My simplified response to Paul Graham's simplified essay

http://blog.rongarret.info/2016/01/my-simplified-response-to-paul-grahams.html

by lisper • 11 years ago

243 200 11 years ago

blog.rongarret.info

GavinB• 11 years ago

Site appears to be down. Google cache version: http://webcache.googleusercontent.com/search?q=cache:NoON38K...

zepto11• 11 years ago

The only thing I'd disagree with is the statement 'we're nowhere near there' with regard to oligarchy and societal collapse. I think we're quite close. We have an entire generation where a tiny proportion have great prospects and the rest have steadily diminishing prospects and increasing stress, and we have educated people who grew up in the west going to join an expressly suicidal terrorist organization. We have a significant proportion of the population willing to vote for a demagogue whose positions are clearly nonsensical because he represents their (legitimate) anger at their lack of prospects the status quo affords them.

The descent from here isn't going to be linear.

drzaiusapelord2• 11 years ago

I think we're quite close.

USA: 5% unemployment, GDP per capita of $55,000, 78.74 years life expectancy, Human Development Index: 8, etc.

EU: 9% unemployment, GDP per capita $38,000, 78.82 years life expectancy, Human Development Index: 6 average, etc.

Yeah, we're not "close."

Meanwhile countries like the BRIC nations, especially authoritarian autocracies like China or Russia, with terrible inequality and 100x the problems the West has strangely get a free pass from these discussions. HN your bias is showing.

zepto11• 11 years ago

I said it isn't going to be linear.

{seriously - downvotes? This is HN - surely people can conceptualize non-linear processes such as dams being punctured by small holes that lead to a collapse, or the rapid collapse of an animal population when a new predator is introduced, or the disruption of incumbents when a new technology is introduced e.g. Nokia with the iPhone}

astazangasta4• 11 years ago

This wealth is based on social cohesion, which can fall apart in a generation or two. Genghis conquered half of Asia and built an empire of great wealth and high culture, but lack of cohesion tore it apart not long after.

jdmichal5• 11 years ago

Except that's the "official" unemployment number. Here's how it's calculated, cribbed directly from the Bureau of Labor Statistics [0]:

* People with jobs are employed.

* People who are jobless, looking for a job, and available for work are unemployed.

* The labor force is made up of the employed and the unemployed.

* People who are neither employed nor unemployed are not in the labor force.

Think about those points very carefully. They mean that:

* People who would like a job but have given up actively looking for one are not counted.

* People who have a job but would take more work if available -- the underemployed -- are not counted.

[0] http://www.bls.gov/cps/cps_htgm.htm#concepts

ogrisel2• 11 years ago

5% unemployment does not mean that the majority is happy with their employment(s) or not stressed by it.

GDP per capita is an average and does not reflect how the wealth is distributed.

ThomPete4• 11 years ago

The 5% is meaningless since it's based on how the government define it. Being unemployed means actively looking for a job. So there is a waste amount of people who are not in that statistics. Also a lot of the jobs people have don't pay for their basic expenses.

mtgx• 11 years ago

Well, at least this Princeton study seems to disagree with you that US is not already an oligarchy:

http://www.bbc.com/news/blogs-echochambers-27074746

When you have Congress listen to an infinitely larger degree to the powerful and the "will of the people" has a meaningless effect on their decisions, I think that pretty much defines oligarchy.

https://www.youtube.com/watch?v=5tu32CCA_Ig

And before you say "wait a minute - didn't we stop SOPA?", I remember an interview shortly after SOPA was stopped, with Darrel Issa, one of the two most aggressive politicians in Congress wanting to stop it (along with Zoe Lofgren), and he said that what got everyone else to change their minds about SOPA, too, was actually having the big companies join the fight and lobby against it - such as Google, and so on.

That's what apparently got Congress to change its mind about SOPA. There were millions of calls indeed, but a good chunk of those were pushed by Google and Wikipedia on their home page, so I think he's at least half right about that.

If you ask me, I think only two things can change the way the US is right now:

1) a more democratic and representative voting system (IRV/RCV seems good enough for mayors/governors/presidents, and multi-winner RCV/STV for Congress (as well as local councils, etc) would also fix the gerrymandering problem which is a huge issue on its own with American politics and would provide a more representative multi-party government - the end of the two-party system, in other words).

https://www.washingtonpost.com/news/in-theory/wp/2015/10/23/...

