Economic Inequality (2016)

seems to be the fairly common take among economists&#x2F;tech folks about inequality being fine along as wealth grows, we&#x27;re not living in a zero-sum world etc.<p>Problem with that attitude is that it&#x27;s mostly circular and asserts its conclusion. Inequality does not matter because social well-being and so on is only a measure of absolute wealth, so the only thing left is to show that wealth is growing etc.<p>It&#x27;s worthwhile to question the assumption which people like Robert Sapolsky have done.[1] One thing that he figured out is that even when one accounts for the worse material outcomes of inequality like worse healthcare access, <i>there is an extremely large difference in outcome based on inequality itself</i>. Gaps in social hierarchy matter and inform how people perceive their environment and their place in society. Compressing inequality itself may drastically increase social and individual well-being as inequality appears to induce significant stress in human populations.<p>The same is true for many studies about happiness. Happiness is indeed influenced by material wealth, but to a significantly smaller degree than one might imagine. Countries like Germany and Nigeria, for example, report similar levels of happiness even despite being magnitudes apart on some wealth and econ metrics.<p>the key point I want to make is that, even if one disagrees with some particular data points or conclusions, the effect of inequality must be studied at a biological&#x2F;social &#x2F; well-being level if one wants to make meaningful statements. Asserting that humans are <i>Homines oeconomici</i> and using it to justify inequality is a tautological exercise.<p>[1] <a href="https:&#x2F;&#x2F;www.scientificamerican.com&#x2F;article&#x2F;how-economic-inequality-inflicts-real-biological-harm&#x2F;?error=cookies_not_supported&amp;code=c3cbc5b9-01dc-4ca8-8a23-537f4a6d5da0" rel="nofollow">https:&#x2F;&#x2F;www.scientificamerican.com&#x2F;article&#x2F;how-economic-ineq...</a>

PG, this is a thoughtful essay. Yet I&#x27;ll point out a flaw in this thinking below.<p>Intellectually Honest merits here: - you want to incentivize people to create value for society and optimize globally by raising the quality of life of (most) humans. - Wealth creation itself is not by default at the cost of others.<p>Intellectually Dishonest: - That startups and wealth creation converge on a quality of life optimization function for humanity.<p>In other words: startups and wealth creation operate within the randomness of free market. And most software technology in the last 30 years has not unlocked some kind of massive step function value in global problems.<p>If we could align more Venture Capital funding and R&amp;D output to solve fundamental problems (in other words: can we solve access to affordable nutritious food, reduction of common disease, reducing cost of housing ahead of 5-minute media formats or SaaS Invoicing Applications?)<p>Housing has continued to become less affordable and poverty still prevalent in the US.<p>- That there is a binary debate: &quot;should there be wealth or not?&quot;<p>Social Programs, funded by government, funded by taxes on higher earners and large capital gains, are one lever to address this.<p>The reason the inequality gap matters is less that its a metric of the _delta in absolute wealth_ but more that opportunity and livability of average Americans has a worse outlook in the last 20 years, not a better one.

We heavily tax income and hardly touch capital gains, we discourage work, even if you get a decent salary the tax system obliterates that income. If you gamble with stocks you make money without doing anything productive and your lack of productivity is richly rewarded by the tax system.

Is there a name for the phenomenon where someone that is amazing at something (e.g. investing and helping to grow startups) then somehow is given more credibility to talk about everything else?<p>The exact opposite is true with under represented folks — their “take” needs to be 10x better than than the rich guy with a popular blog to be listened to.<p>He should write a post on influence inequality.

