>I worry that if we don't acknowledge this, we're headed for trouble. If we think 20th century cohesion disappeared because of few policy tweaks, we'll be deluded into thinking we can get it back (minus the bad parts, somehow) with a few countertweaks. And then we'll waste our time trying to eliminate fragmentation, when we'd be better off thinking about how to mitigate its consequences.
A few people making rules didn't cause this to happen. It was the entire world reacting to things the entire world did for the past hundred years. A few people making rules can't stop that kind of force, even if they have good intentions for everyone else.
>What we're looking for is just more equality in economic opportunities and esp capital and that distribution of capital to be more fair across all the classes and not to be a privilege only for rich people and highly connected people... That's how we envision the solution to fix this problem
He mentions this:
>You can mitigate this with subsidies at the bottom and taxes at the top, but unless taxes are high enough to discourage people from creating wealth, you're always going to be fighting a losing battle against increasing variation in productivity.
I think you're looking at a lower scale than pg. From how I read it, he's saying that yes, you can do a little bit to ease the inequality, but you're not going to fix it unless you stop all technology from happening or you stop paying people their market rate. He's saying income inequality is a feature of technology allowing people to be paid their market value and that you can't 'fix' that; the most you can do is take from people at one end and give to people at the other end.
> He's saying income inequality is a feature of technology allowing people to be paid their market value and that you can't 'fix' that.
The thing that I worry about is whether this feature is destroying the conditions that allowed it to become a feature in the first place.
He mentioned the example of Apple and IBM, which I see as illustrative in another way. Would personal computing devices have become popular in a highly fragmented world? According to Wikipedia, the Apple II cost over $5k, accounting for inflation. Absent a healthy middle class, which was created by the era of conformity and relative income equality, would there have been enough consumers to create a market for a $5k computer? As we see income inequality rise, are we not also going to see the opportunity for wealth creation diminish as capital congregates in the hands of a class that largely conserves it?
I think we're already seeing this. As an exercise, try to think of something non-niche that costs around $5k, the price of the Apple II, for which there isn't some form of financing (auto/home/college loans and such). I'm hard-pressed to think of something and I believe it's because there's an increasingly small number of people that can afford such a product. We're already losing the conditions that allowed Apple to introduce the personal computer. There's a long ways that this trend can go before it becomes untenable, but the end result of income inequality will be an environment where it's quite difficult to get paid your market value because the market that funds the employment market will have dried up.
And on that, as on so much else, he's more than a little wrong.
Apple and Microsoft simply couldn't have happened without the mega-corps - not least HP, but also IBM, and Fairchild and its spin-offs - which only existed because of post-war military and civilian "socialist" state support for technology.
By the mid-70s that support had been influencing economic policy for more than forty years.
Apple was a product of that system, not a cause of it. Companies like Apple do not happen in a pure deregulated neoliberal market paradise because markets don't have the kind of strategic intelligence that can fund projects like Whirlwind, TX-0, and the original Arpanet - all of which are essential steps on the road to making an Apple or a Google.
>Absent a healthy middle class, which was created by the era of conformity and relative income equality, would there have been enough consumers to create a market for a $5k computer? As we see income inequality rise, are we not also going to see the opportunity for wealth creation diminish as capital congregates in the hands of a class that largely conserves it?
And this is why they can't happen. You can't build your economy by impoverishing your customers with hand-wavey idealism about "market rates." If you try that, at best you run out of customers, and at worst you get a violent revolution.
The smart way to understand the economy isn't as a number of acquisitive centres for a vague thing called "money", but as a way of amplifying collective intelligence and distributing the gains as widely as possible. Status games for their own sake - which include most purely speculative and acquisitive activity - are the opposite of collective intelligence because they concentrate acquisition instead of distributing it.
You can get localised negentropic blips in a speculative economy, but the overall trend will still decrease collective opportunity over the medium/long term rather than increasing it.
Companies like Apple do not happen in a pure deregulated neoliberal market paradise because markets don't have the kind of strategic intelligence that can fund projects like Whirlwind, TX-0, and the original Arpanet - all of which are essential steps on the road to making an Apple or a Google.
Going even further, corporations themselves do not happen in the absence of regulation, and I think that the granddaddy of entitlements -- liability limitation -- is necessary in order to gather enough capital to form great ventures like chip manufacturing.
> Apple was a product of that system, not a cause of it. Companies like Apple do not happen in a pure deregulated neoliberal market paradise because markets don't have the kind of strategic intelligence that can fund projects like Whirlwind, TX-0, and the original Arpanet - all of which are essential steps on the road to making an Apple or a Google.
The book Doing Capitalism in the Innovation Economy [1] really hammers in this point. I highly recommend it to people who have an interest in this. I wrote a review that captures a lot of my reflections on the book itself and the subject matter [2].
>Companies like Apple do not happen in a pure deregulated neoliberal market paradise because markets don't have the kind of strategic intelligence that can fund projects like Whirlwind, TX-0, and the original Arpanet - all of which are essential steps on the road to making an Apple or a Google.
While I can agree that private entities/markets lacked the capability to fund transformative projects during most of the 20th century, I'm hard-pressed to reasonably apply that to the modern context.
