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Economic Inequality (paulgraham.com)
399 points by urs on Jan 2, 2016 | hide | past | favorite | 547 comments

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

There's nothing wrong with someone getting rich provided they contribute a proportional amount of value to society. Problem is that since the post-WII period (also called the Golden Age of Capitalism) such rewards have been happening less and less [1,2]. In fact, I think reducing inequality is essential for promoting productivity.

[1] https://en.wikipedia.org/wiki/Post%E2%80%93World_War_II_econ...

[2] https://upload.wikimedia.org/wikipedia/commons/7/73/US_produ...

But is it wrong for a rich person to hoard wealth, or to spend only on luxuries for themselves? Why do they have to "contribute to society"?

I'm by no means wealthy, and at my age of 29 I've donated more money than many of my coworkers. And I'm all for a portion of tax dollars supporting the underprivileged. But when I read about Larry Ellison's yacht-racing hobby, I think to myself, "good for him." He can spend his money on whatever he wants, right? I don't see that he owes anyone anything just because he has more.

That's not the argument. The "contribution" is through taxes to the society that enabled them to get rich in the first place. Sure, some people are upset about obscene displays of wealth (though in today's America, those people don't seem to have much of a voice), but by and large, no one begrudges rich people from enjoying themselves (this is America, after all. We love our rich people as a rule, even when some of them are terrible people individually.)

We do begrudge people avoiding taxes, buying legislation and legislators, funding think tanks that support only the interests of the wealthy, and blowing up the financial system and/or economy.

Hoarding slows down the economy and creates dynasties who continue to excercise power well past the time their judgement on the stewardship of money and social good has been incapacitated. That is what death taxes are for. Luxury however is awesome - it is one of the fastest ways to transfer wealth from the incapacitated hoarders to publicly owned companies which then feed retirement savings (unless you're like a certain luxury brand dynasty and want to keep your money by tricking the tax system upon death). Oops.

Politics is a zero sum game - at the end of the day everyone is pulling the rug in their own direction. The poor do it by voting in populist politicians, the rich by paying off those politicians through lobbying, or gaming the tax system.

What everyone needs is an economic model that maximizes the wellbeing of society as a whole, so the pie at least gets bigger as it gets redistributed. That, and a political model that prevents any single group from pulling the rug completely out and causing war.

> Why do they have to "contribute to society"?

This gets to the core of the question! How did a rich startup person get wealthy anyway? They built something that people wanted. People said: "hey, that thing you built, I value it at $20 and you're giving it away at $10, so I'm happy to buy it!" Anyone who made money from business has already created wealth and contributed to society, via the market.

To the people who would disagree with me-- Look at your surroundings. Do you feel oppressed by the manufacturers of your laptop? Do you feel like you have no other option but to buy a $5 latte at the coffeeshop you're at? Are you being held at gunpoint by your new-used car? Do you wish the refrigeration oligarchs never existed? No! You are getting _insane_ value out of these relatively cheap items. Your $5 latte couldn't even exist a century ago. So it's okay that all the people who worked 40 hours a week to bring you your gadgets get a cut.

> Anyone who made money from business has already created wealth and contributed to society, via the market.

Let's not get carried away. This is how the market is supposed to work, and often it does work this way, but there are plenty of businesses built on exploiting information asymmetry, bad regulation (often lobbied for by the businesses themselves), etc. Yes, markets are generally good, but there looks to be plenty of room for improvement in our implementation.

They built something that people wanted.

Most startups today aren't really creating brand-new "value" (which is a horribly nebulous term, hence I'll leave it in quotes), but rather taking part in a shifting of existing "value" from place to place, and the VCs who fund them glean some profit out of the process.

And some of the most controversial startups are doing this not by offering genuinely better products or services; they're doing it by offering a similar-quality product or service, but bringing the price down by simply ignoring laws and regulations their competitors are required to abide by.

>but bringing the price down by simply ignoring laws and regulations their competitors are required to abide by.

You're right, in a lot of cases (Taxis vs Uber comes to mind) the government has created these sub-optimal local maximums with its unnecessary regulations and industry protectionism. Technology is the big energy input needed to break free and move to a new maximum.

When I use Uber, I get much more value than I ever did with a taxi. Not only does it cost me less, but it's faster, the experience of ordering is painless, the cars are nicer, the drivers are honest, and there's accountability for bad drivers. Uber is most definitely creating value.

More generally, new ways of doing things displace old ways of doing things. If you're a company doing things the old way, adapt or die. That's progress. In capitalism, the destruction of old business models is as essential as the construction of new ones. They are two sides of the same coin.

Addressing your argument again, lots of the businesses being displaced were basically profiting from regulations that kept out competition. He who lives by the sword dies by the sword.

As for your general point that the valley isn't really creating much value, remember that all of those wild valuations are just risky speculation by a small few, given that there's no open market for buying and selling shares in these companies. Risky speculation is a valid investment strategy for a portion of your wealth. Beyond all of the hard-to-believe valuations, there's also thousands of small technology companies making small profits and providing real value, but not getting any media attention.

It certainly is possible to recognize that disruptive startup businesses provide value and quality over preexisting services, and criticize them for flouting laws that are supposed to protect their workers, and/or customers.

It also is certainly possible to recognize that government overregulation has enabled rent-seekers to do great harm in staunching competition and establishing a low level of quality for consumers, but also that government has the power to protect the customer and the worker from exploitative businesses.

A thing can do both good and bad. We must all recognize that.

"The majority of drivers are classified as independent contractors, are not protected by core employment and labor laws, and often work under arduous and unsafe conditions."

Yeap, Uber is awful. Oh, wait, this is actually a report from 2007 describing the Taxi industry: http://www.nelp.org/content/uploads/2015/03/Unregulated_Work...

There's a lot of propaganda about how Uber is reducing the welfare of drivers, but it all seems based on some ideal of the taxi industry that isn't actually true.

We know that Uber is awful and managed by sociopaths in absolute terms. It does not need comparison to any kind of old taxi industry ideals. Plethora of reports we had for the last few years show this clearly. And old "taxi mafia" was at least subject to some improvements - each taxi company was local and had to listen to authorities, which in turn could be influenced by citizens. Uber? They don't give a flying fuck about the law, and they're too big for any single city to pressure them into anything. It's like trying to replace a bunch of crooked mayors with a warlord hell-bent on total domination in the region.

I don't like Uber either; I just dislike dishonest propaganda, even if targeted at a bad actor.

> They don't give a flying fuck about the law, and they're too big for any single city to pressure them into anything.

I think that's a little overblown. Uber has been forced to leave many cities (Paris, Frankfurt, Hamburg, Madrid, etc) and parts of cities (e.g. Calgary Airport).

Uber may be willing to bend the law, but the cities can literally call their cars and ticket them (or even impound them), it's not like it's an underground operation, and not even Uber can sustain that, as we've seen.

Fair enough. I know about Germany, but I missed Paris and Madrid - thanks for the info. Though how much % of the total operations is that?

But it's not bending it, it's disregarding and breaking it. Bending was what Uber-like services have been doing in Europe for past 10+ years, and in time they managed to integrate themselves with the infrastructure nicely.

In my city the IRS tries to randomly call and then fine the living crap out of Uber drivers, but it doesn't seem to be effective. Frankly, if Uber teaches people anything it's how slow and inefficient local governments have become. Which is both good and bad to know. On the other hand, local startup community figured out that they're obliged to help Uber win, so they promote them and jobhunt for them and if our startup community is good at anything, it's good at promoting and finding people.

Why would the IRS be fining Uber drivers? Uber is legal under federal law. And the IRS doesn't really care that much about how you got your money, as long as you pay taxes on it. Do you have a source for that or just anecdote? Maybe it was the state-level tax authority.

I don't think TeMPOraL lives in the US; for us foreigners when speaking in English, it's common to use the American term to refer to the local equivalent.

Like you said, I meant the local equivalent to the American IRS. I actually picked up this way of writing here on HN :).

Uber is still available in Paris. Only UberPop has stopped. They still have UberX and UberBlack which are legal according to French law since they rely on licensed drivers.

I prefer the accountability of the market, over taxi cartel boards.

Fine, but it doesn't work when one side plays by different rules than everyone else.

I agree. Abolish the medallion systems and other industry protectionist laws. Then cabs will just become a federated competitor to Uber and prices will fall to the same level, if not lower. I guarantee that the taxi lobby will not approve of that. They want government protection to revive their dead monopoly. There's nothing morally wrong with that; they're just looking out for their own interests. It's on the rest of us to see that for what it is.

Yes, that's true and it wasn't my intention to say otherwise. The rule of law is a very good thing and flouting the laws is ipso facto a bad thing because it damages the rule of law. I happen to disagree with a lot of those laws, on both the grounds of individual freedom and their own stated goals (i.e. I think that a lot of worker's rights and consumer protection laws are actually bad for workers and consumers). And flouting bad laws can bring good results. Especially laws that have only civil penalties, when people accept the risk of those penalties. It's a delicate issue that should probably be evaluated case-by-case.

Ah yes, the evil gubmint did it.

Well, you have fun with that.

I'm addressing your specific argument here:

>but bringing the price down by simply ignoring laws and regulations their competitors are required to abide by.

    This gets to the core of the question!
    How did a rich startup person get
    wealthy anyway? They built something
    that people wanted.
And were lucky enough to live in a society sufficiently functional to let them build that thing others wanted. You don't see a lot of millionaires or billionaires coming out of failed states.

> Anyone who made money from business has already created wealth and contributed to society, via the market.

What in your opinion would be the contribution of a high frequency trader to a society or an individual ? Getting markets to be arbitrage less at sub-mili-second time scales was a pressing problem for no one.

For some of the other industries, if you price the externalities, it is far from clear if they are providing a benefit.

It's not a large problem and that's exactly why the high frequency trading industry is tiny. You only think it's big because it gets disproportionate attention in the media.

I guess it depends on how you bracket the problem and how you define "large". According to http://www.marketswiki.com/mwiki/High-frequency_trading,

"It was estimated that as of 2010, high-frequency trading accounted for an estimated 50 to 70 percent of trading."

Yes, that's absolutely natural. That's like saying 50 to 70 of Internet traffic went through an ISP.

I suppose. I mean, I get the difference between quality and quantity, but if we're talking about the gravity of the problem, the knowledge that 50-70% of trades are HFT/automated tells us something about the nature of our securities, commodities, etc. markets. Doesn't it?

But why does that astound you or strike you as a problem? Look at any mature market and you'll find middlemen buffering supply and demand. Imagine:

50-70% of auto transactions are between dealers who don't even drive their cars and only own them for weeks!

50-70% of bread transactions are between distributors and supermarkets who don't even eat bread and want to sell it in days or even hours!

That's a good point. I suppose I assumed that the 50-70% figure referred to front-side securities, futures, or commodity transactions (the equivalent of an end-customer buying a finished product in a retail transaction), rather than amongst various intermediate levels in a complex supply chain.

>Its not a large problem

is a very charitable way of putting it.

No, they didn't get wealthy merely by building something that people wanted - if you just do that, other companies will offer the same thing and the market will drive down the price to just above the cost of production. This is how the free market is meant to work and it's what makes it (in theory) an efficient way of allocating resources. In order to get truly wealthy you need to find some barrier to entry, some way of ensuring that you can avoid the free market and its drive for efficiency. It could be network effects, which ensure that competitors to sites like Facebook and eBay won't succeed because they're useless unless everyone's already using them. It could be software lock-in and patents of the kind that drove Apple to be one of the richest companies in the world. It could be information asymmetry that causes people to choose your well-known brand over cheaper but better products because it's too expensive for them to assess the actual quality of what they're buying. But there has to be some barrier, some way of defeating the free market.

Thank you for articulating this. It's an interesting perspective I hadn't seen before and will have to ponder over the degree to which it manifests itself..

Selling something that people want isn't equal to providing value. Let me be pessimistic: coffee doesn't provide a positive value, because it's a drug that get's people addicted however little and subliminal. Maybe that is a value to society in general, but it isn't to the individual. The car definitely is an economic nessecity in some parts. I don't know what refridgerator oligarchy you are refering to and it specifically doesn't matter. I'm sure the term oligarchy relates negatively to democratic societies.

I love coffee. It is one of the great pleasures of life, like chocolate and strawberries. It provides positive value to me.

Hedonism is your ultimate phylosophical truth, is it? Strawberries are hardly as heavily industrialised as coffee, calling your relationship with a hot bevarage a romantic one is doubtful. I am as pessimistic as your logic is flawed. There are few things in live the brain is prewired to feel a need for. Coffee supplis the illusion of fullfilling two or three enssential ones of these, hunger and thirst and sleep, but it doesn't actually provide the associated value.

Hedonism is as true as any other. Plenty of people, even if they are not familiar with philosophical terms and wouldn't self describe as such, are living according to hedonistic values. Plenty of people are living according to all sorts of different codes. Any system that defines value in a way that doesn't allow for these people, for example by saying that coffee doesn't have value, is a faulty one.

Economically, if a person is willing to spend $5 on coffee then coffee is worth $5 to them. Trying to attach solid philosophical reasoning behind that may be a fun thought experiment but it's hardly the solved one your responses seem to imply that you think it is.

No, hedonism is not true. It's a deceptive misconception of what values are a good guideline for a sustainable life. I was getting at the common notion that hedonists don't want to work, because it's no fun, which is obviously incompatible.

>any system that defines value in a way that doesn't allow for these people


Hedonism defines pleasure as the primary and most intrinsic good so any system allowing it is just hedonism. WTF? How would any system acommodate competing theories? Fun thought experiment, sure.


Usually it would go the other way, if coffee is worth something to me, I will be willing to pay that. You mess up simple logic, get your head straight.

I hate to continue on a tangent, but coffee is delicious and smells amazing and you'd have to be The Grinch to not enjoy the atmosphere in a good cafe. If you want some tangible benefits just throw in some sugar and cream.

It's disgustingly bitter, so much most can only bare it with milk and sugar.

Your subjective evidence is not convincing, even less as I was implying coffee had an addictive and hence behavioral conditioning effect, part of which comes from advertisement like yours, so stop it, will ya.

> disgustingly bitter

I take mine black. I admit it is an acquired taste, but oh what a glorious taste it is! Maybe you just had some bad coffee.

Coffee supplis the illusion of fullfilling two or three enssential ones of these, hunger and thirst and sleep, but it doesn't actually provide the associated value.

