faster than they could be replaced. It's not surprising that people who used to work for big auto manufacturers can't continue to work for those same manufacturers, and that says nothing about whether those same people could find low-skill jobs in other industries, nor whether investment in sectors other than GM or Ford could create more unskilled jobs.

If there was a larger market for unskilled labor, the competition for workers would tend to drive up wages and lower inequality.


When jobs move from a developed / high wage country to one with cheaper labor, they effectively disappear. That pattern then repeats until the job finally ends up in the least regulated sweatshop in the darkest corner of the planet. Eventually automation will 'outsource' that job too, thereby completing the defragging process.

Does another job necessarily arise to replace each lost job? That's a question that only a religious person would answer.


This is exactly the taboo I'm talking about. Police, health care, mining, teaching, and surprisingly many others aren't going overseas right now. A lot of jobs are disappearing, and a lot aren't. Why assume that e.g. the American economy won't have enough jobs in the near future? There's no data on HN in all these discussions, and no real trends to extrapolate from except in very specific sectors.


Mining is becoming heavily automated. The work of a dozen men even twenty years ago can now often be done by two with a good computer model.

We are pushing very hard for computer vision, which is the real barrier to practical robotics that could replace your electrician, plumber, nurse, miner, driver, etc. There is no sacred cow of labor besides what is mandated by the molasses slow state (because I would absolutely argue that learning systems like Khan's Academy, the availability of resources online, and the technological organizational potential of software solve all the criteria to substitute teachers with a security guard watching the kids while they listen to robo-instructor, solve the problems themselves, and ask the neural-net for help when they run into problems - and the kids are of course not all in the same room in an expensive upkeep building called a school). That kind of change though must also be culturally accepted since a lot of effort goes into separating public education from market forces.

Point is, the jobs that we could not send overseas have tremendous pressure on them as a result to be absolved entirely by AI, robotics, and software. It is why the pencil pusher desk job of 1980 - rows of typists at typewriters transcribing documents - went the way of the Dodo and did generate a ton of unemployment that we still have not seamlessly solved.


Pressure, yes, but I want numbers - what percentage of jobs have disappeared over, say, the past 20 years, and could increased demand realistically replace those jobs in other sectors? You can't simply say "manual labor is over, because... singularity." There's no singularity yet. Until then, you need data before you can really extrapolate from current trends. The easiest things to automate are already automated, and harder things are coming along slowly. It might be true that jobs disappear faster than prices fall from the automation, or prices might fall fast enough that most people can have jobs that don't pay much, and still get by.


http://www.huffingtonpost.com/2013/01/23/middle-class-jobs-m...

http://www.businessinsider.com/bill-gates-bots-are-taking-aw...

http://www.nydailynews.com/news/national/smart-machines-job-...

Most relevantly to this direct topic:

http://fortune.com/2015/02/25/5-jobs-that-robots-already-are...

Like I said, there are demonstrable mechanisms, and in-lab and even in-market examples of how these technologies are going to replace almost all these jobs. This is not science fiction. This is market adoption at this point. And we are not at the start of the process, we are in the middle of it.


None of this really answers the question. Of course technology eliminates jobs. This has been happening since before Ford was founded and before all those automotive jobs were originally created. See https://en.wikipedia.org/wiki/Luddite for instance. The question isn't whether specific jobs are being destroyed, but rather whether all unskilled jobs are being destroyed, and none of those links even begin to give any data on the subject.


By definition of unskilled labor you imply only work done by physical action.

If you really don't think you cannot replace the human arm with a machine, you haven't been paying attention for two centuries. How is that even a question? We could replace all unskilled work today, if all you are doing is removing mechanical components of labor.

Remember, unskilled labor is "work to be done without training or certification". Driving a truck requires a Class C license, which is a certification. Working at Mcdonalds takes no certification. You need to have state certifications to work as a carpenter, plumber, or electrician. Your janitor doesn't need anything. So when you ask "is there any evidence unskilled labor can be completely replaced" then I would ask what unskilled job is not being replaced right now, from self checkout to vending machines to roombas to combine harvesters.


Certification is a red herring; assembly line workers have skills that I lack. I'm really only interested in jobs of that could be filled by the people who used to work in the Rust Belt, whatever you actually want to call that type of employment.