It seems that the most forward thinking, transformative ideas are indeed coming from the private sector markets (e.g. SpaceX), and with the enhanced abilities that our technological age affords to solo individuals, it seems that even small teams may be able to create the next transformative, paradigm-shifting project.
... for services rendered, at a price no one else is able to compete. Or so I've heard. Correct me if I'm wrong(the PR machines are not to be underestimated). Or don't, your choice.
I wouldn't call it buzzwordy hand waving, mostly because it actually means something intelligible. But regardless, so what if SpaceX gets the majority of its money from the government? It's operating as a private entity and it's revolutionizing space travel, and the funding coming from the US government is not for research and development, but for actual services rendered. Similarly, do you believe that the next giant leap forward in general AI is going to come from government? It may, but it also might come from the private sector. I'd say that the same goes for the future's version of Arpanet (something the public doesn't see coming but eventually changes everything).
Because technology enables small teams to make big changes that were once only within reach for large entities like the government, the idea that markets don't have the strategic intelligence to do big, long-term thinking, just seems bunk to me. Also, look at the AI lab announced by Altman and Musk, or look at YC's new long-term research lab project. These could conceivably produce the next Arpanet, don't you think?
> As of May 2012, SpaceX had operated on total funding of approximately $1 billion in its first ten years of operation. Of this, private equity provided about $200M, with Musk investing approximately $100M and other investors having put in about $100M (Founders Fund, Draper Fisher Jurvetson, ...).[47] The remainder has come from progress payments on long-term launch contracts and development contracts. As of April 2012, NASA had put in about $400–500M of this amount, with most of that as progress payments on launch contracts.
40-50% of funding from NASA contracts. Yes, this isn't necessarily the same as a direct subsidy, but, in fitting with the article:
"Many of the mid-century oligopolies had been anointed by the federal government with policies (and in wartime, large orders) that kept out competitors."
Great comment, especially the first paragraph. All one needs to do is watch the PBS documentary "Silicon Valley" to see how true this was. The space race was the driving force behind Fairchild and its many "children" that went on to become what is now Silicon Valley.
I doubt the Apple ][ was a middle-class good. Its killer app was VisiCalc, which households had little use for. Back then a computer was nothing but a toy for a household. The Apple ][ was a bargain for businesses, not households. Certainly it was not a middle-class good in the same way that an iPhone is.
The middle class has shrunk because more people have become rich. So it seems that today there are greater opportunities to sell expensive hardware, particularly since even the lower classes are (in absolute terms) richer than the middle class of the Apple II era.
> So it seems that today there are greater opportunities to sell expensive hardware, particularly since even the lower classes are (in absolute terms) richer than the middle class of the Apple II era.
What has happened is instead technology allowed some luxury products to be commodized and available to everyone. I doubt multi-billionairs build their own OS-es, cell phone towers, hardware, batteries, support from scratch. They buy an iPhone. Someone on food stamps could concievable save money and still get an iPhone. They both have a luxury product so to speak. But this is a cool anomaly. It doesn't happen with cars, housing, job opportunities, healthcare, clothes, safety, free time, food, etc.
So I think looking what kind of tech products are avaiable to everyone doesn't work as an argument regarding inequality. What about inflation adjusted salary, isn't that a better metric to look at? Or say the cost of healthcare or housing as percentage of wages... defintely not the type of computer and printers people can get.
Of course, this is tangential to curun1r's claim, which is that somehow an inability for consumers to purchase new technologies would hinder innovation.
Sigh, it is hard for me to imagine that this comment was made in good faith.
First of all, owning "free and clear" is hardly the expected meaning of ownership in the context of cars or especially houses in the US. I have a mortgage and I still say I own my house. When I told friends I was buying my house, I expect >90% of them assumed I was getting a mortgage. The government reported "homeownership rate" certainly does not exclude households with mortgages.
Second of all, ignoring semantics, the original context was a conversation about whether a significant number of households being unable to afford technology like a $5K computer would stifle innovation. Innovation probably doesn't care whether customers are in debt or not, so this is still perfectly decent evidence to cite about the spending capacity of poor households.
I did misremember the 45% vs 39% number (my notes on that report transposed two separate stats), but I'm assuming that by "factually incorrect" you mean referring to a mortgage holder as an owner.
If so, do you also consider the Census (whose terminology I used) to be making "factually incorrect claims"?
What those numbers tell me is that most retirees are considered "poor" as we currently measure such things. Also that they tend to own homes and not work. None of that is surprising.
Citing any sort of statistics like that without at least breaking it down by age band is pretty pointless, in my experience.
> As an exercise, try to think of something non-niche that costs around $5k, the price of the Apple II, for which there isn't some form of financing (auto/home/college loans and such). I'm hard-pressed to think of something and I believe it's because there's an increasingly small number of people that can afford such a product.
If someone can afford something with financing, they can afford it without. The difference here is not wealth or income, it's spending and savings habits.
So, someone who needs a car to get to work at their new job but has no existing wealth can afford the car equally with or without financing, just based on spending and saving habits???