As long as the US has the FPTP voting system, people will keep voting for the "Lesser Evil", because they "don't want Mr. Evil" to win (whoever that may be). That's just a terrible way of electing someone democratically. People should have a system that makes them vote with the candidate they like most. Anything else should be thrown out. The FPTP is also what will help Republicans keep winning a majority in Congress with only 40% of the votes, as it tends to happen wherever FPTP exists. Also a terrible way of having a "representative democracy" (even if every now and then it will be the Democrats that will win 51% with 40% support).

2) campaign finance reform (time to end or at least equalize the "money vote", which right now greatly skews the "voting power" in the favor of those with the most money. The vote is supposed to be "equal", but the "money vote" is a sort of parallel voting system that skews who can win and who the winners listen to. Not very democratic at all).

I'm not sure which is more important, but I think the first one could pass more easily, and then over a period of years, people can start electing more representative candidates despite the money the "establishment" candidates will receive. And then those more representative candidates can start supporting changing the campaign finance system as well.

These two changes in the end should be enough to put the US on a more democratic path once again, and act as a catalyst to fix many other political issues, too, whether it's social issues, immigration issues, health issues, copyright issues, and so on.

There's only one candidate that supports changing the voting system (to IRV/RCV) right now (as well as real campaign finance reform), and that's Bernie Sanders (just FYI).

rcavezza• 11 years ago

<<We tried it. It didn't work. No reasonable person disputes this.

Karl Marx would argue that his ideas might have worked if someone else implemented them.

skeolawn• 11 years ago

Maybe he would, but all the experiments so far have failed for pretty much the same reasons and at enormous human cost.

Meanwhile capitalism in whatever form it's tried has proven itself to be an incredible engine of poverty reduction and human/social progress. There's always been tension between capitalism and democracy and we may be at a point where some of the cracks are showing.

xbejdjched2• 11 years ago

It's worth keeping in mind that we do live in the propaganda bubble of the Soviet Union's arch nemesis.

For their KGB, we had our J. Edgar Hoover. For their political purges, we had our House Committee on Unamerican Activities. For their later economic struggles, we had our great depression.

zepto11• 11 years ago

Either capitalism is a new phenomenon and we don't have enough data to know how stable it is beyond outlasting communism, or what you call 'capitalism' is anything except communism - in which case it has failed catastrophically many times throughout history.

Democracy is relatively new, and has proven hard to establish in most of the world, so there isn't a lot of evidence that it's stable.

stcredzero2• 11 years ago

I think his ideas will fail so long as those trying to implement them are Homo sapiens.

EGreg3• 11 years ago

Something tells me the same about anarcho capitalists

stcredzero2• 11 years ago

Ron's First Law: All extreme positions are wrong. :-)

Re: His last line about extreme positions -- Any position with "all" in it is extreme.

Extreme positions aren't wrong. It's just that they're most often appropriate only in extreme positions.

cushychicken• 11 years ago

Re: His last line about extreme positions -- Any position with "all" in it is extreme.

Therein lies the joke.

astazangasta4• 11 years ago

The preface to all further discussion: wealth is power, and nothing else. In our highly capitalist society, monetary wealth is perhaps the only useful form of power, from which all other power (violence, social influence) ultimately flows.

The Soviet Union attempted to produce equality of income, but not power: power was highly centralized. The equality I want is one that is diffusive.

AnimalMuppet2• 11 years ago

The preface to all further discussion: wealth is power, and nothing else.

Okay, you made a dogmatic statement. That proves nothing, except that you are capable of making dogmatic statements.

Wealth is the promise (perhaps false) of satisfaction, it is (perhaps false) identity, it is security, and it is the freedom not to have to work. I suppose you can say that all those are forms of power, but... If you define everything to be power, then yes, wealth is power, but that tells us nothing interesting except what your definition was.

In our highly capitalist society, monetary wealth is perhaps the only useful form of power, from which all other power (violence, social influence) ultimately flows.

Democracy is another form of power. It is influenced by money, but not totally. That is, the little people can in fact vote against the money, and will do so if the money pushes too far. Campaign ads won't be enough if the little people get fed up enough.

Social influence largely flows from money, I'll give you that. Violence? Money gives you a greater ability to use violence and still escape the law, but you can't go very far no matter how much money you have.

astazangasta4• 11 years ago

Wealth is the promise (perhaps false) of satisfaction

I think, perhaps, you are speaking of the kind of wealth accumulated by middle class families. I'm speaking of the billions accumulated by Jeff Bezos, which allows him to purchase the Washington Post (etc). You might call this "satisfaction", but at this scale it's raw power - the ability to command resources and bend them to your purpose.