Thought experiment: let's say a trend starts for everyone earning 6 figures in Silicon Valley to hire a butler and a cook. How many jobs would be created? How many have recently been destroyed? How long before robots are as good a substitute for human butlers as the robot in The Jetsons?


The fact you do not have significant pressure to have a butler or cook today is in large part due to automation making them effectively obsolete. Anyone hiring one is making the informed decision that they are cost ineffective at jobs your phone, roomba, and local tv dinner manufactuary or new-age restaurant where the foot is prepared by machine are more efficient at.


>One taboo on HN is pointing out that even though software is a huge lever, there's no sign of the end of raw human labor.

I think people in technologist circles tend overstate the effects of automation and understate the effects of global labor arbitrage (aided by telecommunications).


Given Bloom's two sigma problem[0], the potential market for teachers is nowhere near saturation.

[0] https://en.wikipedia.org/wiki/Bloom%27s_2_Sigma_Problem


> replaced

This word implies creation of new jobs, but all examples that you discussed in the rest of your comment seem to be about the jobs that already exist, not new ones.


A counter-example, and a different framework to think about equality: Most of Scandinavia has fragmentation, freedom of expression, and genuine diversity of choice, diversity of lifestyle, of opinion, but it also has more equality. One can have a more equal society without raising taxes or massive wealth distribution. This is possible if a society ensures that its children receive adequate and equal access to healthcare and education in their earliest years, in other words, an equal start. This is where the US fails the most compared to Europe. Property taxes are the levers through the poor are priced out of good school districts. It acts as the algorithm through which self-segregation is made possible, often resulting in racial segregation as well. Education being a local affair ensures the wealthy and the educated have no incentive to fight for the rights of the poor and the ignorant, since they can get their fix via simply moving to a better neighborhood, leaving the others behind. Not so in Europe. The leaders of the community put pressure on officials and the system, and as the one system improves, so does the lot of all.A similar dynamic is true in healthcare as well, in Europe: A single-payer system ensures all get the same healthcare, and suddenly fixing it becomes a problem of upper-classes as well, but the entire society benefits from the improved system.

PG's post is self-justifying and self-interested.

Here's an alternative explanation of fragmentation: It is the sign of a new industry. It'll consolidate once it matures. Look at semiconductor & hardware consolidation. Google, Amazon, Apple, MSFT, Intel, Oracle etc. absorb a lot of software biz over time. There used to be hundreds of car companies, dozens of aircraft manufacturers.


Not very in line with the Hacker News Guidelines - "Avoid gratuitous negativity. When disagreeing, please reply to the argument instead of calling names."

Plus I don't think your judgments on PG are true.


Agreed re: guidelines. Edited to keep it about the argument.


I think there's a fascinating flip side to what PG calls the refragmentation: the decline of counterculture both materially and in terms of relevance.

PG talks about his yearning for something outside the mainstream bubble. For decades the major source for that was the various mostly youth oriented subcultures that made up what we called the counterculture. Hippies, punks, goths, 80s rockers, hip hop, ravers, geek fandom, and a dozen smaller variants provided something that... well... wasn't "red delicious."

Those things still exist but today they feel more like just another culture in the marketplace. They no longer seem to have such potency or power. Maybe I'm just old but I get the strong sense this is true for young people too. Today young people might visit these little subcultures as tourists, but when I grew up they were a much bigger deal. They became your identity. They were almost religious, like modern mystery cults.

Rave was probably the last great youth counterculture. I haven't noticed another one unless you count the "hipster" artisan living thing and that seems more like a lifestyle brand than a true counterculture of the postwar music+fashion+drugs+ideas mold.

In retrospect those subcultures were more like alternative conformity molds. They didn't really alter the underlying zeitgeist of conformity but just provided another channel on the cultural TV dial. Still I do mourn them a bit. Their greatest legacy was as artistic and musical crucibles and nothing has really replaced them. I don't think it's a coincidence that there has been no major musical innovation since the 90s. There has been good music but it all follows stylistic currents set down before 2000. Rave gave us techno and all its various sub-forms and... that's apparently the end of history music-wise.

Edit: would be curious to hear a counterpoint on the last item. Show me a musical style that is as much of a step change today as hip hop and electro in the 80s or drum and bass in the 90s or acid rock in the 60s.