&gt; &quot;You can&#x27;t prevent great variations in wealth without preventing people from getting rich, and you can&#x27;t do that without preventing them from starting startups... Eliminating great variations in wealth would mean eliminating startups&quot;<p>I feel the opposite. What keeps many people from starting startups is financial risk (the prior probaility of success is quite low!). Increasing the safety net, even if it means decreasing the gains, might cause more people to take the risk.<p>&gt; &quot;For example, let&#x27;s attack poverty, and if necessary damage wealth in the process.&quot;<p>How does this not contradict his earlier point about driven people no longer wanting to start startups if they can&#x27;t get rich doing it?<p>&gt; &quot;One of the most important principles in Silicon Valley is that &quot;you make what you measure.&quot;<p>I&#x27;m completely behind this statement. Attacking wealth inequality by, say, robbing the rich, is not the right approach. But I think he&#x27;s mixing up what people <i>mean</i> when they say they don&#x27;t like inequality and what they actually want to do about it. Nobody is claiming we all go back to being hunter&#x2F;gatherers.<p>&gt; &quot;I think rising economic inequality is the inevitable fate of countries that don&#x27;t choose something worse. &quot;<p>This is a <i>huge</i> statement. I&#x27;m happy to see PG has iterated over every possible economic system under every possible level of technology and come to this axiom though; this will save the economists of 2532 a lot of effort they might have spent running this simulation :)<p>&gt; &quot;The acceleration of productivity we see in Silicon Valley has been happening for thousands of years... You do not want to design your society in a way that&#x27;s incompatible with this curve&quot;<p>What acceleration? Uber and Instagram are hardly quantum leaps from what we had &gt; 10 years ago. The iPhone I have in my pocket today is functionally not all that different from the one 5 years ago. What&#x27;s even worse is that it&#x27;s questionable as to whether or not the things churning out of the valley are even good at all. No one is betting a curve: the curve is in his imagination. Change feels linear lately.<p>Also, where is the talk about externalities?

&gt; &quot;let&#x27;s attack poverty, and if necessary damage wealth in the process.&quot;<p>This is a pretty good article as Paul distinguishes the &quot;good&quot; (creating wealth) and &quot;bad&quot; (rent seeking) sources of economic inequality, and suggests addressing the bad and attacking poverty vs. simply punishing the rich.<p>Consider the current presidential candidates - Bernie and Warren seem to talk a lot about punishing the rich, while Andrew Yang emphasizes a more bottom-up approach of giving every American a dividend of $1,000&#x2F;month. The former sounds more like a vindictive blanket punishment, the latter is directly eradicating poverty and helping people.<p>Given Paul&#x27;s focus on the value and promotion of entrepreneurship, it would seem that Yang&#x27;s $1,000&#x2F;month would do more than any other policy being discussed to further that cause. I&#x27;d imagine way more people would start businesses and take greater risks in general if they knew worst case scenario they&#x27;d have $1,000&#x2F;month to fall back on.

Wow just wow. What an incredibly awful piece of writing. Where are the facts to support any of his claims. Most of them are provably wrong. Economists study these things. Picketty for instance wrote a gigantic books showing that rates of return on Capital vs productivity growth are a huge reason for inequality. We can see that as a huge percentage of the wealthy inherited their money. We have extremely low rates of productivity growth in the US right now by historical standards. We have huge rates of corporate stock buybacks that outpace research and development for the first time ever. Startups are not representative of the economy. In fact we’ve never had a period with fewer startups than now. New business creation is at a low peak in the US. Paul graham may be a great tech investor but he clearly has no understanding of macroeconomic trends in the US.

It is natural to have winners. In time the winners come to dominate the system such that inequality becomes a bigger problem. A question to ask is how can we rebalance it? Shall we wait until there is social unrest or strife? Or shall we create methods to rebalance before this happens?

A related piece on income inequality: <a href="https:&#x2F;&#x2F;reason.com&#x2F;2020&#x2F;01&#x2F;25&#x2F;the-truth-about-income-inequality&#x2F;" rel="nofollow">https:&#x2F;&#x2F;reason.com&#x2F;2020&#x2F;01&#x2F;25&#x2F;the-truth-about-income-inequal...</a>

Inequality is bad because people with more money have power over people with less. Ideally, we would live in a democracy (understood by the Greeks to mean rule by the poor, given they massively outnumber the rich), but we don&#x27;t. We should change this.<p>Stated another way, your boss has power over you. Why? It could be because they earned a lot of money through their own labor, or it could be because they had access to capital that you do not. Uber loses money hand over fist, but Uber management has more power than their drivers. Why? Management has access to capital, and drivers do not.

