I somewhat agree with Graham: economic inequality is not intrinsically the problem and startups are not the problem.<p>The problem IMHO is rent and profiteering off taxpayer subsidies, both of which more or less force me to pay tribute to the rich.<p>I don't care one bit if someone else is <i>infinitely</i> richer than me as long as I don't have to pay tribute to them or otherwise be lorded over by them. I would not care if (hypothetically) there were people alive today who were biologically immortal cognitively enhanced cyberpunk demigods with control of wealth flows in excess of present-day US GDP. In an abstract philosophical sense it seems likely that such sentient entities do in fact exist <i>somewhere</i> in our vast universe and I don't see how this likelihood impacts me at all. There are also (statistically speaking) probably a minimum of several hundred million to a billion people smarter, healthier, and better looking than me.<p>What I do care about is being forced or at least heavily pressured/coerced into paying <i>tribute</i> to those who are above me economically.<p>A prime example: housing costs are insane and this is partly a result of rich people from around the world parking their wealth in real estate and extracting rent in exchange for little to no investment in anything productive. In general, idle rent extraction is a social ill and should be taxed to hell and back. I would support cuts to capital gains, employment, and income taxes and large increases in taxes on property speculation (non-primary residences) and other non-productive rentier activity. (We might distinguish between productive capitalism and rentier capitalism, though it's hard to draw an absolute black-and-white distinction.)<p>Other examples of tribute include the many cases where public insurance is used to back-stop private losses while private gains remain private, such as the 2008 bank bailouts or the government paying in part for the cleanup of BP's gulf oil spill, and cases where taxpayer subsidized research and development is privatized for exclusively private gain (and patented!). How many huge companies have been built on the back of government-funded research? (The fact that so much wealth is built on the back of public research and public infrastructure is a common argument for progressive taxation.)<p>A huge reason I've lost my faith in libertarian politics is that the 2008 bailouts convinced me it's a scam. The rich advocate laissez faire until their wealth is on the line, at which point they become socialists. It's clear to me that for the poor and middle class to forego the use of government coercion is for them to engage in unilateral disarmament. I've heard today's economy described as a casino in which public funds are used to backstop the losses of the highest rollers, and that seems fairly accurate to me.<p>It's not transformed me into a conventional liberal though. Personally I don't think anyone on the present-day right or left has a clear path out of this. Both sides advocate things that would make the problem worse.
I feel like PG is missing part of the point.<p>The problem isn't "wealth inequality". The problem is EXTREME wealth inequality. I'm not super rich (or even non-super rich), but I do well enough that I don't really suffer.<p>My mother, though, she's got a ton of debt, working a 35k/yr job without benefits, and no real retirement plan. Thanks to Obamacare she can buy insurance, but it has such a high deductible that it doesn't really do anything. She has no home, and can't even rent because most places refuse her if she has more then 5k in debt REGARDLESS of cosigner. And we know that she's so much better off than some others: She has food, isn't crippled by medical issues (yet), no one else to care for, and I'm providing a roof.<p>When you go from an extreme different between the top 1% and the bottom 10%, then have a few decades where that 1% has vast, rapid growth and the bottom 10% has things stay steady or get worse, THAT's your problem.<p>To say that wiping out inequality will stifle innovation...well, that's not really the discussion at hand. Wiping out EXTREME inequality shouldn't have that effect, because it didn't have that effect historically. The difference between the top and the bottom can still be quite pronounced. If/When we achieve that we will still have some people complaining that they can't get their kids the latest $1k/ea toy fad, but that's an entirely different problem I'm willing to tolerate.<p>PG goes on to say that financiers aren't the problem he's talking about...but that is the problem that many others are talking about. PG's original essay seemed quite defensive, and this one does too. He's trying to convince others that he's right, but not noticing that he seems to be talking about the impact of an entirely different discussion.