I tend to think the diminished role of counterculture in the US is the result of having a lot more choices available within the mainstream. The narrow conformity of the 1950s PG discusses has been supplanted by a much wider range of acceptable/marketable cultural styles. Generally people today are more tolerant, meaning there is more room for more diverse people and lifestyles under the tent of the mainstream.


Graham leaves out one crucial thing:

A more equal society is a better society. Always. This was borne out in the work of Wilkinson and Pickett for their book The Spirit Level.

You may have less technology. You may have less innovation. Tough. Creating more of what Earl Dunovant called "cute and useful monkey tricks with energy and matter" at the expense of your fellow man and the planet does not put you ahead, and societies should not seek to optimize for monkey tricks over the betterment of their fellow man.

Inequality (along with the environment) may be the defining issue of the twenty-first century, and once recognition of inequality and its consequences goes mainstream, laissez-faire capitalism will join royalism in the dustbin of discredited political philosophies.


> A more equal society is a better society. Always.

If you can read Russian and aren't familiar with the concept of уравниловка, I suggest looking it up. My search on the English transliteration (uravnilovka) doesn't turn up good descriptions offhand.

If you can't read Russian, I'll summarize. It's basically the argument you're making: that everyone should be equal, and that the most expedient way to accomplish this is to drag down the people who stick up. Which is true: that _is_ the most expedient way to accomplish equality. Historically it also leads to everyone living in communal apartments and a stagnating economy that eventually causes your country to have a revolution because people get so fed up with it. It just takes several decades for the pernicious effects of stifling economic growth and innovation to show up.

Now maybe you didn't really mean "always" when you said "always", of course. Maybe you meant "keeping all sorts of things equal, more equality is preferable". I may be able to buy that, but then you need to convincingly argue that those things can be kept equal.

(We could also have an argument about the data cherrypicking and other shenanigans in the book you mention, but I don't think it's really all that germane here, since you're making a blanket argument which has simple historical counterexamples.)


No he doesn't leave this out because as he says, he is just explaining things, not giving an opinion.


Oh great lets get back into the trees. Then we will be very advanced society.


This is not what OP is saying.


This is exactly what he was saying. I just put it this way to show how absurd his idea is if we follow through with it till the end.


Nonsense, please quit that strawmanning. Reducing the pace of consumer technological progress to the benefit of more equality would very likely beneficial for humanity; and it does not imply returning to underdeveloped times (assuming it would reduce it significantly in the first place).


> Reducing the pace of consumer technological progress to the benefit of more equality

Was tried, more or less successfully, in the Soviet Union. People were not happy with the results in terms of access to consumer goods and living conditions. Been there, done that, don't want to do it again.


Oh of course you self labeled savior of humanity and self taught economist would know how much to reduce "consumer technological progress" and can decide for others what they need and want? Do we need internet? Cars? Washing machines? TVs? Drugs? No? Where to stop? If we don't stop we don't need anything and can go back to the trees and that's how this bullshit leftist nonsense works out logically if we follow through with it. You just hypocritically wrote that we don't need to consume and don't need to advance technologically with your computer. Ironic.


Great article, but it misses two triggers:

1. Globalization. A lot of manual labour was tied to USA, not so ago to local labour. In last 20-30 years a lot of things get imported from China or outsourced to India.

2. Software (briefly mentioned in original article). Previous technology advancement can give someone leverage, but software got probably the largest leverage in humankind history. Single program can automate what used to do an army of employees. Natural monopolies are common thanks to network effect, economy of scale or technological advances.

Winner takes all market (e.g. Apple has almost all profits in smartphone market, Android got some market share, alternatives are niches).


Interesting. If you are correct (I don't know if you are actually) it means that none of the 16 people who read drafts of this came to that conclusion. I say because I've always wondered why PG does this (so many people reading drafts I wonder if this is common in book publishing that can easily be updated and corrected just based on HN comments) and can't just leave his own thoughts to stand on their own.


It seems to me that much of the fragmentation that the post discusses is just economic specialization, which we should encourage (see Adam Smith). I do think it is reasonable that one limits the 'fragmentation', i.e. that one puts negative feedback in the economic loop in the form of a progressive tax. Negative feedback is used everywhere in electronics and even sometimes by the Fed to control interest rates. Even so, many economists [1] throw up their hand and say macro economics is too tough and we just can't predict how it will work. This seems like nonsense to my engineer brain; I think that a sharply progressive tax with an accompanying universal basic income is the right way to encourage economic diversity.