Democracy is another form of power. It is influenced by money, but not totally.

Democracy is quite strongly influenced by money. I'm sure you've seen this study: http://scholar.princeton.edu/sites/default/files/mgilens/fil... which purports to demonstrate that American democracy responds exactly to the interests of economic elites and not to popular will. Popular will is much weaker than the influence of money. There is an entire (unelected) arm of government that is devoted to lobbying and writing legislation on behalf of monied interests; half of Congress leaves and joins this arm when their term is up.

I'm not saying these things are inevitable, that monetary wealth cannot be constrained by democratic power, etc., just that this is not how things currently stand.

tomp13• 11 years ago

PG's simplified essay seems like attack on a strawman; he's mainly arguing that inequality is good, but then mostly everybody agrees with that.

The issue people see (and PG conveniently ignores) is increasing inequality - not locally increasing (i.e. an enterpreneur becoming rich because of a successful business idea), but globally increasing inequality, which happens because of rent-seeking, tax avoidance, buying political influence, monopolistic behaviour, corruption, nepotism, inheritance...

Personally, I'm mostly concerned about the last one - inheritance. I don't have a problem with resourceful people being rich. But I see a danger of the wealth being concentrated over generations unless we introduce proper (non-avoidable) inheritance taxes.

zepto11• 11 years ago

Inheritance taxes on their own will do nothing to change the situation because then you'll simply concentrate all the wealth in corporate structures that transcend the death of their owners.

Even if you make it impossible to 'pass down' these structures as property, you will have de-facto inheritance through nepotism and clan structures.

dangerlibrary2• 11 years ago

I agree (and I suspect tomp would as well - it's generally best to give others the benefit of the doubt when they've been silent on an issue) that estate taxes are insufficient. I disagree with the implication that they are not a critical component of a solution.

ThomPete4• 11 years ago

Maybe not but it's a fair tax especially for those who apply to the "just work hard and reap the benefits"

Also you can actually guard against that even in corporate structures. Denmark is doing it. However it's not IMO a good thing (and not fair as it taxes the company and removes capital from that company)

tomp13• 11 years ago

because then you'll simply concentrate all the wealth in corporate structures that transcend the death of their owners.

That's OK, as long as the ownership of these structures is dispersed (as seems to be the case now for many public companies, which are owned by pension funds and/or sovereign wealth funds). That would also prevent nepotism.

samstave• 11 years ago

Take a look at how the masters pull this off. I'm not claiming everything in this article is true - just pointing out how it is surmised that some families protect wealth in a way that transcends both death and taxes:

http://www.icij.org/offshore/secret-files-reveal-rothschilds...

adevine3• 11 years ago

This doesn't make sense to me. At the end of the day, all stock must be owned by actual people, even if it is through a network of other corporate entities and trusts.

A corporation may transcend the death of its owners, but if I own 50% of a corporation, and I gift my shares to an heir (or even let them purchase it at a discount), the government will still take their cut.

bko4• 11 years ago

Inter-generational wealth is often wasted and doesn't last more than a few generations so perhaps it's not as big a problem as some make it out to be

Indeed, research shows that family money rarely survives the transfer for long, with 70 percent evaporated by the end of the second generation. By the end of the third? Ninety percent [0]

[0] http://www.wsj.com/articles/SB100014241278873246624045783346...

ZeroGravitas2• 11 years ago

Even if you make it impossible to 'pass down' these structures as property, you will have de-facto inheritance through nepotism and clan structures.

There is another theory which states that this has already happened. (credit/apologies to Douglas Adams)

chimeracoder5• 11 years ago

globally increasing inequality

At a global level, inequality has not been increasing. Globalization has been a huge win for developing nations in this regard (and the people who have paid the price are low-wage workers in developed nations like the US).

This is not to say that we have to conclude that globalization has been a good thing overall for developing nations - there are lots of problems it has caused for them at the same time. But it's tough to criticize it on the basis of increasing inequality globally, because it's done the exact opposite.

tomp13• 11 years ago

Right, that's true. Then let's say "nationally increasing inequality". I'm pretty sure that emerging nations will follow (some are already following) the trends of concentration of capital very soon.

ebbv2• 11 years ago

The global decrease in inequality is barely there, and some argue is an illusion due to the wealthiest individuals being adept at hiding their wealth. What is there is only due to India and China starting to have something resembling a middle class (but even so their standard of living would be unacceptable from someone who grew up in the US.)