While wealth creation isn&#x27;t a zero sum game, certain important markets are zero sum.<p>Housing is an example. If a bunch of founders make a pile of money, they can (and do) suddenly outbid everyone else (like say the school teachers and firemen) buy a bunch of land and build mega mansions that squeeze a lot of other people out.<p>The issue today is that the gains&#x2F;rewards for certain ideas (at certain times) are disproportional to the actual utility to society.<p>An example of that is the contrast between Tim Berners-Lee&#x27;s networth and Mark Zuckerberg&#x27;s

While I agree with much said, I believe there seems to be a flaw in how he groups wealthy individuals based on how they create wealth.<p>&gt; In the real world you can create wealth as well as taking it from others. A woodworker creates wealth. He makes a chair, and you willingly give him money in return for it. A high-frequency trader does not. He makes a dollar only when someone on the other end of a trade loses a dollar.<p>In a market economy, people and companies are rewarded if the market sees the given service or product worth the price. The woodworker didn&#x27;t create wealth out of thin air, and he gains wealth by taking it from the people that buy his wares. Same goes for a high-frequency trader, even though she doesn&#x27;t build anything with her hands, the process of trading is seen as valuable by the market and if done well rewarded accordingly. The only groups that can &quot;create wealth&quot; are national treasuries which can print money.

This is an incredible essay and one of PG&#x27;s finest in my opinion.

This essay makes me uneasy. I feel PG builds a straw man. He takes, in his own words, the most naive take on inequality and ends up concluding that &quot;Eliminating great variations in wealth would mean eliminating startups&quot;.<p>A simple example, would a tax on wealth above 100 million USD discourage startup founders? I don&#x27;t think so.

How can someone technical write a whole essay without a single number?<p>&gt;If the rich people in a society got that way by taking wealth from the poor, then you have the degenerate case of economic inequality, where the cause of poverty is the same as the cause of wealth.<p>He could have saved himself the time it took him to write that article by just looking at the wiki page: <a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Wealth_inequality_in_the_United_States" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Wealth_inequality_in_the_Unite...</a><p>In summary the bottom 50% of Americans have lost all their wealth since 1989 and then gone into debt to the tune of 25% of their former wealth.<p>So in short Paul, yes, we are in the degenerate case and a round of guillotining is in order.

This is a good insight from the essay:<p>&quot;I&#x27;m sure most of those who want to decrease economic inequality want to do it mainly to help the poor, not to hurt the rich. Indeed, a good number are merely being sloppy by speaking of decreasing economic inequality when what they mean is decreasing poverty. But this is a situation where it would be good to be precise about what we want. Poverty and economic inequality are not identical.&quot;

None of this makes any sense to me at all. I&#x27;m reading through it but there are logical fallacies abound. In the first few paragraphs..<p>&gt; Which means by helping startup founders I&#x27;ve been helping to increase economic inequality. If economic inequality should be decreased, I shouldn&#x27;t be helping founders.<p>No. Just...no. Founders should be starting companies that reduce inequality. By definition. The idea of a healthy marketplace for both startups and for regular people doing regular things implies a reduction in inequality. Not just a reduction in poverty, but a reduction in inequality. That is easiest done by lifting the poor out of poverty.<p>PG&#x27;s take is to stop all progress because he is straw-man arguing against something that nobody is even taking the position on that he&#x27;s arguing against. The logical fallacy count in the first few paragraphs alone make this piece difficult to read.<p>What happened? :(<p>Continuing to read...<p>&gt; But some are good, like Larry Page and Sergey Brin starting the company you use to find things online.<p>No conversation at all about the pitfalls and issues that Google has also caused in the world? This is a carte blanche to Google that 100% of their work has been positive and it&#x27;s not worthy to discuss anything they might have done that would hurt people in the world? Not everything about Google is &quot;Good&quot;.<p>These takes are all so one-sided, close-minded, and <i>wrong</i>.<p>&gt; The most naive version of which is the one based on the pie fallacy: that the rich get rich by taking money from the poor.<p>Wait. What. PG thinks that <i>this</i> is a fallacy? I&#x27;m going to have to stop reading to protect my sanity. The rich are <i>definitely</i> getting richer at the expense of the poor. The world did not start on some level playing field. The rich had privilege and status and help that the poor do not.<p>Every action that a rich person takes to enrich themselves rather than trying to level the playing field is by definition taking from the poor.

&quot;The great concentrations of wealth I see around me in Silicon Valley don&#x27;t seem to be destroying democracy.&quot;<p>........&lt;really?&gt;

“It’s ok”

(2016)

Why is this post flagged?

The Iron Law of Oligarchy strikes again. There will always be a class of people who, either by luck or by brute force competence, will have disproportionate power over everyone else.<p>Also, why is this flagged?

This phrase just popped up into my head a while back:<p><i>“The minimum wage should be the median wage”</i><p>I’m not sure if it should be a rule or a goal or be anything at all, but thought it’s a thought worth putting out there.<p>Edit: thinking in context of country, or province but also in context of company or group.