[1] I get my impression of economists from EconTalk by Russ Roberts.


As an engineer, you should be familiar with chaotic systems, which produce vastly different trajectories based on small changes in initial conditions. Very simple mechanical systems[1] exhibit chaotic tendencies. Control of such systems is possible on the small scale, but large scale chaotic systems may become uncontrollable.

Now imagine an economy made of millions of people who all have different needs, desires, abilities, environments, intelligence, etc. How accurately can you predict how a single policy decision will shape the trajectory of such a collection of people? Now the State pushes thousands of policy changes per year into the system without ever really monitoring the response to a single change.

> many economists throw up their hand and say macro economics is too tough and we just can't predict how it will work

The smart ones do, but the mainstream Keynesian school have the hubris to think they can predict the responses of millions. Most Western leaders have been advised by Keynesian economists for much of the 20th century, and the decisions of those leaders have caused vast displacement, pain, and suffering in the form of economic turmoil and war.

Remember, the State is also an economic actor, and it derives its income by coercive force. Progressive taxes simply point a bigger gun at the heads of those who perform better in the economy.

[1] https://en.wikipedia.org/wiki/Double_pendulum


> ... thousands of policy changes ...

I'm all for reducing the size and complexity of govt, including the frequency of policy changes. A progressive tax can be a small-govt solution.

> ... Progressive taxes simply point a bigger gun at the heads of those who perform better in the economy.

A progressive tax certainly takes more from those who have performed better in the past. I'm concerned about creating jobs and encouraging situations where people can succeed in the future. The people who will create the jobs of tomorrow are not the ones who created past jobs. It's small companies who create jobs, so don't tax them as much; it's the struggling entrepreneur who will create jobs, so don't tax them as much. Instead, tax those who have already succeeded and who are not creating as much relative economic output.


There are some bold claims here that you don't even make an attempt to back up with evidence.

On chaos, you seem to be arguing that a few select simple systems are chaotic, therefore a much larger system must also be chaotic. This doesn't make any sense, complexity != chaos. Think of something like an ant colony, millions of ants in an incredibly complex system, but the system as a whole tends toward very consistent behavior. Killing some of the ants or cutting off on supply of food makes no difference.

It's also incredibly vague to talk about this when there are billions or more inputs to a system like the US economy. Some variables might exhibit chaotic behavior, but that doesn't mean anything you do to the system has a completely unpredictable outcome.

> Now the State pushes thousands of policy changes per year into the system without ever really monitoring the response to a single change.

What? They monitor changes all the time. For instance, the white house is happy to tell you exactly how many more people have health insurance now thanks to obamacare. Many (maybe most?) of the policy changes are close to independent and effect only a small subset of people. And it is usually possible to statistically account for other factors that might be interfering with what you're trying to measure.

> have caused vast displacement, pain, and suffering in the form of economic turmoil and war.

Yet somehow we're living in the safest time in human history [1]

[1] https://www.ted.com/talks/steven_pinker_on_the_myth_of_viole...


PG started off talking about the fragmentation in politics, and I wish he would have wrapped that back in at the end. It feels to me like the two party system in the US is dying now as the oligopolistic system of just a few big companies began dying in the 90s.

The two party political system is more unnatural than the few-big-companies system. Libertarians and Evangelicals agree on very little yet they've been voting for the same party for years. Proponents of extreme reform on the other side don't want to vote for a moderate candidate. A Trump vs Clinton election is going to leave too many people without a candidate and force the beginning of the end of the two party system.


What is the end game of first past the post though? Its a predictable state machine, if the GOP fragments too much the democrats will take a supermajority of power in the country, adopt disparate ideals of its own until you rapidly get a newly formed opposition party that all the "anti-dems" rally behind to immediately replace the GOP. Then you can have the dems with an overabundance of conflicting ideals decay from within all the same.

You don't have more than two parties in a stable first past the post system. But that is what the US has always had. It takes a pretty big constitutional amendment to adopt an alternate or transferable vote system. But how do you fix a system where those deciding if they want to fix it are only put into power due to the nature of the system as it exists today?


> Libertarians and Evangelicals agree on very little yet they've been voting for the same party for years.