In the rest of the developed world (US, Europe, Japan, etc.) average wages have been totally left behind by the growth in wealth for the millionaire and billionaire class. In the US especially, average incomes have actually decreased when adjusted for inflation while the billionaires see tremendous growth year after year. It's horrendous.

efaref• 11 years ago

According to this UN report: http://www.un.org/en/development/desa/policy/wess/wess_bg_pa... global inequality has been increasing despite convergence of inter-national mean incomes. The rich have been getting richer faster than the poor have been catching up.

jseliger• 11 years ago

Your statement here: "he's mainly arguing that inequality is good"

is contradicted by the second paragraph of even his simplified version:

But economic inequality per se is not bad. It has multiple causes. Many are bad, but some are good.

His main point isn't that economic inequality is good, and he says as much.

dangerlibrary2• 11 years ago

I would argue that a reading of the PG essay that doesn't describe it as a series of arguments for ignoring / tolerating / encouraging economic inequality is, at best, flawed.

mattrepl• 11 years ago

He states some causes are good and some are bad.

vasilipupkin2• 11 years ago

the problem with PGs logic is that the serious argument is not about LEVEL of inequality being > 0, but rather that inequality has been INCREASING in the US. Ignoring this distinction is what makes PG's essay flawed.

Nobody is seriously and in good faith arguing that the right level of inequality == 0

amelius• 11 years ago

I'm mostly concerned about the last one - inheritance

What about rent-seeking? Like the article notes, this is a way for the rich to become richer, without creating anything new.

At least with "inheritance", there are "resourceful genes" passing from one generation to the next :)

tomp13• 11 years ago

The problem with rent-seeking is that I don't really know what to do about it.

Rent seeking seems to happen wherever there is some scarcity or monopoly (natural or artificial). E.g. patents (artificial), real estate, infrastructure (both natural).

In the case of infrastructure, the answer is relatively simple - nationalize it (or strictly regulate it), and offer it to multiple operators at fair (and equal) prices. This is what is happening already in e.g. Europe (for electricity and mobile networks). It can even work for other scenarios - for example, when the Greeks were forced to "privatize" their airports, they didn't actually privatize them, they just rented them out for a number of years - that way, whenever the lease is up for renewal, there is still a market happening, so it's more competitive than ownership/monopoly.

For patents/copyright, it's considerably more complex; I think we can all agree that current regimes in e.g. copyright law and software patents feature way too long monopolies, but it's not so clear if that's the case in other fields, especially farmacy.

For real estate, it's hard to come up with any solutions. As long as there's a benefit to living close to other successful people, rents/prices in high-prodoctivity areas will keep on rising. Taxes could help (e.g. by making buy-to-let less profitable), but they won't solve the underlying issue. I'm hoping that eventually technology will improve to such an extent that there will be no advantage in living in the cities (i.e. remote working/communications technology or much faster transport).

Are there any other worrying examples of rent-seeking that you had in mind?

PaulHoule2• 11 years ago

We are all makers and takers.

In elementary macroeconomics you learn it is impossible to make a profit because in a competitive market because it is rational for me to lower my price by one cent to get the deal and then it is rational for the competitors to do that until the point that profit is zero.

Business, however, is all about making a profit, because even if discount personal gain, nothing can be sustainable unless it can get paid for and you need compensation for the investment you make and the risks you take.

Competition of economic and other varieties is a key to a healthy society, yet, for business to exist competition must be imperfect.

tomp13• 11 years ago

In elementary macroeconomics you learn it is impossible to make a profit because in a competitive market because it is rational for me to lower my price by one cent to get the deal and then it is rational for the competitors to do that until the point that profit is zero.

Elementary economics fails (as many other social/economic theories) by assuming the ideal state; if the state is not ideal (i.e. the market is not competitve yet), there is a lot of profit to be had. This doesn't mean that you have to abuse monopoly powers to profit; you can simply be better (faster to innovate or spot opportunities) than your competition (until they catch up).

chimeracoder5• 11 years ago

In elementary macroeconomics you learn it is impossible to make a profit Business, however, is all about making a profit, because even if discount personal gain, nothing can be sustainable unless it can get paid for and you need compensation for the investment you make and the risks you take.

You're confusing two different definitions of profit.

Economic profit includes opportunity cost (which includes the "compensation for the investment you make and the risks you take" that you're talking about). If the economic profit is zero, then everyone was compensated appropriately for all investments, risks, etc. Put another way, if the economic profit is zero, there is no better way you could have spent your money or your time (by definition, not by assumption).