You know, for many, that's a completely irrelevant factor in their appreciation for coffee.

And by the way, I'm pretty sure it does quench thirst, seeing as it's 99% water.

No, I don't know.

If 99% water solution just has to satisfy thirst, then a 1% zyankali solution doesn't kill, is it? It's a bad comparison, because I really don't know what else coffee brew consists of exactly, but you probably don't either, so ... that pretty much wraps it up.

>"Selling something that people want isn't equal to providing value. Let me be pessimistic: coffee doesn't provide a positive value, because it's a drug that get's people addicted however little and subliminal. Maybe that is a value to society in general, but it isn't to the individual."

If you don't think someone selling you coffee that you want is providing value, then perhaps you should try make your own. Once you have to "spend" time to physically make/get yourself the good/product that you wanted, you'll quickly learn what "value" a seller provides. Technically, not the seller as much as the actual producer, but the seller provides value as well. And in most examples represents the entire supply chain.

That's just sad how much you are missing my point, all the while defending the coffee that your text kind of reads like you had too much before reading.

>"Selling something that people want isn't equal to providing value."

This is the point I was addressing.

>"Let me be pessimistic: coffee doesn't provide a positive value, because it's a drug that get's people addicted however little and subliminal."

Oh, so now it's "positive value". This is something you are imposing on the person based on your own personal opinion about value and coffee.

>"Maybe that is a value to society in general, but it isn't to the individual."

No, it's a value to the individual that chose it. You, being external to the hypothetical individual we are discussing, don't get to make decisions for said individual.

>"That's just sad how much you are missing my point, all the while defending the coffee that your text kind of reads like you had too much before reading."

My comment had nothing to do with advocating coffee.

>My comment had nothing to do with advocating coffee

My comment did. You can't just reply to the whole comment without considering that part.

No, your comment had to do with redefining value based on whether you think something is good for someone. Like coffee.

I was trying to tell you that there is a difference between what someone thinks about something's value and the actual value of that thing. It's called subjectivity and objectivity and I feel like your first comment in this thread sounds like you imply that there was no objectivity. The absolut is a special case of relativity: coffee is absolutely disgusting, even if it subjectively seems to taste relatively fine to some, they all agree that it was disgusting at first, hence it's called an aquired taste.

> They built something that people wanted.

What about people that produce heroine? Run casinos? Magic weight loss pills? Free-to-play games?

The people producing heroine are mostly poor farmers, not rich startup guys. And magic weight loss pills are simply fraudsters, nobody defends those.

As for casinos and F2P games, what about them? Certainly some people get hooked, but 95% of casino players don't[1], yet they still enjoy it. What's wrong with that?

[1] http://www.pbs.org/wgbh/pages/frontline/shows/gamble/etc/fac...

I couldn't agree more. Capitalist wealth comes from repeated consensual and mutually beneficial transactions.

If you want to get rich, create value for people. It really is a wonderful system.

Poe's law invoked.

It's depressing that the idea at the core of our prosperity is dismissed by some as an extreme view indistinguishable from parody. Thankfully, people like Friedman and Hayek have laid down a rock-solid intellectual defense of capitalism. We ignore their wisdom at our own peril.

That's because the laissez-faire market forces you invoke are not the core of our prosperity, just one of the factors leading to it, so your comment did sound as an extreme parody of a right wing position (which may be more or less reasonable depending on how strongly you support it).

Friedman and Hayek wrote their work before we had a thorough understanding of how complex systems are optimized. Thanks to more powerful computers, we now know that search guided by purely local improvements gets stuck in local minimum (in Economics, those are the Pareto points). Those local minima can be incredibly far away from a true global optimum, but can't be improved by "consensual and mutually beneficial transactions".

Sometimes you do need to take actions that temporarily inconvenience one actor to achieve a point that will benefit all them in the long term; see the prisoner's dilemma for a simple example. The GP post mentioned 40-hours work weeks; those weren't brought by laissez-faire economics nor individual negotiation either, 60 or 80 hours a week were the norm before socialism.

Capitalism tends to create immense concentrations of power without checks and balances on the hands of tycoons, of the kind that should make any true libertarian be very afraid of those holding it. The system that really works best is one where wealth is created for a few years through capitalism, and then that wealth is redistributed by government's welfare politics to the wider population. This is what has been going on in Western countries in the last century, bringing us stability and avoiding the frequent revolutions that plagued Europe and the Americas in all its previous history.

Interestingly, Friedman, and I think Hayek as well, supported a universal basic income. Friedman called it a negative income tax, but its the same premise. I think a lot of laissez-faire capitalists would get behind that idea, if it was coupled by the permanent abolition of all other welfare programs and most labor regulations. It's definitely an idea I can get behind.

It would require some constitutional amendment for both sides to trust each other enough.

One reason why many such characters would support basic income is that it would ostensibly remove the provision of benefits from the overview of the bureaucracy. That's the same reason that many others would not support it.

I'm very tempted to throw in with the former, except that I worry about the follow-on effects of basic income. Would a basic income just be a windfall for landlords, as they all increased rents by some large percentage of the average basic income? Or would the formerly-urban formerly-poor head for the hills, now that they could budget over the long term without relying on urban amenities? This would be a windfall for a different set of landlords and real estate investors, but it would drastically change the nature of 80% of the communities in the nation. That's not even to consider the wealth effects on markets more elastic than housing. It would be a grand experiment, but somebody would start crying.

I think a gradual phase-in of the basic income, and a corresponding phase-out of existing programs, would avoid the pains of a sudden change.

Great string of comments, interesting that Friedman supports basic income. If anyone wants to read my comment far down below and answer any points you disagree with that'd be super welcome! (it starts with "With this comment I'm answering both PG's post and an answer to his post that can be read here: http://cryoshon.co/2016/01/02/a-response-to-paul-grahams-art...)

>Capitalist wealth comes from repeated consensual and mutually beneficial transactions.

Tech hiring collusion, 2008 financial crisis, environment degradation and global warming, slavery-like conditions at suppliers of multinational corporations, medical bankruptcies in US and lack of guaranteed holidays, ghettos, plundering of natural resources, monopolies everywhere (as prescribed by Thiel btw).

Such a wonderful, mutually beneficial, ethical system with so many positive externalities! /s

You may claim that capitalism is the "best" system at this point, but to state that's wonderful is indeed indistinguishable from parody.

The free-marketeer response is that many of those problems have actually been caused by a lack of adherence to capitalist/free-market principles - eg. a policy of bailing out banks since Continental Illinois, preventing market discipline and leading to riskier behavior; heavy involvement of public policy distorting markets (both through laws pushing cheap housing mortgages, and through government-sponsored institution like Fannie Mae); land expropriations in China that force people to accept those slavery-like jobs (obviously not in accordance to strong property rights as defended by free-marketers); government-granted monopolies (including patents), and many more.

rock-solid my ass. The situation is less about ignoring Friedman and Hayek as about ignoring their critics (which is obviously what you're doing or you wouldn't have made the absurd "rock-solid" claim)

> Why do they have to "contribute to society"?

In my country, it's part of the basic law (constitution). Specifically, 14/2


Ultimately, they have to "contribute to society" because enough of us believe that that is how society should operate. If you're looking for a "society molecule" to study its properties and see if "rich people gots to pay more" is one of its properties, you won't find such a thing, because all of this is human inventions.

> But is it wrong for a rich person to hoard wealth, or to spend only on luxuries for themselves? Why do they have to "contribute to society"?

Well, in a non altruistic and Ayn Rand inspired world, rich folks don't owe us anything but MORE IMPORTANTLY we don't owe them anything either.

I mean no bailouts, no tax breaks, no "Job Creators" incentives in public policy, no privileges or special treatment whatsoever. We're all equals and we all should be treated as such!

It was a gigantic public policy catastrophe all the 2008 bailouts extended from the US taxpayer to Wall St. that they used to preserve their wealth and then denigrate the general public for not being as successful as them when it was the general public that saved their asses in the first place.

> Why do they have to "contribute to society"?

Because we're in this together. Collaboration allowed us to thrive as a species. Greed and the "fuck you, got mine" attitude is what is going to ruin everything, starting with the ocean level rise in the near future.

Also how many of these people are preserving their wealth by diverting their justly earned income into rentier activity, such as property?

In addition many patents are rentier activity. They are taking collected human knowledge and ring-fencing an area to derive economic rent.

I'm not even sure I'm interested in Graham's writings on lisp. Economics, forget it.

If intellectual property protections present an economic constraint, then countries with weak intellectual property protections would outperform countries with strong intellectual property protections.

Yet for some reason countries with weak IP protection do not present the world with abundance of new technologies or pharma.

Patents are VERY different than property in that they expire in less than 20 years (at least in the US).

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

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

[1] http://fivethirtyeight.com/datalab/meet-the-80-people-who-ar...

>"More wealth than half the world's population"

That's such a disingenuous statistic. A huge number of people, including a huge number of very well off people, have a negative net worth due to debt.

I don't have a car payment or a mortgage, so I have more wealth than at least 30% of America, over 100 million people, combined!

It's disappointing to see that FiveThirtyEight has now become just another outfit twisting the truth for their political agenda. I expected better from them.

This is a disingenuous rebuttal. The difference in wealth between someone worth $45B, and two people each worth $1 million and -$1million respectively, is identical. The millionaire is worth less than 0.01% of the first. If this were a card game, the millionaire could go piss himself.

If it were possible to put $45B into a typical savings account earning 1% interest per year, that $45B person will make more money doing nothing in 1 day than the millionaire is worth. The thing is, it's not possible to do that. It's actually difficult to make only $1 million per day off $45B in assets. You'd have to give away huge chunks of assets to avoid making $4+ million per day.

The problem is hoarding. It's no longer enough to go back to a 94% income rate for the top bracket like we used to have for ~30 years expressly to prevent this amount of hoarding.

Hoarding? Do you think rich people just stuff their money in a mattress? Even if they deposited it all in checking accounts, the banks would reinvest it all over the economy.

Yes, the problem is hoarding. Which is proportional to the delta in potential and actual productivity of the already wealthy (and their assets).

Here's a quick demonstration: imagine all US taxation (apart from excise taxes) was replaced by a 3% yearly tax on household net wealth. No income taxes. No corporate taxes. No cap gains. No weird deductions based on expected future whatever. The question now is: cui bono? The hard working, high growth individuals (wealthy or not) benefit because their income and capital gains remain untouched -- they just need to earn enough in returns to offset the 3% tax. And who loses? The hoarders engaged strictly in "wealth preservation" (https://books.google.com/ngrams/graph?content=wealth+preserv...).

You clearly have not thought though the consequences of your proposal. Here are just a few of the problems:

* What if I own a house but have no cash? Will I have to sell it and live on the street to pay the taxman?

* What if the ultra-wealthy buy property and then mark it down? I.e. they buy paintings, then "accidentally" "damage" them. Whoops, a billion dollars in artwork gone, sorry IRS. Later, it is miraculously repaired. Will the IRS have to start sending undercover agents to inspect people's art collections?

* A 3% wealth tax is still less than the growth rate of many financial assets. I.e. the stock market grows at ~7%. So the rich will still get richer. And if you increase the tax to say, 8%, congrats, you just destroyed the financial markets.

* What if I own a house but have no cash? Will I have to sell it and live on the street to pay the taxman? - You do that now. Property taxes.

* What if the ultra-wealthy buy property and then mark it down? - People lie to the IRS now, system still functions.

* A 3% wealth tax is still less than the growth rate of many financial assets. - Not necessarily. Safe stores of huge amounts of money yield very little. I don't know all the implications on interest rates, etc.. but it's an interestng idea.

I don't understand your response. The primary purpose of the proposal was to illustrate what "hoarding" is. Did it accomplish that goal? If not, why?

To address your concerns generally -- every tax policy has a variety of impacts on behavior. Multiple countries already have a wealth tax, so they are definitely workable. There are behavioral and policy methods of addressing potential negative consequences.

To respond more specifically:

> What if I own a house but have no cash? Will I have to sell it and live on the street to pay the taxman?

That's a straw man argument for a host of reasons. We already carve out exemptions for primary dwellings, and there's no reason why this wouldn't similarly apply, up to some limit. But even absent that, real assets are real assets, and there are multiple ways of extracting liquidity from them (and moreover doing so generates wealth for society). You can take on a "reverse mortgage", or rent out one of your rooms, or sell it and rent, or take out an annuity that's secured against your home, among other possibilities.

> What if the ultra-wealthy buy property and then mark it down? I.e. they buy paintings, then "accidentally" "damage" them. Whoops, a billion dollars in artwork gone, sorry IRS. Later, it is miraculously repaired. Will the IRS have to start sending undercover agents to inspect people's art collections?

That's fraud/non-compliance/tax evasion, and it's already a massive problem in the current tax system, except now it's cloaked in things like a "double dutch with an irish sandwich". In any case, this is a problem that is dealt with every day, in business, by insurance companies, and there's no reason why the same techniques couldn't be used by tax officials.

> A 3% wealth tax is still less than the growth rate of many financial assets. I.e. the stock market grows at ~7%. So the rich will still get richer. And if you increase the tax to say, 8%, congrats, you just destroyed the financial markets.

Yes, and a 95% income tax rate will destroy the labor market. So? And yes, at 7% CAGR on the S+P the wealthy continue to get wealthier (assuming all their assets are in equities, a big assumption). But note that, in the process, we've eliminated income taxes, so everyone else will be getting richer faster. A win-win.

You don't have to engage imagination, wealth tax is a concept deployed in other countries. https://en.m.wikipedia.org/wiki/Wealth_tax#Current_examples

The evidence is inconclusive - some (Norway, Switzerland) are economically strong societies, while others (Spain, India) are economic basket cases.

Side effect of introducing a wealth tax is an increase in corruption as all of a sudden subjective evaluations of illiquid property can lead to substantial increases, so there are scenarios where it's cheaper to pay off the assessor in private than be subjected to an increase. Litigation to question the assessed value is a fairly minor occurrence nowadays, but with universal wealth tax owners of illiquid property are likely to sue more often, as there's more property to assess (and hence make mistakes).

India and Italy are known for high corruption levels, and you could argue that placing low-paid government officials into high-value positions is almost corruption by design.

Excellent comment. If you have time to reply to my comment, answer any point you disagree on, that'd be much appreciated!