Note to PG: when you're in a hole, stop digging.<p>I think the most disappointing thing for me about the first essay was the list of people who he thanked for pre-reading it -- were none of those people conversant enough with the discourse around income inequality that they couldn't spot the straw men, or were they just not willing to tell him to scrap it?<p>I mean, sometimes smart pundits go outside their wheelhouse and say clueless things. It happens to everyone eventually. (Heck, Tom Friedman has made a career out of it.) So the fact that he published this clued-out essay on income inequality didn't really perturb or disappoint me -- I was just like, "yeah he did that smart guy thing where he's stumbled into a conversation that he's not nearly as up on as he thinks he is and is going to tell us all How It Is."<p>But the fact that all of his pre-readers are equally clued-out is I think indicative of something larger and more disturbing about Silicon Valley groupthink.
I'm a little sad to see Paul's footnote 2, where he declares that "the numbers in the Forbes 400 are nonsense. But it will do ..."<p>Has Paul ever interacted with the Forbes Wealth team? My book research has overlapped their interests going back to the 1990s, and every time I've spoken with them, I've been impressed with how much work they put into trying to come up with the best possible approximations. Most of their numbers are pretty good -- and in some cases, their research trumps the public boasts that various rich people offer up on their own behalf.<p>If Paul had said Forbes's numbers were "imprecise," he could have made his point. But "nonsense" is a loaded word, and Paul has been around long enough to know that. If he wants to be taken seriously in this conversation, a better discernment/name-calling ratio would be nice.
<p><pre><code> "But though the graph has the word "startups" on it, it is not a graph of the number of startups, but of all new businesses."
</code></pre>
From what I have seen most of the world* that is not Silicon Valley, does define a startup as simply a new business. Yet whenever an SV person runs into someone understanding the term in the broad sense they don't go, "Sorry, I'm using the word in a more specialized way", they go "Sorry, you're using that word wrong". It seems to occur often enough that I feel like there must be a reason they feel the need to insist on it. Very similar to the word hacker in many ways.<p>* <a href="http://www.merriam-webster.com/dictionary/start%E2%80%93up" rel="nofollow">http://www.merriam-webster.com/dictionary/start%E2%80%93up</a>
<a href="http://www.oxforddictionaries.com/us/definition/american_english/start-up?q=startup" rel="nofollow">http://www.oxforddictionaries.com/us/definition/american_eng...</a>
> <i>If we had a society with no poverty and perfect social mobility, and economic inequality didn't translate into social or political inequality, would it be that bad if there was also great variation in wealth?</i><p>That's saying that if money weren't, well, money, it wouldn't matter much if some people had a lot of it and others didn't have any.<p>But money is money; <i>that's why they call it money</i> [1]. Wealth inequality directly translates into social immobility, because the first thing rich people do is try to make sure their children stay that way, and there's only so much room at the top. Wealth inequality directly translates into political inequality, because why not? If you get to meet the President what are you going to talk about, but the political issues that directly concern you or your business?<p>Strict equality is impossible, of course. Some degree of inequality may in fact be desirable. But immense inequality tears society apart.<p>[1] Paraphrased from Heist, 2001. <a href="http://www.imdb.com/title/tt0252503/quotes" rel="nofollow">http://www.imdb.com/title/tt0252503/quotes</a>
PG could have saved us all some time if he led with #9 in his original post. Most of my family and friends are struggling to keep up with cost of living increases and these aren't considered poor people by government standards. If this trend of stagnant middle class wages continues long enough things will get ugly.<p>I am a supporter of redistributing wealth at the top for expanded education opportunities, which is why I do believe making the connection between income inequality and poverty is important. I don't understand why as a people we've accepted paying out of pocket for an education. We used to expect that public education provided everything you required to achieve a middle class lifestyle.
I've always wanted to hear a Swedish perspective on the Wallenberg family. Who apparently "In the 1990s indirectly controlled a third of Swedish GNP."<p><a href="http://en.wikipedia.org/wiki/Wallenberg_family" rel="nofollow">http://en.wikipedia.org/wiki/Wallenberg_family</a>
I'm a big fan of PG's essays, his most recent ones in particular, my only quibble is the treatment of education as a silver bullet.<p>Offer Bill Gates style education to a cross-section of the poorest kids in the country and I don't think you'll get much in the way of improvement.<p>Inequality is as much a result of fragmenting families and the dissolution of social capital as it is new startups. When 80% of kids don't have a dad in the home, live in chaotic places, and face other setbacks, it'll take more than a high-end pedagogy to set things right. Raise taxes and spend more on education if you'd like, but first lets take a minute to see where that actually works.