Huh? Libertarians are liberals (small 'l') and what you call evangelicals are (for the most part) social Burkeans. The U.S. happens to have been founded, for the most part, as a liberal state, so the conservative position and the liberal position have historically been on the same side of most issues: welfare, parental rights, religious freedom, education, economic issues, and so on.

There are a few social issues that there isn't general agreement on, but those only seem to affect how libertarian voters feel for an election or two. After some statist behavior actually happens (healthcare reform, the Kelo decision, government surveillance, etc.), libertarians start to realize that conservatives align much better with their goals. At least, they're the lesser of two evils.

I think the problem here is that most people don't actually listen to other opinions on things. Since there is a lack of diversity in mainstream opinion shows, certain positions (libertarian, evangelical, etc.) tend to be only described in caricature. When evangelicals and libertarians start to talk about politics, there's actually a lot of agreement on big issues. Even when they disagree on the ends, they generally agree on the means (big changes should happen with a Constitutional amendment).


Politics is a bit of a different beast than business. Things that occur to me off-hand are:

- Political entities get large not to achieve economies of scale (i.e. increased efficiency and effectiveness, which may or may not materialize in business... thereby sowing the seeds of future fragmentation when they don't), but rather to achieve scale itself: more votes.

- There's been no de-regulation akin to what occurred in business in the 70s and 80s, mostly because the big parties literally write the rules.

- Elections are pretty much a zero-sum game.


> The two party political system is more unnatural than the few-big-companies system. Libertarians and Evangelicals agree on very little yet they've been voting for the same party for years. Proponents of extreme reform on the other side don't want to vote for a moderate candidate. A Trump vs Clinton election is going to leave too many people without a candidate and force the beginning of the end of the two party system.

Two-party system is awful in representing people's opinions, but it's much better at another task, that might be even more important — reaching minimal acceptable compromise. Also, you might be overlooking another danger of multi-party system: political force that significantly over-powers all competition. Once something like this appears and gets the power over government, it gets the positive feedback effect and very often becomes a beginning of authoritarian and un-democratic regime. US and UK two-party systems server as a natural safeguard against such a thing happening.

Really, selecting the best possible leader and making best possible decisions are not necessarily the main tasks of a democracy.


Regarding income inequality, I recommend listening to some of the speeches/debates with Bernie Sanders.

E.g. he argues that the greatest receiver of welfare in the US is the wal-Mart family, because they get even richer paying their workers so little that the workers have to live on welfare. (In other words the welfare is "paying" the workers so that Wal-Mart don't have to.) He proposes to rise the minimum wage.

https://www.youtube.com/watch?v=eYFueqv0iIQ


Walmart employees are not compelled to work for Walmart; the employment contract is agreed upon voluntarily by both parties. The employees know how much they will be paid and agree to accept the terms.

Walmart is operating within the legal employment framework set up by the government, including the welfare state and the minimum wage. That will not change by raising the minimum wage. Rather, Walmart will simply add automation and reduce its employment.

Minimum wage is arguably the worst idea when it comes to improving the lot of the poor. If someone cannot command more than the minimum wage when it comes to productivity, intelligence, etc, then raising that wage means that person will be unemployable. That is, their skills are not worth the minimum amount an employer is allowed to pay, so they will not be able to find a job. Ever. That person will be a permanent liability of the State.


> Walmart employees are not compelled to work for Walmart

Yes they are, poor people are compelled by lack of opportunity to take whatever they can find even if it sucks. Pretending they have the option of just saying no to a low salary is a bit of willful misunderstanding of the reality of their situations.

> Minimum wage is arguably the worst idea when it comes to improving the lot of the poor.

No it isn't.

> If someone cannot command more than the minimum wage when it comes to productivity, intelligence, etc, then raising that wage means that person will be unemployable. That person will be a permanent liability of the State.

That is the point, a minimum wage allows people the opportunity to get into welfare because minimum wage is part of the welfare system, it sets the low bar. It's better to not have a job and qualify for benefits than it is to have a job that pays so little it's not worth having. The minimum wage forces society to deal with the problem of people who lack the skills to make a market wage, and that's a good thing.


The problem with this analysis is it assumes that the power to negotiate a wage is equal between the parties. The second is wages are set at the margins. This means it takes very little excess labour supply to drive wages to subsistence levels.