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

Wow, first upvotes, now downvotes. And all without explanation.

Yes I do, that mattress is called stock.

If you're buying newly issued stock, that's going to be directly spent on business expenses like salaries and payments to other companies. Even buying existing stock directly supports the market for companies to raise money in that way.

If you're buying existing stock, someone on the other end is receiving your money that they will then spend or invest as they see fit. Very little money is idle, since it's in no one's interests for it to be.

What's the problem with hoarding? There's no difference between a billion dollars stuffed under the mattress, never to be spent, and a billion dollars burned up in a fire. If the rich aren't spending, they are not consuming resources or causing pollution, so it's as if their money never existed. And if they do one day decide to draw down their accounts, then it wasn't being hoarded.

>> If this were a card game, the millionaire could go piss himself.

Thankfully the economy is not in fact a card game, and no billionaire can force you to piss yourself.

Just don't say that to a billionaire. It might make for an unpleasant learning experience.

A practical problem of wealth accumulation is that it eventually becomes a moral hazard. If you have people with more $10B and a system of unlimited political contributions as in the US, they have so much power that it is difficult to maintain the democratic equilibrium. It is now known that the Koch brothers and Sheldon Adelson have more power over the republicans than the RNC, having elected hundreds of local and national politicians. In the left there is George Soros and a few others. Are we really willing as a society to give away so much political power to billionaires? I think a very practical solution is an extreme large tax on billionaires. There is no reasonable reason why a single person would like to have more than a billion dollars. This is practically an inexhaustible amount of money that should be considered as a practical limit. After that, you can happily pay 99% tax and enjoy making this country better.

Interestingly, at least according to The Atlantic, the political power of these billionaires seems to be failing. This article [1] frames the rise of Donald Trump (!) in the 2016 presidential race as an effect of the growing disconnect between billionaire donors like the Kochs and the Republican voting base.

[1] http://www.theatlantic.com/magazine/archive/2016/01/the-grea...

Donald Trump is going to save us from self-interested billionaires?

This isn't a story about how the political power of billionaires is failing, it's a story about one billionaire winning against some other billionaires. The underlying problem of wealth inequality and its effect on the political system remains.

It's more complicated than that. You need to live in a cheap part of town to afford rent but your city is un-walkable and has poor public transportation? Buy or lease a car so you can reliably get to work on time. You have a family and want to send your children to the best (or even decent) public schools? Live in a more expensive area - you have to buy access to good schools in many places, and the monthly payment on a mortgage for a house is cheaper than renting. You want a college education? Pay up. You want health care? Better have good insurance.

There are many reasons that people have debt, and it's not all exorbitant spending. At the same time SOMEONE is profiting off that debt, and they have a vested interest in keeping that debt alive. This is a good talk that discusses nonintuitive pains the middle class is experiencing: https://www.youtube.com/watch?v=akVL7QY0S8A

The problem is that these measures leave out most people's most valuable asset, their future earning potential. There's nothing wrong with having a serviceable mortgage or car payment. I think you misinterpreted me.

Yes, people do profit from that debt. Good! Because otherwise you wouldn't be able to turn some of that future earning potential into buying power today. This ancient innovation, the loan, allows us to do that. If the lender didn't stand to profit from interest, he wouldn't lend. It's a triumph of capitalism.

I did not misinterpret you, I understand fully what you are trying to say. I disagree with you. You and I are in the fortunate positions of being able to service debt and even avoid it entirely. Many people are not. Lenders have the ability to take advantage of social and financial systems that require debt, and through the application of their profits can alter those systems so that more debt is required to survive. In my mind, that is capitalism's failure. Spending your future earning potential is fine, buy a boat or a house bigger than you need if you want to, but if you need to go into debt for employment, education, or health care as many in the U.S. do now then something is very wrong. Furthermore, servicing that debt can keep people stuck in debt or poverty and reducing their spending potential, which is destructive to the economy. All of these things can be fixed fairly cheaply but the solutions are being suppressed for the profit of a few.

I don't get your logic, that it's okay to go into debt for a boat but not your education, an investment in your future earning potential.

The problem with education loans is that they're not real loans. The government gives them distortionary financing that inflates tuition. Everytime the government raises the max loan amount, tuitions rise to match it. The college bureaucracies grow to match revenue. It's the same that happens with any bureaucracy that gets unearned money.

Everyone should pay the full price of their college education, either up front or in the future. That's the best way to keep college affordable.

Free markets work, why is there this presumption against them?

I think the other commenter may be suggesting that it's wrong for life's bare essentials to require large amounts of debt, but beyond essentials a well-informed person should have debt as an option.

I've agreed with your general direction in this thread, but here you've tied yourself in a knot. If the un-"real loans" you cite weren't available, far fewer people would be willing to attend college, prices would fall, and far less would be loaned and spent on education. In other words, without the distortions introduced by lobbyists and politicians, all this wonderful education debt wouldn't exist. So we have indeed identified a case in which lenders "through the application of their profits can alter those systems so that more debt is required to survive."

Germany has fully free college education and labor fully involved in management. It is a good example of capitalism that benefits the middle class rather than the US system that increasingly feels rigged against the common man. It is great that a smart poor man can become a billionaire- but what about the rest.

It's one metric. And yes, one of its weak points is that my student loans making me less wealthy than the debt-free homeless person is (of course) not the whole story. But that's one narrow slice.

On the scale of 80 people with billions upon billions vs. half of everyone else, it's hardly a disingenuous statistic.

The only reason to use net-worth for such a statistic is to have demagogic sound bites. Most people have negative or very low self-worth because of totally normal and serviceable debt, regardless of whether they're poor or well off. Net worth, i.e. wealth, ignores future earning potential, which is most people's main asset. Repeating the statistic again doesn't change that.

On a global scale, this is nonsense. The number of people globally who have negligible net worth because they earn less than $10 per day vastly exceeds the number of people who have negligible net worth because they've only just started paying down the mortgage on their McMansion and still have student loan repayments remaining.

The purchasing power of those 80 people isn't going to start looking insignificant if you change the basis for comparison to net wealth plus imputed future income streams.

I disagree. If you take the 3 billion poorest people in the world and properly account for their future earnings, it will certainly exceed the combined expected wealth of these 80 billionaires. You couldn't have anything close to this sensationalist statistic.

Also, global poverty is not the fault of Western riches. It's not something we (Westerners) can do anything about either, except engage in mutually beneficial trade. Most of the world is being held back by bad governance, dictatorships and democracies alike. The West has the only economies of significant size that still have the broad outlines of a true free market system.

And how much of those future earnings will go right back into the pockets of the mega-wealthy through rent and interest payments and profits on goods that they buy from companies owned? Nearly all of it, I'd imagine.

Now you're not talking about wealth, but rather some other measure that is apparently more interesting to you. If you're going to count future earning, you ought at least count future spending as well, which quantity may completely swamp the other. After all wealth includes past spending as well as past earning.

My point is that wealth is not a useful metric. To your point, having surplus wealth on the day of your death is not very useful, especially if your kids don't need it. That's why some people get reverse mortgages, to turn the value of their homes into spending cash during retirement.

On average, no one needs wealth. After all, one can simply work for a wage completely spoken-for, hand-to-mouth, letting the automatic deposits feed the automatic withdrawals, a "good" "professional" corporate "citizen", pulling the traces until the heart stops and the teamster cuts loose the carcass to hitch up the next mule.

However, no human life is average in that respect. Everyone occasionally wants to fix the car, bail mother out of jail, keep the new restaurant open for another month, hire another cook, quit the job, drive to California, or whatever. Some of those variable circumstances can be addressed through insurance, but many cannot. Many of them are more along the lines of "it is my will to do this thing I had not planned on doing, right now."

That stuff, that human stuff? That requires wealth. We can paper that over with "easy" credit, but that's a leaky abstraction, and it really only helps one make the choices that consumers are allowed to make. Just ask a 90yo (hint: probably remembers a particular period of history): wealth is strictly better than credit. That's without even considering transaction costs.

ps. try getting a reverse mortgage without first owning a house...

Well on the future earning potential front, the wealthier you are...

Are we talking about net worth, or income? I thought we were talking about income initially.

I'm just talking about the statistics that GavinMcG was citing. We were talking about income inequality, but the sensationalist statistic he cited is not.

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

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

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

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

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

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

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

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

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

We know at least an instance of how billionaires spend their money.

Just 158 families dominate U.S. presidential campaign contributions: http://nymag.com/daily/intelligencer/2015/10/158-families-do...

Inequality is not only about money, it's also about influence.

Capitalism does a fine job at some things, but there are areas where governments deliver better outcomes.

Single payer health care is a good example.

We should strive to avoid dogma and choose the best available solution.

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


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

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

FWIW: the government doesn't have to spend more if taxes on wealthy people get higher, you can just have lower taxes on the less wealthy (or increase the no-tax area at the bottom).

Government expenditures stay the same but rich people pay more and poor people pay less.

> If they had a 99% marginal tax rate once they have assets of $500M (on any form of gaining wealth), would we have a weaker Microsoft or Facebook or Google doing less good for the world because they wouldn't be working as hard? Would the good done to people on the lower end of the scale not outweigh any possible harm here? That seems hard to imagine.

Maybe you're imagining it on the wrong time scale.

If you say Larry Page can "only" make an effective maximum of $500M, that isn't going to stop him founding Google, but what does it do once he actually has $500M? He owns shares in his company that have grown to be worth $40B so then he owes the government ~$39.5B in taxes. So he effectively has to sell his company to pay his taxes. (And if he doesn't have to pay the tax until he sells the shares then he never will and your tax plan fails.)

Before the tax he was going to keep most of the shares and thereby have control of the company. The primary difference caused is therefore that more large corporations will be publicly rather than privately controlled. So the assumption has to be that that will somehow lead to higher incomes and standard of living for the middle class.

But that doesn't make any sense. Publicly traded companies have no soul. The CEO's job in a publicly traded company is "maximize shareholder value" and that means grinding competitors' bones into dusty by squeezing every cent out of your customers, suppliers and employees. The people being squeezed are the middle class.

At least if the company is controlled by a human person you can have Henry Ford saying his employees should get paid enough to afford his products. A company's owner is the only one who is authorized to decide that there is something more important than shareholder value.

The problem with today's economy is that that isn't happening often enough, in large part because too many major companies are publicly traded. But you're proposing something that would make it effectively impossible to happen at all.

That's a fine argument, and now that we are no longer making the claim that my proposed approach is immoral on the face of it, we can have a reasonable discussion. :)

I think you're totally right that this motivates public ownership (or at least Larry Page selling his company to other private owners, once his shares are worth $500M), and that this doesn't seem to be usefully doing anything productive for economic inequality.

I also think that there's no guarantee that Page or Ford will, in fact, decide to prioritize something other than shareholder value. In fact the argument for allowing them to make profits from the company seems to rest on the argument that they should value shareholder value. An alternative approach would be, once the CEO's shares are worth $500M, they should start to increase salaries or issue shares to their employees or donate to charity or something, such that their personal ownership interest remains valued at $500M but they retain creative control (which they wouldn't if they let it go public). But we're assuming they won't choose to do that, and that selling their shares is more valuable to them.

And there's no particular need for this change (which is extremely disruptive) to be the only change to society. What if we rework the assumption that a publicly-traded company needs to maximize shareholder value at the expense of employee welfare? What if there was a rule that, say, any publicly-traded company needs to at least start with majority employee ownership? Or union ownership?

These are probably also terrible ideas, but my claim here is that we don't have to accept that the world as it is is optimal. There may be fairly fundamental changes we can make to our assumptions that result in a better place.

> or at least Larry Page selling his company to other private owners, once his shares are worth $500M

I would argue definitely public. Google market cap is over $500B. Anyone else who owns $500M would have the same incentive, so you would have at least 1000 owners, and almost certainly far more than that because the owners would want to diversify instead of investing their entire $500M into a company they don't even close to control.

> I also think that there's no guarantee that Page or Ford will, in fact, decide to prioritize something other than shareholder value.

There is no guarantee, but if it is to happen at all then that is currently the only way it can.

> An alternative approach would be, once the CEO's shares are worth $500M, they should start to increase salaries or issue shares to their employees or donate to charity or something, such that their personal ownership interest remains valued at $500M but they retain creative control (which they wouldn't if they let it go public).

Part of the problem is that because of the way taxes currently work, it's "better" (people pay less taxes) if the company's stock price goes up than if the company pays a dividend, so they tend to structure things to make that happen. So Page doesn't get proportionately that much "income" from Google in the sense of cash money (unless he sells his shares), but his net worth doubles with the share value. So if you want to keep the original owners in control of the company, but you want the company to be able to grow, then so must their wealth.

You could try to separate control from ownership, but who is going to invest in a company controlled by someone with no obligation to even try to grow the investment? If you want to help the world by donating your money to Elon Musk then you can already do that today.

> An alternative approach would be, once the CEO's shares are worth $500M, they should start to increase salaries or issue shares to their employees or donate to charity or something, such that their personal ownership interest remains valued at $500M but they retain creative control (which they wouldn't if they let it go public).

The problem is their wealth is derived from the value of the company. Larry Page doesn't have X billion dollars in cash, he has shares of a corporation with that market value. He (personally) could only donate it to a charity or give it to employees by liquidating the shares and divesting the ownership stake in the company.

The company could do those things to an extent, but if you're talking about a law to require that then it no longer has any real relationship to concentration of wealth or who owns the company. And you'll end up with all the same trouble with trying to measure the domestic profit of an international corporation that we have with corporate income tax.

> What if we rework the assumption that a publicly-traded company needs to maximize shareholder value at the expense of employee welfare?

The idea of a publicly traded company is premised on "maximizing shareholder value" because making money is the shared interest that binds the shareholders together. If you take that away then who gets to decide where the profits actually go? And who is going to invest in such a company if an undetermined party who isn't them gets to decide what happens to their profits?

> What if there was a rule that, say, any publicly-traded company needs to at least start with majority employee ownership?

"Start with" means nothing if it will change in fifteen minutes. Most companies do start with majority employee ownership. But if employees can't sell their shares then do they really own them? You could try something like giving the employees a vote (without an ownership stake) in electing corporate officers, but the result is going to be predictable. They'll elect people who pay the employees unsustainably high wages and the company will soon go out of business.