This conversation baffles me to some extent - it seems plain that discussing economic inequality is an extremely roundabout and convoluted way to discuss the economic status of the current decade. That particular phrase simply happened to resonate since occupy wall street and similar.<p>The issue of modern interest is rather one of economic mobility - how feasible is it for someone of lower income to increase their income. When we consider rent extraction by wealthy individuals or disparate allocation of resources by the government we're observing mechanisms that decrease the resources available to lower income individuals, thus inhibiting them from increasing their economic status.<p>No one would care about economic inequality in an economy with sufficient economic mobility to reach the upper echelons with plausible (though significant) effort - in fact, economic inequality of the degree that we observe would likely not be possible in such a society. Furthermore, I think philosophically if there's anything to be said for any of the American values most people would agree with the sentiment of the "American dream" - that if you work hard you can better your own condition and that of your families.<p>Additionally, through this perspective Silicon Valley has a clear advantage over Wall Street - skills versus pedigree, bootstrapping versus degrees. I won't belabor that point, as I don't think it's particularly important.<p>Basically for reasons both of interpretability and of causality I think it's more appropriate to consider our economic state through the lens of economic mobility rather than economic inequality.
Paul Graham's argument is entirely tautological.<p>1. Startups are companies that try to grow quickly into billion dollar businesses.<p>2. Founders have substantial equity in their startups.<p>3. Therefore founders get really rich when their startup succeeds.<p>4. More successful startups means more really rich people.<p>5. More really rich people means more inequality.<p>6. Therefore more startups means more inequality.<p>PG defines startups as companies that become large and make their founders rich. So yes, you then trivially get "more startups == more inequality". However, this loses sight of the fact that when the goal is to create a billion dollar company in a few years there is a huge incentive to game the system, and to produce all sorts of externalities.<p>Take AirBnB. They are effectively an unregulated hotel business. How can a bed and breakfast compete with an airbnb, when they have to face regulations and taxes? How do the neighbors like it when new people move in every couple of days and party all night long? Sacrifices have to made in the name of growth.<p>Another example is Uber or other sharing economy startups. Employees become independent contractors, who are always on the edge of being fired. Who have to pay for their own uniforms, cars and other equipment in order to do their jobs. It's pretty ruthless exploitation, but Uber is valued at $70 billion and it's super convenient for the customer, so we look the other way.<p>When it comes to software if you want to serve the most people you work with open protocols, you open source your software (so it can be inspected for quality and security), you make importing and exporting to competing products easy and fast and so on. If you want to make a billion dollar business you keep everything proprietary and you create a walled garden with tremendous lock in.<p>Just look at all the open source products that our startups are built on top of. Billions of dollars worth of free software. What do the contributors get? Nothing. (Not strictly true; they get angry bug reports, but you get my point). This is not the natural order of things, so we should question whether this is just.<p>There's a big difference between companies that provide a huge amount of value, and companies that can CAPTURE a huge amount of value. Startups have to be in the second category, and that has huge social implications worth thinking about. The founders necessarily play only a small role in the success of their business -- we all stand on the shoulders of giants after all -- so why should the founders be the ones who capture all the rewards?
It's interesting that the comparison of the Gini coefficient between Sweden and the United States wasn't mentioned as one of Ezra's errors. Since, as far as I can tell, PG is talking about wealth disparity, generally, in his original article, and only mentions income inequality when talking about the "pie fallacy".<p>Most of the money the founders and early employees of a startup end up making would never be considered income (right?) and therefor not skew the Gini coefficient?<p>Anyway, seems like an error to me, if I am wrong, please help me understand what error <i>I</i> am making.
re: "He says I think modest changes to the tax code will derail technical progress. But I don't think that. Larry Page's Google stock is worth billions of dollars. It would take way more than modest changes in the tax code to change that fact."<p>Oddly, this might be construed as an argument in favor of (or at least not against) more progressive tax rates: in the end, it's not going to stop people from getting rich.