I must commend you - I have never seen the main detrimental effect of the minimum wage explained so succinctly. Not in Friedman, not in Hayek, not anywhere.


> Walmart employees are not compelled to work for Walmart; the employment contract is agreed upon voluntarily by both parties. The employees know how much they will be paid and agree to accept the terms.

While technically true, you're ignoring a ton of other factors such as the lack of any other alternative employment or the lack of financial capability to move to an area where more employment exists.

When the only jobs available are McJobs, then that is what you are compelled to do, to support yourself and your family - regardless of your intelligence or qualifications because someone else is ready to take your place if you don't accept the job. You have no power to negotiate a higher salary regardless of whether or not you deserve it.

It is a very hard rut to pull yourself out of and stay free from. Companies like Walmart exploit this as much as they can, and have no reason to change their behaviour unless forced to do so.


tl;dr: Raise the minimum wage so that employees don't need to live off of welfare. People lose their job? Good riddance, seriously. People don't lose their job? Called their bluff.

> Walmart employees are not compelled to work for Walmart; the employment contract is agreed upon voluntarily by both parties. The employees know how much they will be paid and agree to accept the terms. Walmart is operating within the legal employment framework set up by the government, including the welfare state and the minimum wage.

Yes. And if you think everything is fine the way they are now, then don't change a thing.

> That will not change by raising the minimum wage. Rather, Walmart will simply add automation and reduce its employment.

Sounds great to me. You're basically arguing that not having minimum wage is actually holding back progress.

> That is, their skills are not worth the minimum amount an employer is allowed to pay, so they will not be able to find a job. Ever. That person will be a permanent liability of the State.

If an economy can produce the same amount of wealth with much less workforce/work hours than today, then why shouldn't it? Sounds great if you ask me. (And if that's not possible, just hire more people, it's apparently worth it, problem solved.)

"Minimum amount" is in this case "amount needed to reasonably survive", ie. not need extra welfare. If you can't produce enough value that you can't even justify being paid to "reasonably survive" then yes you need help.

Okay, so I'm no economist, but it sounds like you're arguing that not having minimum wage is in itself a socialist measure. In other words, paying people something, anything, is better for the poor than paying them nothing. The only reason to pay the employees anything at all is to "help the poor", because their work is not really needed anyway (their work is worth that little).

To follow that line of reasoning, from a capitalistic viewpoint, it would thus be wise to raise the minimum wage. If people are being paid to do work that's not actually worth it (ie. subsidized via welfare), then don't. I seriously don't understand why capitalistic Americans defend that point of view. Why should the state/government subsidize effectively worthless labor?

What I'm doing is "calling the bluff". People won't get hired? That's fine, the work they were doing is practically worthless anyway, and I'm certainly not for subsidizing that. However, I think people actually will be hired anyway. Because their work is not worthless. I think the only reason people are being paid so little is not because of the "worth" of the work they're doing, but because the market allows it.

I don't know how that happened, perhaps because the big cooperations have too much power, perhaps it's just inevitable in a free market. But I do not support subsidizing labor, and I don't buy the argument that you have to. The money is there, the value of their work is there, there's no problem paying people more, they just don't want to, and luckily for them they don't need to either. And as long as everyone plays along, that's how it's going to stay.

Sometime in the future I'm sure we'll be able to produce enormous amounts of wealth with minimum man power (re: automation). What will everyone do then? That's up for debate, but it looks like the best bet is putting everyone on universal basic income. And that's not a problem, because the wealth is there, the "problem" is that no one needs to do anything to produce it. I'm sure our future selves will find a fix. (If not, then that sounds like a base line for a revolution. Let's hope that's not needed.)

In the meantime, redistribute some of the wealth by raising the minimum wage. Wal-Mart don't need employees? Fantastic, the future is already here.


Either you're trolling, or you completely misunderstand my position.

Thought experiment: Let's make the minimum wage $1000 per hour. I'd like you to think through the ramifications. What would happen?

> Sometime in the future I'm sure we'll be able to produce enormous amounts of wealth with minimum man power

We already do! The amount of productivity possible by a single worker today was completely unheard of 50 years ago, let alone 100 or 200.

> What will everyone do then?

What do we do now? We continue to work, even though we're far past satisfying all of our material needs. Why didn't everyone just stop working more hours than it takes to eat and stay warm?