I can tell you how to fix a lot of this. The tax code currently makes it highly desirable for corporations to never repatriate their overseas earnings, because if they do they have to pay a very high corporate income tax on it. Which means they don't ever issue those earnings as dividends, instead they accumulate huge piles of cash. The shareholders don't mind that much (not as much as they mind paying high taxes) because holding cash raises the share price and shareholders who want cash can then have it by selling shares. But it means the only way to take profit is to sell shares, which for a controlling shareholder means ultimately giving up the controlling interest in the company.

People always talk about the cash hoarding problem, because it is an enormous problem, but the solution people suggest is a farce. People say to have a tax holiday to let the money come back into the US. And once in a while they do it... and no one takes advantage of it. Because not only was there a tax on repatriating the money, once it's in the US, all the future interest on the money will be taxed, whereas it isn't when the money is offshore in some tax haven.

The problem is, the only way to actually fix it is to not tax income. In theory it would be solved by only not taxing investment income, but that would be entirely unfair to people who are still paying income tax on earned income. What needs to be done is stop taxing income entirely and tax consumption instead. Scream about regressive taxes all you like; how progressive is it today when middle class people are paying 25% and investors and corporations are paying nothing?

With no income tax there is no reason not to bring the money back into the country, which puts it in the hands of human owners rather than huge corporations, without forcing them to sell shares that removes their controlling interest in their companies. At that point essentially all their reasonable choices for what to do with the money are good for society: They can spend it (and pay the consumption tax), or they can give it to charity, or they can invest it and grow the economy and generate tax revenue when the invested-in company spends it and pays consumption tax. Instead of having it sit in some offshore money market account managed by some corporate executive whose money it isn't, where it helps no one and no tax is ever paid.

Can you do a progressive tax on consumption, such that the rough cost for essentials is essentially untaxed, from there to average upper-middle-class consumption is moderately taxed, and O(a yacht) is highly taxed? I suppose this used to be impractical because consumption taxes are generally implemented at point of sale, but since most large transactions are digital (and there are well-accepted laws about moving huge amounts of cash around, anyway) maybe this is tractable.

Are you also suggesting a high estate tax, so that you're encouraged to spend or invest it instead of building up wealth for your family?

> Can you do a progressive tax on consumption, such that the rough cost for essentials is essentially untaxed, from there to average upper-middle-class consumption is moderately taxed, and O(a yacht) is highly taxed?

Of course. But weird taxes are very hard to get right.

You can basically order taxes by how progressive they are. The least progressive is a head tax; everybody pays a fixed dollar amount every year, income and consumption irrelevant. Next is a flat tax; some universally fixed percentage of total income or consumption. After that it isn't really a straight line: Luxury taxes, property tax, graduated income tax, etc.

The problem with everything more progressive than the flat tax is they heavily induce tax avoidance and often hit the wrong target. If you tax cars with big engines then wealthy people start buying trucks with big engines. If you tax trucks with big engines you end up hitting working class people. If you tax real estate then rich people invest in the stock market and working class people can't afford a home. If making more than $250K/year brings you into a very high tax bracket then people find all kinds of deductions and tax losses to take, or arrange for their $1M/year compensation to be paid as $200K each to yourself, your spouse and your three children. And so it goes.

The trick is to stop trying to outsmart people. The problem is the least avoidable tax, collecting the same dollar amount from everyone, is very, very regressive. But all we have to do to make a very, very progressive tax is invert the sign. Have the government pay everybody a fixed dollar amount every year. Basic income. If you pay for it with a flat consumption tax, which is the next least avoidable, the flat tax is more progressive than the head tax that the basic income is the inverse of, so you can make it however progressive you want just by changing the amount of the basic income. Then there is no tax avoidance to be had anywhere, no argument about what should be taxed or not, and everyone pays their share.

> Are you also suggesting a high estate tax, so that you're encouraged to spend or invest it instead of building up wealth for your family?

"Invest" and "building up wealth for your family" are synonyms. Estate taxes are silly. It's the same problem with separating owners from their businesses. Then the companies become incorporeal diffusely-owned soulless sociopathic conglomerates. Who cares if the family that started some chain of stores continues to own it forever? Care instead if people in the middle are better off than their parents were.

Thank you for this argument! The "invert the sign" thing feels like it must be wrong somehow (even to someone who likes the argument for a basic income) but it does actually seem correct.

Wow yes, smart thread. Very interesting to read. Some info-rich comments, thanks to AnthonyMouse especially!

So some people here aren't completely against basic income. Some more good arguments in favor.

The problem is that poor people spend all (or almost all) their income. Flat taxes impact the poor negatively.

What you can do instead is just tax net worth as a flat tax (or a slightly graded tax), instead of taxing income. This impacts only those with a large positive net worth, and that makes more sense.

That solves the estate tax problem as well.

Perhaps, then, there should be fewer publicly traded companies, and more workers' co-ops.

In a capitalist system, you become wealthy by creating value for people in mutually beneficial and consensual transactions. Tax discourages that kind of value creation. You can try to hide this effect by using really large numbers (they'll still have $500M!) but that's deceptive because, even if their motivation wouldn't have been affected (which I disagree with), these uber-wealthy people are the exception, not the norm. You can't base a tax system on taxing them alone.

I think the case for their motivation being affected makes sense in a physical-goods economy. If a woodworker sells $500M of chairs, sure, there's suddenly much less motivation to spend the same amount of parts and labor on the next chair for 1% of the profit.

But for other kinds of revenue that makes less sense. The 5 millionth copy of Windows does as much good for that particular customer as every previous one, at essentially zero marginal cost. Does knowing that, in advance, discourage you from making Windows as good as it is?

Anyway, my point was that this is something we can have a reasoned discussion about, without either side needing to poison the well by making analogies to immorality. You can have a perfectly moral society that's either biased or not biased against the hyper-rich. If you believe one of these is wrong as policy, that's fine. If you believe the hyper-rich don't matter to the fairness of a society, that's a perfectly reasonable argument. But if you believe one of these is so wrong as to be equivalent to racism, it seems very difficult to justify that claim, and if you can't, it seems highly counterproductive to discourse.

Analogies aside, there is a moral component here. Everyone has a moral claim to the fruits of their labor, however rich or poor they are. You need some amount of tax to pay for our collective defense, police, courts, and mandatory education, but much more than that is immoral. Remember what taxation ultimately is: the police coming to your door and picking your pocket at gunpoint. It rarely comes to that, but that's fundamentally what separates it from voluntary charity.

The "soak the rich" approach is immoral in my book. Any discourse that doesn't consider the moral angle to these issues is incomplete.

The "soak the rich" approach is immoral in my book. Any discourse that doesn't consider the moral angle to these issues is incomplete.

You should probably read the history of US inheritance laws. They were deliberately designed from the start to "soak the rich", for the express purpose of avoiding a European-style hereditary aristocracy where massive wealth (and the corresponding societal influence/power) would be passed from father to son for multiple generations.

At the risk of this turning into the low-quality discourse that followed Obama's "You didn't build that" soundbite a while ago, I'll point out that there is validity to that soundbite. The fruits of your labor only exist within an organized society. There's a reason that entrepreneurs prefer not just certain countries but certain places in certain countries for building companies: where you work, who you're near, what infrastructure is around, what customers are around, what regulatory frameworks are in place and what laws are interpreted in what ways, etc. all contribute to a more or less successful company. And those things can in large part be traced to good or bad governance.

What would a fair rent in Galt's Gulch be? What should John Galt have charged the other strikers for not only collective defense like the distortion field, but for the community existing? For the opportunity to live in such a society? If the US government collapse didn't happen, the number of people Galt would have wanted to live there would have been fairly high, and their willingness to pay, once they knew what he was up to, would also have been high. And he had a genuinely good product, and every right to eject people from Galt's Gulch at gunpoint.

Taxes up to that point are certainly fair. Whether governments as currently implemented are the right entities to collect those taxes is a question (though, by no means interpret me as advocating a Randian anarcho-capitalism just because I used Galt's Gulch as an example!), but your labor is fruitful within a society, and that society certainly has the right to charge you for it, or demand, at gunpoint if necessary, that you stop taking advantage of what they provide for free. (You always have the right to opt out of taxes if you opt out of the taxing society, as Roger Ver did.)

For a less fictional valley: how much does the government fund Bay Area universities in the form of research grants? And how much did the tech industry gain from that, and what would a fair price for access to that have been? Imagine a parallel universe where Stanford and Berkeley never got a penny of government funds. How much should a VC or founder in this parallel universe pay for transportation to ours?

Denying people the fruit of their labor is immoral. But society collectively also labors to build a better society.

FDR saved American capitalism with the New Deal. By instituting government welfare programs, not even actual socialism but the beginnings of a social safety net, he prevented the same sort of civil disorder and revolution that happened to Europe in failing, unequal societies.

Cultivating a happy citizenry is collective defense. When the electorate is well-fed, well-clothed, healthy, educated, and with career prospects, then there will be no bloody revolutions and disorder in the streets.

Better our taxes pay for UHC or free university tuition, than even more militarized police forces, drone fleets, and a larger surveillance state to maintain order.

Remember what capitalism is: a warehouse full of food at marked up prices where the hungry can't eat because they don't have the gold. There's tyranny in the market too, libertarian.

You appear to find it inconceivable that people don't share your morals.

Not at all. On some objective universalist level, moral relativism is right. Where it's dead wrong is that we should stop defending our way of life and our moral codes. We all have our own moralities and seek to shape the world according to it.

As an side, capitalism is more effective at achieving socialism's moral ends than socialism is. It's something people should get behind even if they don't place moral value on private property. You might disagree, but we can argue about that on the level of facts.

However, if your mutually beneficial transaction has negative externalities, those need to be corrected. Taxation is one way of achieving that correction.

There is nothing wrong with the people who have wealth, it is with people having so much wealth. Wealth is economic power; we split power in the government so it is not hyper concentrated in on person for very, very good reasons taught to us by history (power begets more power and corrupts, etc). Similarly we should be trying to split economic power. There's nothing wrong with someone having a lot of money; but there is something wrong with a person having more wealth than most of the nation combined. It's an enormous amount of concentrated power which is inherently bad in and of itself, whether it's used for good or ill currently.

And the primary method people use to get and keep this money is through exploitation and abuse generally of workers, tax systems, etc. Which is just icing on the cake beyond the original problem of wealth concentration.

Also we have the notion that people are being paid 300, 400, 1000 times as much as their employees. This is a lie; one person generally isn't worth 1000x as much as another. There are thousands of others who would be able to replace any person in any job with similar results. The money they get is through the manipulation of their wealth, power, and connections to make more, and the Rand-esque 'great man' fallacy where Americans assume industry is driven but supermen and women at the top who truly deserve what they are getting, and not primarily as a collective effort. When a company succeeds, where should the profits of that success go? The wealthy have up until now succeeded in enforcing a deeply capitalist system where all of the profits go to the wealthy and the least possible earnings are divvied up to the peasants who beg and struggle to be allowed to earn from their labor at all.

I don't think we need to split economic power. I just think the people need to be able to reject economic power over them when they believe it is being misused. That's hard today because economic power is invisible. We can make it visible, then people can decide how they want to let economic power influence their lives.

This is merit capitalism. http://meritcapitalism.com/

> Why should a very wealthy person be pre-judged to be worse than others without knowing the whole picture?

Who said anything about judging them? Bill Gates is obviously a good person. That has nothing to do with whether or not we as a society want to allow unlimited financial returns for success in business.

Because those 80 people don't exist in a vacuum. Consider that there are probably tens of thousands of people required to facilitate the profound changes these few people made. This includes people in the food production chain, education (and as such, textbook publishers and paper manufacturers), and product manufacturing. I'm not even including the scientific advancements that made their change possible.

So yes, there is offense in the inequal distribution, when one unique snowflake controls 1% of the world's purchasing power, while roughly 1% of the world's population was required to make that power possible. Whether that offense is moral or evitable is a separate question, but I understand why people frame it as an offense.

I think the biggest issue is that we are ignoring that a difference of degree is a difference in quality. Once a small number of rich people have more power than almost every one, our society is controlled in a non-representative way - an oligopoly.

Imagine if one rich person earned all the money in a country. That would be a very bad situation on many levels from concentration of power, to the induction of universal poverty. The question is, how far towards that extreme can you go while discouraging the bad effects? PG has many good points, but there was a major study that showed that US policy is mainly controlled by the preferences of the wealthy, even when the majority of the population disagrees. That doesn't sound like representative government.


I don't think we should discourage the vast majority of entrepreneurs, but we should make it harder to get and maintain wealth once you move into the tens or hundreds of millions in assets or income, and past a certain number of billions, possibly blocked. I'm not sure what to do about people leaving the country once they reach that level though so that last part is probably not a good solution, but in spirit we shouldn't let a few people have too much unelected power. They're not just buying new shirts. The problem with wealth is that you can leverage the fact that people like one aspect about you (your ability to provide some business service) into another domain where they don't have to like you so much.


People with more money pay taxes at a lower rate than people without. It's very easy to pick obvious cutoffs where people are wealthy to the point of absurdity compared to their "peers".

The chart you presented doesn't show the value created, just the value captured by a given segment. Wouldn't that be an important consideration? It's estimated that innovators, the group that Dr Graham is talking about, only capture around 2% of the value they create, with the rest going to society [1]. That's the whole point of the essay, that maybe reducing the 'absurd' levels of wealth will also lead to reduction in the levels of value creation that society currently benefits from.

[1] http://www.nber.org/papers/w10433

I disagree. Those people having a lot of wealth doesn't affect ordinary people much at all. The inequality that affects ordinary people is the kind that drives up housing prices and drives out long-time residents, or those that bid uo healthcare or educational costs. The thousands of Facebook employees making six figures contribute more to inequality in practice in their communities than Zuckerberg.

At that level it ceases to be about things like housing costs, and starts to be about how the whole country is run. Wealth brings power. Look at that list and you'll see a lot of people who are screwing with the political system for their own benefit.

Is there any danger that such levels of inequality reach a tipping point where the have nots band together and say why don't we take some of that for us. We have the numbers to either change the law or take by force. Such things are not unknown in history...

I'd argue it's been happening at a stead pace already. It happened at a "manageable" level when progressive taxation came into place for example. Sin taxes, luxury taxes, property taxes, estate taxes, emigration/exit taxes... All of these things are arguably a form of "have nots band[ing] together and say[ing] why don't we take some of that for us."