Cars specifically excluded by the poster to whom I replied. But the sibling comment to yours made exactly the same point about housing. Should I have highlighted the quote from the grandparent post better?
Probably that would have been good. FWIW, I think it's preferable to never need financing ever, and it really ought to be only used for things that are investments (real estate, education, expenses that relate to accessing or building new work/business) and never for pure consumption.
So, I get your overall point.
The other thing to recognize is that being poor is MORE EXPENSIVE than being rich. This fundamental fact is often missed by richer (or just middle-class) folks who think that poor people could do better by saving and being frugal etc. Well, if you have no liquid cash at all, you can't even take advantage of quantity discounts or other opportunities, but you still need to eat and have clothes. A decent amount of wealthier people in our system get wealthy via taking advantage of the desperation of poor people, and until that changes, some amount of criticizing the personal financial decisions of poor folks is just victim-blaming.
I think financing - provided you can obtain it at a good rate, which of course you can't if you're poor - makes sense whenever the benefits of a purchase are expected to be spread out over time.
That's only ever true if you have other potentially-higher return investing your resources in other ways or if you're getting into talking about risk issues and bankruptcy law.
If you have enough cash to buy a car and enough left to be an emergency buffer and cover other needs and don't have something to do with that cash which promises a higher investment return than the interest on a car loan, then it does not make sense to get the financing. It doesn't matter that the value of the car to you is spread out over time. Buying the car outright is better unless you needed the money for something else or didn't have it or had some investment that would outpace the interest on the loan.
> A few people making rules can't stop that kind of force
Can you elaborate please on what kind of force at work? Market forces?
Also, do you have any idea why he's bringing up the subject of "social cohesion" repeatedly throughout the piece? Is social cohesion a hot button issue in the US now that warrants more attention from the general public?
Because I believe that as long as the country is not at war with or in a national state of emergency or in other words, citizens are facing any kind of existential threat, the talk about social cohesion is meaningless and could be divisive as the term is tainted with not so favorable concepts from nationalism, nativism and the likes.
> unless taxes are high enough to discourage people from creating wealth
I don't want to discourage rich folks from creating wealth. I just want them for now to pay their fair share of taxes and close all the loopholes that fuel this income inequality gap and distribute more resources to the least privileged and most disfranchised groups in the society to alleviate their situation.
As for technology has an inequality bias to it, I have to disagree with this assertion and point out that the availability of capital or lack thereof is the main catalyst in this equation not technology.
> the availability of capital or lack thereof is the main catalyst in this equation not technology.
You mean if you can't afford a computer and an AWS account you can't get started? Sure, maybe not, but it's a far cry from the capital you needed in the 1960s to get started. I bet a lot of the readers of this forum know people personally that have made a million dollars or more with their laptop (to a first order approximation).
I love HN as much as the next person but suggesting that the people who hang out here are somehow representative of anything except for the most lucky, wealthy, and privileged members of our society seems a bit strange.
The point you're making about tech startup costs is true, of course, although it looks like statistically speaking the chances of hitting it big are only slightly better than 'will become a famous singer' or 'will play for the NBA.'
But even if we assume that an average human with a laptop and AWS can now make it big, it seems like in the meantime so much of the other things that working-class people had going for them in the 1960s -- being able to support a family on construction wages, for example -- are gone.
> he most you can do is take from people at one end and give to people at the other end
But he argues before that point that tax rates and tax receipts are very weakly correlated. This would seem to be a limiting factor governing how effectively a government can flatten inequality through wealth redistribution.
Seems more like a confusion over how much income to the top comes from wages vs. capital gains. Looking Graham's own income sources, he should have pointed this out.
The capital gains rate under Eisenhower was only 25%, while the top bracket was 91%.
And the corporate tax rate under Eisenhower was only 50%.
Very few of the great sources of dynastic wealth in America were built by accumulating wages under normal income rates.
>I worry that if we don't acknowledge this, we're headed for trouble. If we think 20th century cohesion disappeared because of few policy tweaks, we'll be deluded into thinking we can get it back (minus the bad parts, somehow) with a few countertweaks. And then we'll waste our time trying to eliminate fragmentation, when we'd be better off thinking about how to mitigate its consequences.
A few people making rules didn't cause this to happen. It was the entire world reacting to things the entire world did for the past hundred years. A few people making rules can't stop that kind of force, even if they have good intentions for everyone else.
>What we're looking for is just more equality in economic opportunities and esp capital and that distribution of capital to be more fair across all the classes and not to be a privilege only for rich people and highly connected people... That's how we envision the solution to fix this problem
He mentions this:
>You can mitigate this with subsidies at the bottom and taxes at the top, but unless taxes are high enough to discourage people from creating wealth, you're always going to be fighting a losing battle against increasing variation in productivity.
I think you're looking at a lower scale than pg. From how I read it, he's saying that yes, you can do a little bit to ease the inequality, but you're not going to fix it unless you stop all technology from happening or you stop paying people their market rate. He's saying income inequality is a feature of technology allowing people to be paid their market value and that you can't 'fix' that; the most you can do is take from people at one end and give to people at the other end.