Come up with answers to those few questions and you'll be well on your way to being an economist ;-)


> Thought experiment: Let's make the minimum wage $1000 per hour. I'd like you to think through the ramifications. What would happen?

I'm assuming prices through the roof, companies forced to sack their workers, unemployment rate through the roof, companies go bankrupt, economy collapses.

I believe Sanders is suggesting $10/hour (and that it's around $7 now). That's just a number, but I'm assuming it's the threshold between "needing welfare" and not. So my argument is that if you're paying an adult less than that then that's less than the cost of that person to "reasonably survive", thus artificially low. (In other words, companies are paying less for labor than the actual cost of labor.)

So now instead they're getting $7 from their employer, and in practice $3 in welfare. That's the difference with your example: People are already earning $10/hour, they're just not getting it from their employer. So raising the minimum wage is not raising the cost of labor, it's simply placing the entire burden on the employer instead of subsidizing it. There might even be room for a tax break there once people start number crunching. (Although in Sanders case I'm guessing he has other things to spend that money on, but I digress.)

If raising the minimum wage to the real cost of labor is a problem, then I just don't understand why. The money is there, it's just "stuck" at the top, and minimum wage is one way to help distribute some of the wealth (which really should benefit the economy as a whole, since the incredibly rich can't possibly spend all their money like millions of middle class families would).

> What do we do now? We continue to work, even though we're far past satisfying all of our material needs. Why didn't everyone just stop working more hours than it takes to eat and stay warm?

I guess it's partly because we live in a material world (where having a nice house, car, pretty clothes etc. is rewarding in its own right), and partly because money brings possibilities, and thus freedom: Freedom to travel, to not work, to do whatever one pleases. So money ultimately brings pleasure, and what else is life than seeking pleasure? ;-)


Sanders also, least in my mind, poses the question to us, is this morally just? We have a large group of people who are born and cannot afford to go to college, are strapped with debt to go to college, or simply can't make it in college. Do we allow an economic natural selection to weed these people out and suffer or do we as a society take a road based on moral principles to help each other by all of us paying in. Something interesting that I've been thinking about. I also wonder how much it hurts us in expansion of ideas. We have all this engineering talent focused on how to get people to click on ads, optimize e-commerce sales, and much more. What more could be done? Also when food chains break down and fully automate drive thru restaurants.. we'll there go lots of labor jobs... random thoughts feel free to ignore me.


This assumes an obligation on Wal-Mart's part to pay people according to their need. In a market economy, people are paid according to their ability.


But welfare payments are paid according to need.

My understanding on Sanders' statement is that it could be paraphrased: "If walmart employes didn't get state welfare, waltons wouldn't be as rich, because they would have to pay more (employees who can't afford food and shelter can't work for you) ... ergo, walmart employees are, at the moment, practically, a conduit of welfare from the state to the waltons".

(That is how I understand his statement -- I don't agree or disagree, I don't know the details well enough to do either)


> ergo, walmart employees are, at the moment, practically, a conduit of welfare from the state to the waltons

This doesn't make any sense (though you have paraphrased Sanders accurately). While technically true for some definition of "conduit of welfare", the same is true of almost everybody in society. Welfare recipients are integrated into the economy enough that "if X didn't get welfare, person Y wouldn't be as rich" is true for many, many, many values of Y (neighborhood stores in poor areas, people benefiting from reduced crime ("stealing bread to feed your family" used to be more than a trope), etc). To give an example in microcosm: if you buy a used car on Craigslist from someone, the fact that the seller is a welfare recipient doesn't mean that you're a beneficiary of welfare because you're not paying him enough to live off of.

To the extent that society is responsible for helping the poor (FTR, I personally believe in this responsibility), it makes absolutely no sense to claim that employers (as opposed to the welfare system) are responsible for filling the gap between "market value of a person's labor" and "how much income he needs to reasonably survive".

This particular claim of Sanders is absolutely idiotic: people are blindly pattern-matching it to support for the poor when in reality he's arguing for shifting the burden of subsidies from all of society to arbitrary consumers/business owners/employees affected by artificial wage floors.


> To give an example in microcosm: if you buy a used car on Craigslist from someone, the fact that the seller is a welfare recipient doesn't mean that you're a beneficiary of welfare because you're not paying him enough to live off of.