There are two separate issues here and it is important to distinguish them clearly. PG is correct that there are two basic strategies for making money: rent and productivity. 1) rent, although it has a positive aspect (it helps to efficiently allocate scarce resources to where they are most valuable and provides an incentive to add scarce resources to the economy), provides an inherent redistribution of wealth which makes owners of capital richer at the expense of non-owners. Piketty etc. have noticed that capital owners have recently been able to gain a greater share of wealth. This is socially and morally a bad thing, especially when it keeps non-capital owners in a state of relative poverty. 2) productivity, in general, is more positive because it provides a net gain to the whole economy as PG points out. If the incentives to a small number of people are very high for adding productivity, then there is no particular problem with this. So in this sense PG is correct. However, this is largely irrelevant as the main problem is that productivity gains are predominantly going to NEITHER workers NOR entrepreneurs. Rather they are going to existing owners of capital. The biggest problem with massive wealth accumulation by founders isn't whether it was deserved, but that when people stop being productivity enhancers they become capital owners and CONTINUE to earn wealth excessively not due to further productivity gains but through rent. There are many solutions possible, but none of the sensible ones would affect new founders very much. PG can sleep easily on this account. The reason PG should feel "hunted" is not that he is a founder enjoying the rewards for benefits he has provided to society, but that as a successful former founder and now capital owner he is continuing to gain excessive wealth by extracting rent from his YC investments such as AirBnB, and even worse, helping PASSIVE YC investors to capture that rent also.

As he pointed out in the article though, capital is playing less and less of a role in startups. Terms in SV have never been as "entrepreneur friendly" as they are right now.

The hell are you talking about? The argument could easily be made that AirBnB exists because of the efforts of the YCombinator team. It's not like Paul Graham is personally just sitting back and collecting money. He works hard to advise and provide seed capital to hundreds of startups at year, at a stage when their success is far from guaranteed.

For whatever you think about his views on income inequality, it's difficult to make the case that he's rent seeking.

PG does appear to want to do a better job than the rest of his industry and he should be applauded for that.

But there is very little evidence that PE or VC funding adds much value to a company through advice or services: the poor performance of post-boom PE funds and their companies, for example, suggests that such claims are vastly exaggerated. I recently had a conversation with the head of a very successful fund who, reflecting on the aftermath of the financial crisis, openly expressed his doubt that his fund had really helped the companies they bought stakes in. He, of course, became exceedingly rich and the steady stream of inflated IPOs produced healthy returns for the funds investors (at least until they didn't.) A large part of the problem is that the compensation model (the traditional "2 and 20") is geared towards the capital providers not the entrepreneurs or indeed to social benefits. Funds are incentivised to raise huge sums of capital from sources who offer nothing but cash and a healthy appetite for risk and over-capitalise the companies they fund (the fund earns 2% on invested external capital regardless of how it performs). To compensate the investors, the funds rely almost exclusively on extracting a very large profit from the few "unicorns" that succeed outrageously (of which the fund gets to keep 20%, or sometimes more). Taking $100 million from a single company is hard to justify, however greatly you value the advice and support you got. And the many worthy productivity-enhancing near-successes are left to flounder. PG may like to focus on the positive impact he is having helping founders succeed, but the reality of his business model is strongly skewed to financial rent extraction.

On paper, the tax rates were higher in the 50s. What isn't mentioned is that was the age of the tax shelter, the 3 martini lunch, etc. It is doubtful anyone actually paid those rates. Reagan's deal to lower the tax rates included repealing all those deductions and tax shelters.

Right, it just meant (as mention in pg's parallel article today) that more compenation got rebranded as a corporate expense or non-taxable fringe benefit.

You are welcome to try to eat and drink through tens of millions of dollars, but I doubt you can do it. Even if you can, there will be a lot of happy waiters and cooks serving you ;)

And you don't think the mechanics, aviators, etc who keep the billionaires flying are happy to have jobs now?

Sure they are, but that was not the argument I was half-jokingly making.

What I was saying was that you can't hide meaningful amount of difference in tax rates between then and now in business lunches (which to the best of my knowledge are still around).

On a more serious note though I would consider the law of diminishing marginal utility and its impact on economic activity.

Tax sheltering investments were huge.

> Graham is arguing against an enormous straw man.

This is a very hard case to make when Graham's money quote, at the start of the essay, is from a Nobel-Prize-winning economist saying, pretty much in so many words, that rich people get rich by taking stuff from poor people--which is exactly the claim Graham is arguing against.

> Nobody is suggesting that we “prevent people from getting rich” or “end all economic inequality”.

I think you're missing Graham's point. His point is not that people explicitly suggest these things, but that the discussion is framed so that they are implicit assumptions, so far in the background that nobody even thinks to question them. Judging countries by their Gini coefficient, and the criticism the US has gotten because its Gini coefficient is too high, is an obvious example. Everybody argues over what Gini coefficient is "too high" and requires action to correct; nobody even asks whether the Gini coefficient is the right thing to judge by.

> institute an unconditional basic income as an alternative to means-tested welfare programs

A key argument for which is that unconditional basic income would do better at reducing income inequality than means-tested welfare programs.

> allow every citizen/resident into a single-payer healthcare system

This I agree is pretty much irrelevant to reducing income inequality; it is aimed more at reducing the impact of income inequality on access to health care, without doing anything about the inequality itself.

> go back to the tax structure of the 1950s–70s

A key argument for which is reducing income inequality by taxing more of what rich people make. The point being that none of these measures ask why certain people have more income, which is a key piece of information. Graham's point is that if one person makes more than another because they're more productive, you don't want to "fix" that, because it's not a problem, it's what fuels economic growth. It's true that there are other ways for people to make more than others, which are not based on wealth creation, and Graham explicitly says he wants those to be shut down. But after you've shut them all down, you won't have "fixed" the "problem" of income inequality, because people's productivity will still vary, and the more technology advances, the more the variation will be amplified, so the more unequal incomes will be.

>This is a very hard case to make when Graham's money quote, at the start of the essay, is from a Nobel-Prize-winning economist saying, pretty much in so many words, that rich people get rich by taking stuff from poor people--which is exactly the claim Graham is arguing against.

Not quite. All that Graham attempts to show in the essay is that rich people could, in principle, get rich without taking stuff from poor people. No-one really disputes that this is in principle possible. However, as Stiglitz points out in the book that Graham chooses to quote out of context, this doesn't appear to be how the rich have in fact got rich over the past decade or two.

"Graham's point is that if one person makes more than another because they're more productive, you don't want to "fix" that, because it's not a problem, it's what fuels economic growth."

I do not believe he said this, and it's a non sequitur

> I do not believe he said this

How many of his essays have you read? It's a fairly common theme in them.

> it's a non sequitur

The argument is pretty simple: people who are more productive are capable of creating more wealth; the best and most straightforward way (and the only one that's been shown to work consistently) to motivate them to exercise that capability is to allow them to get richer by creating more wealth; wealth creation is economic growth.

Please show me a quote where PG makes this argument.

I doubt Steve Jobs would have created more wealth if he were allowed to pay 10% lower taxes. Do you?

> Please show me a quote where PG makes this argument.

Once again, how many of PG's essays have you read? This is like asking someone in your English literature class to show you an example of Shakespeare making a joke in one of his plays.

But ok, I'll play along. In the subject essay, PG describes himself as a "manufacturer of economic inequality". How is he manufacturing it? By teaching people how to get rich by creating wealth: "Not just by helping the 2400 founders YC has funded. I've also written essays encouraging people to increase economic inequality and giving them detailed instructions showing how."

So PG obviously is arguing that allowing people to get rich by creating wealth will increase economic inequality. How? By amplifying the variation in productivity between people. And there's no way to get rid of that without getting rid of wealth creation: "Variation in productivity is far from the only source of economic inequality, but it is the irreducible core of it, in the sense that you'll have that left when you eliminate all other sources."

As for the part where wealth creation is what fuels economic growth, do you really need a quote for that? I would have thought it was blindingly obvious. (In fact, I would say wealth creation is economic growth.)

> I doubt Steve Jobs would have created more wealth if he were allowed to pay 10% lower taxes.

I doubt Steve Jobs would have bothered to create much wealth at all if he hadn't thought he could get rich from it. Which is much more to the point.

This thread has gotten a bit muddled, but I don't think the thrust of the argument is that Jobs didn't want to get rich (did someone upthread actually argue that?); instead, its "if he had to get somewhat less rich, would he have done what he did?", to which I think it's far to ask "yes, but how much less would he have been OK with before he said 'no way'?"

The discussion is about marginal tax rates without stating it as such. He might not have been OK with a 95% MTR, but would he have done it with a 45? a 50? People could opine on what he would have or would not have done given that, but I think it's reasonable to say that many people would, and do (given that successful innovators and businesses exist in higher tax countries.) Higher marginal tax rates don't mean you don't get rich; they mean you don't get quite as rich, which is what much of the proposals are about.

> The discussion is about marginal tax rates

No, it isn't. The discussion is about Graham's claim (which I agree with) that income inequality due to variations in productivity--i.e., allowing people to get rich in proportion to how much wealth they create--is an unavoidable consequence of economic growth, which means you can't get rid of it without getting rid of economic growth.

Graham makes a separate claim about tax rates, which is that the marginal tax rate has basically no effect at all on tax receipts as a percentage of GDP. This argument is based on nothing more than looking at the actual statistics since World War II, which do indeed show what he claims. But in itself, it says nothing about what, if any, effect marginal tax rates have on wealth creation.

| Graham is arguing against an enormous straw man.

Word. I don't know anyone who understands enough to actually have a discussion (e.g. isn't some back to nature hippy) and seriously thinks we should attempt to minimise the opportunities to create new wealth. Everyone I know who argues for reduced economic inequality favours increased minimum wages and/or redistributive mechanisms (income/wealth tax). I don't know if Graham has encountered people who seriously argue against permitting opportunities to create wealth, or just thinks those people exist, or has some sort of anti-redistribution agenda (which would function to reduce the potential gains that could accrue to startup founders... though not significantly).

I was particularly struck by this suggestion:

"And if there are people getting rich by tricking consumers or lobbying the government for anti-competitive regulations or tax loopholes, then let's stop them. Not because it's causing economic inequality, but because it's stealing."

Stealing is an extremely imprecise and emotive word, and he makes no effort to clarify. Which is usually what you do when you want a lot of people to feel like they agree with your arguments even when they might not if you went into detail. But the weirder part of the statement (ignoring the fairly broad 'tricking consumers', which would include most people who market their products) is that he specifically identifies tax avoidance (which I'd argue ISN'T stealing) as something we should eliminate... "not because it's causing economic inequality, but because it's stealing", even though the main reason we have tax AT ALL (and hence laws around when you do/don't need to pay it) is to reduce economic inequality!

So... all our existing tax laws, and their economic-inequality-reducing redistributive effects, are wise and good and infractions should be rigorously prosecuted because they'd amount to stealing. But any NEW tax laws that might increase the redistribution of wealth to increase economic-equality would be bad and misguided? Because where we are, right now, is the perfect optimum, despite the widespread evidence of increased concentration of wealth and its negative consequences? Riiiight.

Finally, last I checked there are various areas which have lower tax than the USA. Yet somehow plenty of startups are still formed in the USA. Which casts doubt on the 'the startups will move elsewhere if you change anything to reduce their direct rewards' argument.

"Others will say I'm clueless or being misleading by focusing on people who get rich by creating wealth—that startups aren't the problem, but corrupt practices in finance, healthcare, and so on. Once again, that is exactly my point. The problem is not economic inequality, but those specific abuses."

Given the 2001 dot-com fiasco and the frequency of ratchets in fundraising I'm surprised that Paul would make an argument that the abuses of finance are separate from the start-up world. In the current system, startups are frequently treated as an investment vehicle by specialized finance firms. There is a lot of moral hazard in the valley that Paul seems to ignore in his piece.

"Nobody is suggesting that we “prevent people from getting rich""

Yes they are.

Don't you remember all the articles about Zuckerberg's charity, and how it is bad that rich people have so much control over society, and that the solution shouldn't be charity, it should be to prevent people from becoming so rich in the first place?

That shit was all over the place.

"That shit" could be interpreted this way: Having "obscene" wealth accumulate with one or a few persons means the decision-making about using that wealth becomes idiosyncratic and volatile at worst, generally misdirected at best. In market-fundamentalist terminology, huge actors cannot result in optimal results. Markets work best with broadly-held wealth and millions or billions of small bets, lowering the criticality of market failure.

The Gates Foundations is a counterpoint to your theory. Yes they're volatile, but they've helped change the way that charities operate, with numbers and tracking progress. It feels like when single/double-digit millionaires donate their money, they're too often donating to charities which are social status symbols rather than the most effective causes.

In addition, places like GiveWell are helping the direction of that wealth. http://www.givewell.org/

Not entirely sure I can agree. The Gates Foundation has made important contributions, but they have also been subject of scrutiny regarding funding choices that are ideologic and self-interested.

Not to mention, the jury's still out whether it's more effective to have government programs to alleviate poverty vs. individual or foundations of billionaires spending on charities at their leisure.

So you are arguing in favor of exactly the "straw man" that PG is arguing against?

Thats totally fine. There are a lot of reasonable arguments for that (as you have just demonstrated!).

But my point is that PG is not arguing against an imaginary viewpoint. You believe it right here.

I'm only saying there are consequences for concentration of relative wealth that even market fundamentalists (such as libertarians) argue against. I am not one of those.

My position is complicated. I find the best explanations of market failure come from a greater financialization of the economy as a whole. Which is to say, in this increasingly programmable world we live in, there are greater and greater opportunities for gaming the system. Even startups inevitably head in this direction. Financialization is an economic gravity-well.

Zuckerberg isn't really engaging in charity. Its basically buying political influence is one of his stated goals.

I'm not sure why people keeping thinking he is engaging in charitable activity when what he really said he was engaging in investment & nonprofit activity.

I don't understand why you're being down-voted. It's eminently clear this is what he's doing: it's right out there in the open.


Yeah, that was widely reported in publications spanning the political spectrum (excluding most of the tech press).