> the public conversation about economic inequality is way too sloppy, and that we should focus not on crude statistical measures like economic inequality but on the specific underlying components<p>This is a ridiculous thing to day. For one thing there is no public conversation about income inequality. The press is owned by corporations, whose majority ownership is billionaires. Even this forum is owned by Y Combinator, a corporation which owns shares of companies who have collectively raised billions of dollars.<p>I mean, elected political parties like Hezbollah in Lebanon have television channels like Al-Manar. When someone like Javed Iqbal in the US sets up receiver satellite cards so Americans can watch this channel - he was sent to prison for over six years. That's the "public conversation" in the USA.<p>There have been somewhat open channels of public discussion on the Internet like Usenet. Which is why the US government and last-mile monopolies got together to work to crush Usenet a few years ago, which for the most part worked in severely harming it.<p>Then it's also in the interest of the idle class heirs who expropriate surplus labor time from those of us who work to try to muddle the conversation. The idle class is who has been working to take the "focus" <i>off</i> "specific underlying components". It's farcical that the people working to confuse the issue then go on to complain how it seems so unfocused.<p>It's pretty simple - any created wealth is created through work. Heirs who do not work can then only live by expropriating surplus labor time from those of us who do work. It's as simple as that. It's been happening for 10,000 years, whether it's called slavery, or serfdom, or modern wage slavery. It's all the same thing. Among we who do all the work and create all the wealth has been awareness of the 1% parasites who feed off of our labor.<p>If the focus of the issue is confused, it's because the offending group wants it to be confused - the people who own the press, who jail the Javed Iqbal's who allow different views from elected parliamentary parties, who crush public forums like Usenet etc.
I'm glad Paul Graham is being honest about startups' role in wealth and income inequality. Ezra Klein says there are good (Silicon Valley) and bad (Wall Street) rich people regarding income and wealth inequality. However if you're using the gross measure of income and wealth inequality, rich people all contribute the same way, in proportion to their wealth and income. Paul Graham is correct to focus on finer-grain factors, which are implicit in Ezra Klein's good-bad dichotomy but which he misses by going after inequality rather than a concept of justice, whether that justice be just deserts or equity.
On points 2 and 6: Ezra is defining a start-up differently here, not wrongly, but differently. I'm curious to know what exactly constitutes a start-up to PG. Was the first In-N-Out burger a start-up? If not, why? In-N-Out is a case example, but just because a business is small and then happens to stay small or grow big with all the stock still in the family does not mean it is not a startup to many people, possibly including the bean counters that track these things. What does PG define as a startup in these essays?
His "Bill Gates education" analogy doesn't really make sense to me. I think he is saying that it would create a bunch of super rich people but I don't think you get Bill Gates by education alone (IIRC Outliers supports that). The major of people would probably join the middle class (and not "stop short", the middle class is a great place to be compared to poverty) and lessen income inequality, even if one or two became billionaires.
I said it another thread so I'll say it here. Inequality isn't not fundamentally bad. It's a second or third order derivative of something that is bad.<p>Bringing in more refugees will increase inequality. Refugees are actually good for the economy. Therefore inequality is not strictly bad.<p>As Ezra said, only certain things are bad. He called out finance. We should focus on the root causes. Inequality is a too far removed at best and a red herring at worst.
Aren't startups creating wealth?<a href="http://paulgraham.com/wealth.html" rel="nofollow">http://paulgraham.com/wealth.html</a><p>I can't say the same about the financial system where banks were bailed out with public money or big companies "legal" tax evasion etc, this is the inequality people complain and Ezra was pointing out.
anyone else feeling like PG is constructing increasingly obtuse arguments that can all be boiled down to "I'm terrified of paying more taxes than I presently do."