I think the difference here is that it's not a matter of a single transaction, it's an employment, so what the employer is basically paying for is the employees time (and time is finite). So a better example would be that you pay someone on craigslist for a service, e.g. paint your house. If the painter works full time painting houses and still needs welfare, then the taxpayers are basically subsidizing house painting ("conduit of welfare" as it was phrased). Why can't those that need their house painted pay what it actually costs to get the job done? Because if the full time painter needs welfare, they're in reality paying him too little.


> I think the difference here is that it's not a matter of a single transaction, it's an employment, so what the employer is basically paying for is the employees time (and time is finite).

I think the distinction you're making here is more than trivial, and considered mentioning it but decided that it's still not relevant. My point was that Sanders definition (esp as paraphrased by you) is silly to the point of being meaningless, since it consisted of "X isn't paying enough for Y to get off welfare, thus X is receiving welfare". This applies to my example writ small. Your painter example isn't much difficult from the Craigslist example: the person spends his time doing multiple things that add up to less than enough salary to live off of. That doesn't make any of the purchaser's of his services responsible for the shortfall. To the extent that anyone else is responsible, it's all of society.

> Why can't those that need their house painted pay what it actually costs to get the job done? Because if the full time painter needs welfare, they're in reality paying him too little.

You're defining "what it costs to get the job done" very bizarrely here. If the painter takes odd jobs but his wife is employed too such that the two of them are somewhat comfortable (at least above the poverty/welfare line), by your definition it would suddenly "cost less to get the job done" (since the shortfall to a reasonable income has now diminished/disappeared)? This is of course an absurdity.

The problem again is that you're picking a way to place responsibility for subsidies that makes no sense from either an efficiency or an ethical standpoint. Assuming a need to take care of the poor, we all share that responsibility. The only reason we've "decided" that the burden should fall on arbitrary industries and their employees/customers/owners[1] is because that way we can pretend that we don't believe in taking care of the poor and the robust welfare system that it would entail. All we're doing is creating a shitty, roundabout version of welfare.

Note that I have a tendency to consider complete systems when it comes to policy. In the current political climate, it's no doubt more feasible to implementing higher minimum wages than, say, a basic income. So despite thinking that minimum wages are a terrible idea in a well-functioning system, I wouldn't necessarily vote against them in our less-than-optimal system. I just don't think there's any reason to delude ourselves into thinking that they're good policy per se.

[1] And in a weaker effect, that their effects should fall on arbitrary


It's not clear to me that they would have to pay more. In previous generations people leaved in much worse poverty and still managed to show up to their various jobs.


In the case of minimum wage, they would indeed be forced to pay more, rendering the need for welfare to those same people unnecessary, thus shifting the cost from the state/government to the employer.

That is in effect wealth distribution, which again closes the big income inequality. (That's the intended effect anyway.)


> thus shifting the cost from the state/government to the employer.

This would simply shift the cost from the state/government (read taxpayer) to end consumers (read taxpayer).


If the employer responds by increasing the prices of the goods/services they sell, then yes. However, in the market the consumers have a choice, so they can choose to not buy something, or buy somewhere else, and the market thus regulates itself. Don't want to pay taxes? Not much choice there. So I think having the market regulate itself is better than enforcing the cost of labor through taxes. (Who knows, maybe the employers would be forced to cut their margins even.)


beagle3 argued that in a world without welfare, Wal-Mart would have to pay more or their employees would be unable to work due to lack of basic necessities. I was only arguing against that assertion.


I was merely paraphrasing my understanding of sanders' argument.

But the argument has merit if the wage is not livable. The two issues the make this an issue (or a nonissue) is what is a minimum livable wage, and whether or not it is the governments role to enforce that or not. (No idea about the first, I think Yes about the second)


Ya, I get that you were paraphrasing. And you did a fine job in my opinion, so my refutation was more aimed at Bernie than you.

With regards to enforcement of a minimum wage I would say that if we, as a society, want to enforce minimum living standards that is a burden that should fall on all of us and not just companies that employ low skilled labor.


In a market economy, people are paid just enough so they don't leave. Salary depends more on the typical economic situation of an employee than their ability.


Ya, ability isn't really the best word to use there. I was being cute by using the words of Marx. In reality "output" is probably a better word here.


Which is something that George Osbourne a Conservative has said in the UK.

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