I am actually suggesting that we end all economic inequality. The only reason I don't argue for "end all inequality" is that it's physically impossible as much as we know it. Economy should be about what is good for everyone, it shouldn't contain anything which can be used to exploit other humans due to their "economic circumstances". The current system does allow it, and as long as you can attach a number to any person to get their value or "worth", there will be no change towards equality, maybe less inequality. Which is not enough because while the possibility is open, it will always fluctuate.

You cannot end all economic inequality without removing freedom. A free society where people can freely express their full potential will create inequalities by default. Even if we manage to give equal opportunities to everyone, some people will manage better than others. Some people are born to be Mozart and Newtons. That is just how it is, and when you are one of these people, with greater potential, you will accomplish more and people will be happy to give you more of their money to enjoy your work, making you unequally richer than they are. There is no way around that. You could have given me a billion to get started and I would still not have written the magic flute or written a revolutionary algorithm.

Societies who tried to remove all inequalities managed to create living hell where everyone was equally poor and unfree and not able to express their full potential while the ones with great potentials tried to flee such society. Just be careful what you ask for. For having grown up in a socialist hell myself (Syria), I wouldn't go back to such a place (even without the war).

And, some people are born Mozarts and Newtons, and we never hear of them because they they lack connections, access, leisure, and opportunity.

I don't know what true socialism feels like, but I do know that whatever mixed system the U.S. has certainly doesn't feel like freedom. Whatever we have, I'd like to try something new because it's not working.

> And, some people are born Mozarts and Newtons, and we never hear of them because they they lack connections, access, leisure, and opportunity.

That's why I said even if we had 100% full equal opportunities, we would still have inequalities. Let's say 100% of people who are born Mozarts and Newtons got to be heard and succeed and all have great connections and equal opportunities, we would still have the same problem with people _not_ being born with such huge potential. That is, unless you believe we all are Mozarts and Newtons that weren't given the right opportunities and connections and here we'll have to disagree. Now, what kind of society gives better chance to succeed for everyone? Socialists ones with no freedom or the ones with the maximum freedoms? Reality says the latter.

Those aren't the only two choices. The west, and even many in the east, are made up of mixed economies. Denmark, Finland, Sweden, Germany, and many others are extremely successful mixed economies by most measures (see OECD stats to start.) In the US, the mix is currently wildly out of whack; it needs to move back towards broadly shared prosperity, rather than the oligarchy we have now. That means higher taxes on the wealthy, better social programs, redistribution, and all the rest.

Read "Twilight of the Elites." Few are arguing for zero inequality; even anti-inequality crusaders acknowledge there will always be some inequality. It depends on how much, and what that affords the society. The amount we have now is wildly out of balance. We have models that work better in the world, and even in America's past, and should look to those.

No one is arguing for communism anymore (the implications of the poster higher up notwithstanding), except those that are largely irrelevant to the debate.

I live in France, I can tell you that most of the countries you list here built their wealth before building their huge welfare state and that it's now turned into a money losing machine nightmare which are being urgently reformed as you read this. It's also turned people against one another and created more racism for a simple reason. Given that the welfare state takes money from people and redistributes it to others by force, as the "others" grow larger due to immigration, people start to hate on immigrants for shrinking the part of the pie they think they deserve (even if the welfare state is responsible for more people being on welfare, not immigrants). A huge welfare state also discourages many people from working, making it more difficult for immigrants to integrate like they used to and creating tensions and resentment from the part of the population that works and the one that does not. This is why most Muslims in the US are well integrated while in Europe they are pushed into ghettos and victim of racism. All this because we believe that it's better for people to be unemployed than being on a lower wage when in reality it's the opposite.

Welfare discouraging work has largely been refuted: http://www.nytimes.com/2015/10/21/business/the-myth-of-welfa...

Where it does discourage work, the effects are extremely minor. Your contention that their wealth was before the welfare state is completely incorrect and ahistorical. Even the crudest measures show that to be wrong. Examples:



For France, the numbers since 1960 have been fantastic overall. Look through the OECD measures:


I'm sorry, but your statements don't hold up to any of the measured data, and this excludes things like perceptions of corruption or gross happiness. No country is perfect, but the ones I listed are doing better than the US on almost every internationally recognized measure.

> Welfare discouraging work has largely been refuted

Did you read your own link? Your own link says: "There is little doubt that welfare can discourage employment, particularly when recipients lose benefits quickly as their earnings from work rise. Still, the effects are muted."


> largely

> the effects are muted

The first does not follow from the second.

I know for a fact that here in France we have both substantial unemployment and at the same time many job offers available that people refuse to accept because they can afford to live on welfare instead. By definition, if they could not live on welfare they would accept these job offers. As for these countries building their wealth before the welfare state:

- http://www.cato.org/pubs/pas/pa-160.html

- http://www.forbes.com/global/2001/0319/034.html

Your first link is a known biased source.

Your second one doesn't undermine the case; it mainly discusses that tweaks are needed, not that the social democratic system doesn't work as you've implied. No one is arguing that the numbers never need to change; the entire discussion about the US is that the numbers need to change (in the other direction.)

As far as whether those people would accept the offers, it's possible at the margin, which are the minor effects I've mentioned. The numbers matter, though. France is a particularly bad example to use considering its job performance:


Sorry but if you are just going to dismiss my sources because they are too biased then there is no point in continuing this conversation. Not to mention the irony of following that with a Krugman article which as biased as can be.

There's little irony. Krugman has publicly changed his opinion on several items over the years, and isn't an advocacy organization or a think tank. Cato's raison d'etre is the promotion of "negative liberty" to the exclusion of virtually everything else. I regularly read Cato, and I even agree with some of their work (things like replacing the welfare state with a GBI, free speech absolutism, etc.), but I still consider them a biased source even if their views sometimes dovetail with my own.

It'd be different if you cited credible right-wing (economic) sources, but there are few left since the intellectual foundations of much of what passes for economics on that side of the divide (a chaotic Reagan-Thatcherism, a right-of-center Neoliberalism (older FT/Economist-style), or a wild-eyed goldbuggery) have fallen apart in the modern world. It's not symmetric at this juncture.


We can stop the discussion, sure. Let's do that.

I consider myself center-left and I like Krugman a lot, but you can't deny he's just as biased as Cato/AEI (on the right), and the Brookings Institute (on the left). They are all biased. That being said, they are all reputable enough not to outright lie or distort. At worst they selectively omit, or their opinions/editorializations/analysis are wrong or speculative.

No way. There is absolutely no symmetry in the positions; that's part of the false equivalence narrative. Is Krugman, Baker, DeLong, Thoma perfectly unbiased? Of course not. Do I trust their lack of bias more? I do.

If someone were to argue about the less biased nature of Cowen, Hanson, or Murray, or other RW intellectual, we might have a discussion. I don't agree with those people half or more of the time, but I definitely trust them to change their minds and look at the facts, rather than having an a priori position immune to facts. I don't expect the same from Cato, and certainly not from AEI or Heritage (whom I consider far more biased than Cato.)

>>whatever mixed system the U.S. has certainly doesn't feel like freedom.

As some one from India, who knows US quite closely(Through work and visits). I can tell you US is the most free and meritorious society in the world currently. By and large anybody can do anything they want in the US. However the keyword there is 'wanting'. Its not going to be easy. Its a bit like saying you could be your class topper in school/college if the examination was a little easier.

>> I'd like to try something new because it's not working.

You only feel that way because you haven't seen anything worse.

"Nobody is suggesting that we “prevent people from getting rich” or “end all economic inequality”."

FWIW, I've met tons of people who suggested this. Eg., at Google, I had a co-worker who was probably the best programmer on our team. He loudly and repeatedly argued for socialism (he literally used the word "socialism"), and for government seizure of all private property over some low-ish threshold per person. He very strongly believed that no one could ever earn the right to be rich, and that rich people were so bad for democracy that well-run countries shouldn't have any.

How about "no politician in the mainstream with any sort of influence or power" is suggesting that? How about "not even Bernie Sanders" is suggesting that?

Politicians in the US track the median very closely. If 30% of voters believe something, close to 0% of politicians will. If 70% of voters believe something, close to 100% of politicians will. We saw this most clearly with gay marriage - Obama and most of the Democratic Party flipped their positions right when the poll numbers passed 50%.

It doesn't really matter. Even if you have a Pew poll saying that a good amount of voters believes that “prevent people from getting rich” or “end all economic inequality”- those are just vague sentiments and not real policy. There are no mainstream American politicians in either party with any proposals that even remotely resemble that sort of idea.

Yeah, that one dude's argument totally characterizes the entire progressive wing of the Democratic party...

I agree with your sentiment but I don't think sarcasm is going to get you anything but downvotes. The person you're responding might be underinformed and/or hasty generalizing, but probably deserves a more constructive reply.

Nutpicking deserves to be mocked. There are plenty of progressive economists, spokespeople, or empowered politicians; any of them are fair game for criticism.

Criticism, yes, I just think a more enlightening reply would do more for the conversation. The way I like to think of it is that you're refuting an argument for the benefit of other readers of the comment who may not be well informed / are persuadable, rather than to oppose the person you're replying to. Think of it as communicating a thoughtful missive to someone (who honestly doesn't know) that has asked you "what's wrong with that comment?"

> go back to the tax structure of the 1950s–70s”, with higher capital gains taxes

Wouldn't it just push capital outside of US?

Just like the 1950s, which we all know were a disastrous time for US industry?

1) The capital is much more mobile now

2) If the US taxes in 1950s were lower, it indeed would make US an even more attractive place for capital. However, the US was going through an industrial boom because of variety of other factors then, unlike any other country in the world. Now, situation both in US and other countries is quite different, and tax factor is more important.

Basically, when you have the best goods on the market, it's OK to ask high prices, but when you get competition, it's not such a wise move to keep them high.

Even those in what remains of America's radical left don't make this argument (the few that do aren't taken seriously by their fellow leftists anymore); even in Europe, which is far more generous in terms of social welfare provision has some level of wealth inequality. So it's definitely a huge strawman. PG makes several statements which shows that he understands important parts of the problem (poverty, mobility), but it's incomplete (and credit to him for writing a thoughtful piece on the issue - more people in power should be doing the same.) Instead, the picture looks more like this:

1) Massive wealth inequality distorts policies towards the preferences of the rich (http://faculty.wcas.northwestern.edu/~jnd260/cab/CAB2012%20-..., http://www.demos.org/stacked-deck-how-dominance-politics-aff..., Affluence and Influence), so reducing inequality does more than just give people more mobility; it allows government to more accurately reflect the will of the people. It's democracy-enabling. Massive inequality in wealth breeds massive inequality in political power. No amount of mobility or opportunity can fix this one, only inequality reduction itself.

2) As Hayes discusses in "Twilight of the Elites", we've learned that basically everyone in the US has accepted the current notions of meritocracy, social mobility, and equality of opportunity. What is currently not well-accepted is that in order to achieve anything like equality of opportunity and social mobility, you need more equality of outcome in the first place. One can express this as "reducing poverty", but that's just a _reframing the same idea_. We are in fact talking about redistributing money from the very rich and giving it to the not-rich, one way or another, to improve EoOpp and SM. That reduces inequality by definition.

3) Massive inequality itself increases social distance, which is partially reflected in #1. When all one sees, knows, meets, etc. are other wealthy people, one may wind up becoming disconnected from the plight of the non-wealthy. They become an annoyance, invisible, or irrelevant, which is reflected not only in policy, but also in self-reinforcing cycles of disinterest and disconnection in the realm of social relations. Inequality has to be reduced somewhat to reduce that social distance.

4) When we speak of inequality reduction, it can be understood as "wealth range compression." The top go down, the bottom go up. Many analogize chopping off the top and putting it at the bottom, but the compression metaphor works better IMO.

5) Some worry (like Acemoglu) that US inequality subsidizes other nations in terms of innovation. I think Edsall and others have completely demolished the argument, and its was largely facile in the face of facts like Sweden having invented the ultrasound, the pacemaker, and AIS (an advancement of GPS) or Denmark having invented the loudspeaker, Bluetooth, and Insulin. You could even argue the opposite: a society that gives people a better safety net (Peltzman effect again) combined with an entrepreneurial culture will produce more, not less innovation.

The recommendations for remedying this are fairly tame in the European / Scand. context, mostly because fewer of them have internalized ideas like "taxation is theft" or "everything that happens to you is your own fault." We should regard the following as non-controversial (some a restatement of your list items):

- Marginal tax rates at the top of 50% (France is even higher and still has rich people) and policies to make sure the rates stay progressive.

- Closing tax loopholes, forcible repatriation of stashed offshore assets, fully funding the IRS, and eliminating (for real) tax havens and their usage.

- Debt-free higher ed (full rides, living stipends, the works)

- A real universal health system

- No games with inheritance taxes

- Non-punitive, non-humiliating policies to help the poor like a GBI or expanded automatic welfare provision

- Not gutting social security

If we were to implement the whole of Sanders' platform, for example (most of which I agree with, a few items I think are questionable), we'd still be to the right of a Denmark or Sweden(!) We'd be slightly to the right of what we had during the Great Society.

It's a return to sanity, basic living standards, and mobility. Hardly the stuff of Galtian nightmares.

> Massive inequality in wealth breeds massive inequality in political power. No amount of mobility or opportunity can fix this one, only inequality reduction itself.

There is a solution besides inequality reduction. The problem is that our money makes the exertion of economic power invisible, so people have no way to reject its influence. If you don't want money to influence politics, you should be able to reject the power of money that has influenced politics over your own production.

I don't care how much money people have, but I do care when they use it to subvert our democracy. We can reject their power to do so, and we can do it without somehow passing a law through our government that has already become an instrument of entrenched economic power in itself. We can do it with individual action.

This is merit capitalism. http://meritcapitalism.com

And yes, of course, can't agree more with your list. That is just good for innovation and people. Pretty obvious at this point that those are desirable measures, not just for poor people but even for a healthy economy in the long term:

- Marginal tax rates at the top of 50% (France is even higher and still has rich people) and policies to make sure the rates stay progressive. - Closing tax loopholes, forcible repatriation of stashed offshore assets, fully funding the IRS, and eliminating (for real) tax havens and their usage. - Debt-free higher ed (full rides, living stipends, the works) - A real universal health system - No games with inheritance taxes - Non-punitive, non-humiliating policies to help the poor like a GBI or expanded automatic welfare provision - Not gutting social security

Btw if Futurebot or anyone else can give arguments against this video, it's Stephan Molyneux on "the myth of scandinavian socialism", ... that'd be interesting: https://www.youtube.com/watch?v=FNtyV0CXfzU

To me it seems an incorrect, incomplete analysis of the factors that lead to wealth generation, but it seems difficult and time consuming to debunk.

-------------------------- ECONOMIC FREEDOM INDEX

I think for one thing that the economic freedom index, created by the Wall Street Journal is as hack, trying to reconcile neo con policies and the data on growth in countries around the world.

That economic freedom index wants to pass as "an argument for capitalism and neo conservatism", while at the same time incorporating scandinavian countries in the "good group" that is "doing it right", "the neo con way". It's then used as an argument to discredit socialist policies .... I'm not sure that index has any validity. It seems totally biased and "after the fact-y" trying to find ways group countries after seeing their wealth output, and find reasons why that was "totally neo con".

My reaction to the economic freedom index is ... well, if those socialist policies implemented in scandinavian countries are compatible with a high economic freedom rating ... how is that an index a measure of how socialist a country is? Then that means we can do everything they do! Yay!

For me the conclusion on the economic freedom index is summed up by these two cases:

A) Maybe that index is nailing it, and in that case, let's do exactly like the countries at the top of the chart ... the scandinavian countries.

B) And maybe it's not nailing it, and that index is totally made up and biased, a total hack coming from the neo con media. In that case we shouldn't feel bad to be socialist, mimic and adapt from the scandinavian countries which do well on progress and innovation.

... Same outcome in both cases, yay! That index doesn't add much to the conversation. It's just concurring on the fact that those countries are doing it right, and then it's trying to label that success as "neo con" and "libertarian". Well, to me call it whatever you want, as long as it has free health care, free school, minimum wage and all the smart socialist goodness, it's what we should be doing.

Is that index really the complete, correct valid answer to build a successful country? Is it the complete recipe, totally spot on? Or is it just a biased measure made up after the fact to incorporate the countries that do well and label them as "neo con"? Thoughts welcome.

-------------------------- SMALL GOVERNMENT = GROWTH

Another idea mentioned in the video is that the size of government is inversely correlated with growth and wealth generation. Can anyone debunk this?

Small yet effective? - One thing that comes to mind is that it's possible that some countries, like the scandinavian countries, are implementing some smart policies, that would be considered socialist, with a small government. And that on the other hand a government can be big and implement the wrong things, the wrong policies.

Big government would mean more corruption and bad ineffective policies? - It's possible that the size of a government isn't so much a measure of how socialist it is, but is rather a good proxy for how corrupt a country is, how dumb its people are, and thus how likely it is to "not pick policies that are conducive to growth and wealth", but are rather instead "conducive to making the rich richer" through manipulation and corruption -- which is typical of countries that don't do that well, they are controlled by an elite that abuses and parasites the middle class, incapable to vote for itself. More middle class emancipation corresponds in general to more wealth and more progress and might be an indicator of more smart people in all classes and not just the elite. More inequality generally corresponds to less progress and less wealth. If anyone disagrees with this please tell me why, thanks!

It could also be that their measure of how small the government is isn't accurate and that there's a lot of small prints about it.

If it's indeed correct, then it's an interesting correlation. I would like to know more about it. Any comments welcome.

In particular, it would be interesting to know if there's any flaw with the idea that "Sweden's decline in growth output relative to the world average is caused by a bigger government starting in the 60s".

------------------------- In any case, the conclusion doesn't change much for me, it still boils down to the fact that some countries are doing it right, in growth and innovation, and at the same time implemented free health care, minimum wage, free schools etc. and we should mimic and adapt from their model, as much as possible since it works.

After that, all the discussions from Molyneux and other neo cons or libertarian, trying to label that success and "theirs" as "due to less socialism" don't really matter. Whatever those countries are doing, whatever you call it, it's the right thing to do.

When I googled "list of countries by size of government" to see if I could spot some trends, I found this very interesting article as the 4th hit: http://anepigone.blogspot.ca/2008/03/government-spending-as-...

It essentially confirms my temporary conclusion, what I've been reasoning in my comments on this page so far. Socialist policies at worst won't hurt the economy, and at best will contribute to it. In any case the neo con / libertarian position that Molyneux defends is flawed, indeed based on nothing (I wonder how he gets his data, besides from the economic freedom index which comes from the Wall Street Journal). Here are the highlights from the article, below (marked with ).

Now I really wonder how come Molyneux gets such a beautiful correlation between government size and growth output in his slides. Is it possible that his data is ... purposely altered or coming from biased sources? I don't see any other explanation. It'd be great if the author of that article (Audacious Epigone) and Molyneux had a good debate, so we can see who's right.

Quotes from the article:

There is a modestly positive correlation [of government spending as a percentage of GDP by country] of .25 with per capita wealth. To the extent that is of any importance, it is another reason why those on the left should favor policies that boost average IQ and by extension national wealth. Over time, as the economy grows, the government grows as well, generally at a slightly greater rate, then? But if European countries are removed from the analysis, the relationship loses statistical significance (p=.34).


* On its face, there doesn't appear to be much to validate the libertarian view that minimizing the size of the federal government, and suffering the consequent economic distortions its continued growth will otherwise cause, should be the primary goal of a society wanting economic prosperity (and a high quality of life). Ceteris paribus perhaps, but there are clearly a host of other demographic and cultural variables that are more important. Who would rather operate a business--or live--in Haiti instead of in Denmark?

Conclusion: For me it's not looking good for the neo con / libertarian ideology. I'm not sure I can identify even one pertinent spot on thing they say at this point. Could it be that most of that ideology and all its arguments really is 100% flawed and was manufactured by elites in their own short-term, near-sighted interest repeatedly in history? Or is there at least some good stuff in it? Any thoughts welcome.

Hi Mike,

I wanted to respond to all your comments, but they're blog-post level and I'm in the middle of writing a book so I can't properly do them justice. A very short answer to just some of your questions on government size and the innovation/social support question:

1) The Scand. model shows that larger (and more importantly well-run, and smarter) government is completely compatible with innovation and business creation (as well as high social mobility.) Stronger social supports mean more risks, which means more innovation and businesses. Size is a red herring, as I'll discuss below, though.

2) The "Freedom indexes" aren't wrong per se, in that they show what they purport to show, but the way they've been interpreted / designed is to always support the ideas that less regulation always and everywhere equals growth, even "good" growth. The cultural environment they were created in doesn't allow for much else. That doesn't mean they're useless; it just means that they have to be interpreted contextually.

3) Culture matters. A lot. A society that has a baseline of good infrastructure (broadly construed, not just physical, but social and technological) plus a culture of entrepreneurialism is likely to produce more innovation even with 50% marginal tax rates.

I'd add for all of the above is that the environment for innovation can be thought of like the range of temperatures compatible with life; there's a margin where innovation will likely go down at either end of the spectrum:

- If your MTR is too high, people might actually move or decide its not worth it to start a business. The issue is that the actual level and the level pushed by the economic right are very far apart. Scand. / France / Germany shows that 50-60% MTR works just fine, but we could easily imagine that a 90% rate would have the opposite effect.

- If your MTR (and hence ability to fund the aforementioned infrastructure [in this case everything from university tuition to public transportation to government grants for businesses to social welfare to allow people more freedom / privation protection]) is too low, you can lose innovation potential because too many people spend heir time and energy just trying to survive or get to the "baseline" of innovation (like working survival jobs instead of studying.) Even small-scale cash handouts in many developing countries to would-be entrepreneurs can bolster innovation and growth, as a number of previous and extant experiments have shown.

- Regulation and government size are often explained in terms of "number" or "size", but these should be considered complete red herrings. What's more important are good design, responsiveness to changing circumstances, good administration, hard-to-corrupt regulators, and understandability. Many of the Scand. countries, NZ, and especially Singapore (for all its faults) show that regulation can be done in a way that protects people and does not squash business. The proper way to frame this is not to think about "too many" or "too big" but "bad" and "stupid." Bad/stupid regulation can kill business, but good/smart regulation can actually support it (one way is to allow certain kinds of businesses which lines to color inside AND to let them know that they are not being undermined when their competitors cheat - standard regulations means a level playing field for businesses in many cases, particularly ones in well-trodden industries.)

The other thing I'd say, which is very interesting, is that even though there's some disagreement on the causes and the extent of many of the inequality issues, the solutions are weirdly convergent. Left-wing intellectuals with a technological bent, realistic right-wing intellectuals who have given up on a complete dismantling of social welfare provision, and technologists of the techno-libertarian (both left and right) variety have spoken in favor of the GBI, which would kill several birds with one stone:

With a proper GBI, you wouldn't need TANF, SNAP, WIC, social security or any of those. You would still need a proper UHC, and would probably need top ups for those with disabilities, but we could get to the "post-Scandanavian" model of social democratic capitalism if it was done on a large scale. Politically unlikely for another half-century, in my estimation, but a far better solution than most of the others.

The "standard" list of suggestions (like not gutting SS) takes into account political likelihood, even though I consider many of them second-best solutions.

In the spirit of PG's essay, his response would likely be that the fact that economic leverage affects politics substantially at all is the direct cause of distorted preferences, and wealth inequality is the indirect cause. So what you really want is campaign-finance reform (and other reform for areas outside of politics like higher education, etc.)

EDIT: emphasis added.

No, it's not just that. CF is not the only mechanism through which the wealthy can exert their influence:

- think tank funding

- ad spending

- lobbying (CF will not fix that)

- the potential of future jobs / revolving door

Most importantly, cultural deference does not go away with CF reform; people respect the monied and the powerful for more than their campaign contributions. They also respect people "like them" (http://time.com/373/congress-is-now-mostly-a-millionaires-cl...), which means similar socio-economic backgrounds, elite schools, clubs, etc.

They buy influence indirectly by simply having wealth and power concentrated with them. You can only reduce that by reducing the distance between the bottom and the top. You have to reduce "vertical social distance."

Nothing is a silver bullet here, but reducing wealth inequality is the most direct route to equalizing political power.



I especially recommend reading "The original problem of social distance" in "Twilight of the Elites."

I explicitly mentioned "(and other reform for areas outside of politics like higher education, etc.)"

So all those things you've mentioned are the real direct causes (that should be fixed) of the problems you blame on wealth inequality.

I'm sorry, I don't follow. You cannot reduce social distance without reducing income inequality. If those other things include "reduce income inequality", then yes, we're in agreement. If those other things do not include that, then we're not in agreement - those things are ultimately eating around the edges (and we should do them. 100% we should do them because they matter, too) and not attacking the core problem. Income inequality is both a symptom (policy preferences that favor low taxes, loopholes, etc.) and a cause of the problem (inequality itself causes vertical social distance, causing unresponsive elites, causing people to get elected that favor the preferences of other elites, which causes..) It's self-reinforcing.

You can't fix "vertical social distance" without reducing inequality. Read my links to find out why.

Here's another: https://en.wikipedia.org/wiki/Income_inequality_in_the_Unite...

You're confusing proximate and ultimate causes.

> Income inequality is ... a cause of the problem (inequality itself causes vertical social distance, causing unresponsive elites, causing people to get elected that favor the preferences of other elites, which causes..) It's self-reinforcing.

You state the problem is elites in office who have biases in their preferences, and claim that inequality causes this. The links you provide list political polarization, class warfare, etc. as "effects" of income inequality. However, nowhere do you show this is the ultimate cause of the problem rather than a proximate cause.

A better use of time would be to suggest ways that one might limit undue political influence in the presence of inequality, rather than eliminating inequality itself (which would have many deleterious effects as addressed in the original post).

Thanks Futurebot for your thoughful, spot on and readable commentary all over the place. I hadn't read this comment in particular before writing mines and I'm really happy to read a lot of the same arguments I gathered in different places over the years.

Absolutely, more safety net produces more innovation. That's also what I thought. Thanks for saying, finally someone else says it!

Some arguments for it:

- the middle class was important for progress in the west. That's a well established idea.

- the map of low vs high inequality countries points more toward high inequality --> less innovation per capita, on average. In particular at least, it's clear that some of the nordic countries can pull off the highest innovation rates per capita while being among the most socialist countries. So at worst, most of the socialist policies won't hurt. Like free school, free health care, financial regulations and less tax on the poor than on the rich. At worst, they just won't affect innovation, and at best they actively contribute to it.

- the law of accelerating returns states that, in rough terms, "computation power" is a function of "world knowledge" which in turn is also a function of "computation power". This is why it's an exponential trend. Well, until we reach a point where computers can innovate on their own, human brains are still going to matter in the equation for progress, still going to be a bottleneck for progress, still for a few decades in the future. Yes more powerful computers is mostly what's driving the exponential tech trend right now, but so is the raw number of brains at work, scientists and engineers in particular. This means that we need more bright kids in college and university.

Neo conservatives usually argue that "making way for investors" is the priority for the economy and innovation -- that it's currently the bottleneck for innovation and the economy. But it's clear for me that it's not the case. Investing might be the easiest part to solve among the "ingredients" that are often cited to generate progress: 1) inventors+computers 2) investors 3) middle class buyers.

For me it's clear that socialism would generally help 1) and 3), as well as 2) (for example with incentives for high risk investors or investors in renewable energy for example) while neo conservatism might help 2) only and be detrimental to 1) and 3) (especially with the current price of a university education and health care, 1) and 2) are affected negatively in non-socialist countries).

Important to point out that the law of accelerating returns formulated by Kurzweil doesn't really acknowledge 2) and 3), except maybe indirectly (if you count the political model, which is currently btw in the US "capitalist with some socialist measures", and say investing practices, as indirectly contributing to the "human knowledge" variable, which of course it is to some extend). In other words, it's probable the only thing that matters significantly for progress and the economy, is more scientists and engineers. 2) and 3) are just helpers and we wouldn't be near a bottleneck on those.

Interesting to point out that Kurzweil notes no significant variation in the exponential tech trend, throughout peace or war times, growth and recession periods. So either the only variable that changed significantly is the computational power available, or more likely the number of human brains at work also increased in the last century.

An interesting question is, would we still get the same rate of progress with the same number of scientists and engineers and investors and buyers that we had 100 years ago? I think not, but maybe I'm wrong.

I think more smart human brains at work, besides having better and better computers, has been the most important variable for progress in the last centuries. And I think it still is somewhat important today, until we get fully independent computer-generated scientific or tech innovation.

Any response to these ideas would be welcome. Great if you change my mind or correct me on some details. Thanks.

I think you're taking this too literally. For instance, "ending economic inequality would mean ending startups" might be translated into something like: "Implementing policies that marginally reduce economic inequality would marginally reduce incentives to start a startup, and consequently reduce the number of founders that will start a startup in this country ever so slightly".

Sometimes it's easier to understand the consequences of doing something by pointing out extremes. It also makes for better reading, but the price you pay is that some people may think you're an extremist.

You might be arguing against a straw man. I don't think PG was saying "Current, actual proposals will significantly dent inequality".

I think he was saying "People misunderstand the issue. They're concerned by inequality, but think that reducing inequality amounts to the same thing, and inequality is per se bad."

Reading this in combination with other essays, pg is likely worried that a seemingly innocuous change could have an outsize impact on startup formation, precisely because they're so marginal.

I don't think PG is attacking a straw man at all. In my career as a software engineer, I've run into a significant number of outright communists. Like most of us, they keep their political opinions to themselves most of the time. But occasionally, they let slip how they would welcome revolution. I don't want to name names or expose people who don't want to be exposed, so I'll just give one prominent example.

Steve Klabnik is an extremely talented programmer. He's a core developer of Rust and is the main author of The Rust Book[1]. He is also a communist. (Edit: This is not 100% accurate. Klabnik is better described as anti-capitalist. See downthread for details.) Don't take my word for it. He wants people to know this. Read his blog[2]. Look at his Twitter[3]. Judging from his follower count, he's not exactly alone in his opinions.

I wish you were right. Communists should be straw men. If there's any societal system that has been shown not to work, it's communism. That experiment has been tried so many times, in so many countries, with varying cultures, geographies, and levels of development... and not one of them was successful. Yes, capitalism has had failures, but at least it's had successes.

1. http://doc.rust-lang.org/book/

2. http://words.steveklabnik.com/an-introduction-to-economics-u... At the end: "…this post is basically my own little summary of Capital, Volume I, chapters 1-7, by Karl Marx."

3. https://twitter.com/steveklabnik

What's wrong with being a socialist (or even a communist)?

I don't think it's an immoral position or anything, just a mistaken one. I covered why in my last paragraph:

> If there's any societal system that has been shown not to work, it's communism. That experiment has been tried so many times, in so many countries, with varying cultures, geographies, and levels of development... and not one of them was successful. Yes, capitalism has had failures, but at least it's had successes.

If your response to that is, "No true communist state has yet existed." Well… the same goes for a true capitalist state. The real world is full of implementations, not ideals.

When we look at implementations of capitalism, some are amazing successes (South Korea, US, UK, Canada, post-WWII Japan & West Germany, Taiwan, etc). Some are hellholes (the Belgian Congo). When we look at implementations of communism (The Soviet Union, East Germany, North Korea, China before Deng Xiaoping, Venezuela, Vietnam before Doi Moi, etc.), none of them are successes and many are hellholes.

I'm not an ideologue about this. If communism led to better quality of life than capitalism, I'd be fine with that, and I'd vote for communists. But the evidence is that it doesn't, so I don't.

Commentary for those wondering why my comments are gray: As soon as Steve Klabnik tweeted about this thread, all of my comments were downvoted.

I see nothing incorrect, nor unnecessary, nor unkind in my statements. If anyone disagrees, I welcome responses.

Hi Chroma, thanks for your comment, but I disagree with you, please text-search my name on this page and read my comments, and answer them point by point if you can.


I think saying that some people are "crazy communists", and that communism is failed, is not enough to discredit all the positive socialist measures that are likely leading to increased innovation and a healthy economy in the long run, in most developed countries.

- debt-free higher education - free health care - financial sector regulations - tax poors less than rich - taxes on corporations, which will be important in the future to deal with automation of most jobs, such as lawyers and truck drivers. - basic income (only exists in Finland at the moment in 2016, was tested a few times in the last decades, with success apparently)

The "Communism is failed" argument is typical of the neo con media, it's disingenuous and completely misses the point. Socialism is very different from communism. Socialism improves on capitalism. Socialism provenly works. Most developed countries are socialist, to different degrees. The most successful ones in innovation per capita happen to be the most socialist ones, literally, scandinavian countries. The US is already socialist to some extend, not just capitalist.

An interesting point to add is that Milton Friedman, the guru of the neo conservative current, actually supports basic income. Basic income just got voted in Finland. Basic income is very different from communism, and was proven to work in many real-life experiments, without affecting people's drive to work. See interesting TED talks on that subject.

… In 1962, the libertarian economist Milton Friedman advocated a minimum guaranteed income via a “negative income tax.”

As I've said on Twitter, I'm not _exacty_ a communist. I am far left, but the differences matter only if you're already a leftist. I think "anti capitalist" is the more accurate umbrella term.

I'm also one of the highest karma people on this very site. ;)

Apologies for not using the exact terms. While I have your attention: Would you agree that PG is not arguing against a straw man? That you, in fact, would like to prevent people from getting rich and end all economic inequality, and that many others share your beliefs? Considering that jacobolus's comment is at the top, I think it's important to know whether it's correct or not.

BTW, thank you for all your contributions to Rust, Rails, and countless other open source libraries and modules. Your work has benefitted millions.

I am out at a bar with friends, so I have not read the article. I just check things every so often and saw that I was mentioned. It's an inherently complex subject, and like I said, the details don't really matter unless you really care about them. It's just important that if someone calls me "communist", they don't think that I have no criticism of anything related to communism, because I do.

I haven't read through the links you cited, just the excerpt. A lot of non-communists cite Marx. My economics professors in University certainly did, including one who advocated eliminating corporate taxes.

Out of everything I said, I'm surprised this is the thing that's contested. Just scroll through his Twitter feed. Here are a few recent ones:





He retweeted this: https://twitter.com/kantrn/status/683385220167368704



Heck, his Twitter profile pic is a communist logo. His Twitter bio says, "Every loss for a worker is loss for all of us and every gain for a part of the working class is a victory for all." That's a quote from the Industrial Workers of the World[1].

I don't know how much more communist one can get.

1. http://www.iww.org/content/iww-greece-announcement-regarding...

Yeah so the IWW is an anarchist organization, not a communist one. Or at least, not a Marxist one. Soooooooooo

Right, that looks pretty clear then. I guess I meant to say that citing his summarizing of Marx is a pretty poor way to suggest someone is a communist, if you can link to something that literally says "I am a communist". Plenty of non-communists cite Marx.

This is 100% accurate. My ultimate allegiance is to Deleuze, but that's only relevant to a VERY small niche of people. Marx is much more well-known.

Also, I care more about left unity than arguing over the exact kind of leftist I or others are.

The most extreme proposals I’ve seen in America are ones like...

The most extreme proposals I've seen in America are a federal job guarantee and a permanent incomes policy similar to the Nixon wage and price controls of the early 70s. Post-Keynesians and MMT proponents are very enthusiastic about them, and they reject the idea of the basic income FWIW.

The Nixon wage-price controls were a disaster. They also precipitated the oil crisis, which persisted until Reagan finally cancelled the oil price controls.

I'm not aware of the relationship between Nixon era wage policies and the oil crisis. Do you have some info on that?

Nixon enacted price controls on oil in 1971. This meant that US prices for oil could not rise, and the oil from non-Arab sources got shipped to other countries who outbid the US. Price controls prevented finding new sources of oil.

There's more, a thorough treatment is in George Reisman's book "Capitalism" pg. 188.

One of the first things Reagan did when inaugurated was, by Executive Order, rescind the oil price controls. The gas lines vanished overnight and never returned in the 35 years since, despite all kinds of gyrations in the oil business.

It's rare that we have such a clear example of the deleterious effects of price controls.

Well, at least in the age of fracking and increased investment into renewables, as well as whatever the Saudis are up to, there's no threat of a new oil crisis happening anytime soon.

I'm not advocating either of these policies in the slightest. I'm pointing out their increasing popularity in light of a heterodox renaissance post-2008.

The oil crisis was a result of the collapse of the Breton Woods System. Wage-price controls were merely a prop to stem the collapse.

Please stay with the facts. Price controls are a very different and much dumber idea than a job guarantee or the basic income.

> pure common sense in a democracy

Does not exist. Democracy means that 51% of the people can destroy the life/liberty/property of the other 49% whenever they feel like it.

That's a very theoretical approach to democracy. Real democracies are less about the majority deciding things than keeping the people that do decide things in check.

Just look at what the majority of the people think. There are so many wrong things that the majority of people believe, you wouldn't want those beliefs made real through politics. Also nobody can be even interested in all topics decided.

Being a Pole, I wish more people understood that. :(

We're in the process of dismantling our democracy by removing all of the checks you mentioned, while supporters of the ruling party argue that democratically elected majority is within full rights to do it.

It does too. That scenario typically leads to civil war and two democracies, at least for a period of time. Sometimes it works out, as with the U.S. democracy declaring that people are not anothers property.

jacobolus is exactly right.

I agree, Paul Graham sounds like the solution to fixing extreme inequality must be communism (the Marxist type). I'm a little surprised he is making this argument.

I think it is great, with everything Paul Graham has to lose, knowing comments like these will be at the top of something he helped create, he still has the courage to say what he believes. Yes, there are many people/politicians that will use other well meaning people to prevent others from competing with them by eliminating the ability to get rich.

He is defending what he is doing and what Y-combinator has been doing. One of the most important roles of a leader is to create vision -- build a story that explains and interprets reality based on it.

In general, startup world lives on hopes and ideals. More so than other industries. Founders have to have a "burning desire to change the world". It could be building a better future, moving the technology forward, making people happier, more productive, healthier, etc. Early employees are sold on hopes of changing those 10000 options into billions of dollars during the exit or the IPO in exchange of a decent salary etc. There is talk of getting paid less but "you are compressing you career of 30 years into 5", so working nights makes sense. Investors hope the company will grow a horn and hooves and become a unicorn. Etc, etc.

So it is important to have a story that interprets how startups are related to inequality. Whether we agree or not with that is a different story.

> He is defending what he is doing and what Y-combinator has been doing.

But that is the straw man. Those of us who think extreme economic inequality is a bad thing do not think that YC is a bad thing, notwithstanding that it does contribute to economic inequality.

The problem is not YC, the problem is that extremely rich people use their money to buy political power, which they then use to create laws that allow them to extract rents (by, for example, paying lower marginal tax rates than less wealthy people). It's the positive-feedback effect that this creates (more money -> more political power -> still more money) that is the problem, not YC, nor (obviously) the creation of wealth.

which they then use to create laws that allow them to extract rents (by, for example, paying lower marginal tax rates than less wealthy people)

How is someone who pays 10x, 100x, 1000x the taxes of the median taxpayer "extracting rent"?

> But that is the straw man.

That was my point -- consider the source and the motivation of the author.

I see I got downvoted after a while, wonder if that idea didn't come out as clear.

But he's defending against a strawman. Almost no one is arguing for flat payment where everyone makes the same amount of money. What most want is equality for opportunity (something that YC and other VCs might give).

In many ways, startups and access to capital could be a great equalizer for opportunity equality. It allows individuals to control so much of their destiny. The alternative is to pass through a gatekeeper at some large company, spend years working up the ladder (if any progress is made at all) or even worse to not even be able to make it into that large company.

The problem is when wealth in one generation guarantees wealth in the next generation, and where upward mobility is nearly impossible. Opportunity equality is what almost everyone is pushing for, when they talk about economic equality. It's now possible to teach oneself to program and then make a six figure a year salary. It's now possible to start your own company and get funding in a way that just was never possible before. The problem is that opportunity equality right now is only limited to tech. In almost every other area the opportunity just isn't there.

> But he's defending against a strawman

Yes. That was my point. Consider the source and the reasons for writing this. I didn't necessarily say whether this points are valid or not just strawmen, but rather that he has an incentive to take the position he took.

> tartups and access to capital could be a great equalizer for opportunity equality ... It allows individuals to control so much of their destiny.

It sounds like the exact opposite of a great equalizer. It puts the wealth in the hands of a few owners and the rest get magic options funny money in exchange of a dream of landing a job in a future unicorn.

> Opportunity equality is what almost everyone is pushing for,

Who is pushing for that? I remember seeing the "meritocracy is a myth" a lot more than "we just need equal opportunity".

> He is defending what he is doing and what Y-combinator has been doing. One of the most important roles of a leader is to create vision -- build a story that explains and interprets reality based on it.

Defending against a strawman isn't really defending against anything but rather perpetuating the delusion that the strawman is real.

It isn't helpful or productive.

> Defending against a strawman

That is what I was saying too. I wasn't being direct though.

Yes he is defending against a strawman to bolster his position and to justify and bring context to a certain narrative that revoles around startups. It makes sense to create these PR stories so to speak, masked as simple blog posts, to provide conext and interpretation for those who follow him.

Yeah but perpetuating a clear delusion isn't healthy for any group of people.

Yeah it is a delusion. In general startup environment thrives on and needs delusions to operate. They are part of the deal so speak.

I think in this case there was a need to have an explanation of how start world relates to income inequality. At some point someone is going to confront some YC company founders after they talked about they want to save the world and make it a better palce etc etc, about "so what do you think about income inequality" and the idea is they'll pull the the gosspel -- pg essay ;-) and quote from the book of Econ chapter 2 verse 15.

It's only me? because when people talk about inequality they are talking about poverty even if they are formally different things. If the lower income segment has good education, health, food, basic housing problem solved, transportation, basic services, and good opportunities based more on their capabilities than their connections the inequality discussion will be more about luxury.

That's a good point. It depends what gets compared to what.

Compared to 100 years ago, everyone is doing better. Compared to Africa or under-developed countries we are doing better. Compared to Western / Northern Europe we are doing so so depending on which metric you look at. Compared to an imagined parallel "what we could have" universe we might not be doing as well. Etc.

> capabilities than their connections the inequality discussion will be more about luxury.

Speaking of, an interesting side note: relationship of luxury and technology is kind of funny. Technology can bring luxury to regular people. Apple products, even those on food stamps could conciveably save enough money to own an iPhone, iPad etc. And that is a the same luxury product that a multi-billionaire would get. I doubt many have custom designed and manufactured phones (custom OS, custom gold plated batteries, etc). That almost never happens with anything else -- housing, cars, clothes, vacation destinations, food, free time. But it happens with technology. That is kind of crazy when you think about it.

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