Accounting profit is what businesses deal with on a day-to-day basis. If the economic profit is zero, the accounting profit is positive.

yet, for business to exist competition must be imperfect.

It is true in practice that competition is usually imperfect, but it's not true that this necessarily must be the case in order for businesses to exist.

masmullin• 11 years ago

In elementary macroeconomics you learn it is impossible to make a profit because in a competitive market because it is rational for me to lower my price by one cent to get the deal and then it is rational for the competitors to do that until the point that profit is zero.

I did not take macro economics, but this does not sound correct to me. If the profit is zero, then why do it? Surely the statement should read

...rational for the competitors to do that until the point that the profit is zero _plus one exchange unit_.

If there is no profit at all, then it is not rational to do the thing. Profit can be extremely thin, but it should still be there.

JackFr• 11 years ago

You've misinterpreted the result.

With perfect competition, long run profits do tend to zero But 'profits' in this case do not mean accounting profits, but rather economic profit, that is any residual return after all costs -- including the cost of capital in the form of interest or dividends.

circlefavshape2• 11 years ago

mostly everybody agrees with that

What???

/me suddenly understands what's meant by "privilege"

habosa• 11 years ago

I think tomp is saying that most everyone agrees that society should have some inequality. It could be as little as "the employee of the month gets a dollar raise!", but most people would agree that a perfectly equal society is very hard to ensure and likely not desirable.

tomp13• 11 years ago

Hm... can you find anyone who honestly disagrees with "inequality is good", and therefore claims that "inequality is bad" and so "equality is good" (and also proposes a reasonable and practical implemntation)? Even communists only preached, not practiced, this.

tomasien• 11 years ago

With you on inheritance, that seems like a great place to start. It would have no impact on startups and would have a great effect on the corruptive forces behind generational aristocracy.

I've been thinking a lot about PGs assumption that you have to kill startups to decrease economic inequality. Is that really what's driving economic inequality's increase? Couldn't you quite likely have a world in which first generation entrepreneurs continue to be increasingly successful, but economic inequality doesn't increase lock-step with that?

For example, decreasing generational wealth, more of the proceeds from the increasing number of technology enabled companies going to more people (this certainly is a major factor at Google now for example), poverty decreasing (as PG suggests should be our target), and more seems like a world in which these ideas could co-exist.

It seems absolutely true that decreasing inequality for the sake of decreasing inequality's sake would be bad, which seems to be PGs point - you have to be targeting something that is specifically bad on its own, and perhaps which has a byproduct that is bad which is increasingly economic inequality. That seems right. But the idea that economic inequality will inevitably increase UNLESS we destroy the ability for people to start companies can't be correct.

bko4• 11 years ago

I say this over and over again in all my comments on the subject, but wealth passed on through inheritance has fallen a lot.

I don't know why its always assumed to be true that all this wealth that's driving inequality is inherited. It's not true.

Over the past 30 years, the origin of the wealth of the richest people in the United States has shifted away from old, inherited money. Our new metric, the self-made scores developed for the Forbes 400, shows that increasingly we find self-made billionaires among the ranks of the richest people in the country. This has accompanied the incredible increase in wealth of the members of the Forbes 400, which has jumped 1,832% times since 1984, when the total net worth of our list was $125 billion, compared with $2.29 trillion today.[0]
There’s no doubt that entrepreneurship is thriving globally. Fully 1,191 members of the list are self-made billionaires, while just 230 inherited their wealth. Another 405 inherited at least a portion but are still working to increase their fortunes. [1]

[0]http://www.forbes.com/sites/afontevecchia/2014/10/03/there-a...

[1] http://www.forbes.com/sites/kerryadolan/2015/03/02/inside-th...

tomp13• 11 years ago

There's inheritance and there's inheritance.

I suspect most rich people don't actually inherit money/wealth (in the legal sense). Instead, they set up trust funds for the benefit of their families/children, and so protect the assets and avoid taxes at the same time.

Also, with the sheer number of tax havens and offshore secret bank accounts available nowadays, I'm very sceptical that the official statistics are able to reflect the true concentration of wealth.

Which is exactly the problem - there are so many loopholes and workarounds that we can't even imagine the true extent of wealth concentration!

k__• 11 years ago

The richest people in Germany are part of families who inherited the money over generations.

Spooky232• 11 years ago

Forbes 400 represents mostly principals of public business enterprises that are super-successful, and is dominated by stock wealth. It doesn't capture private assets. It's also ephemeral -- for every Bill Gates, there are plenty of multi-billionaires who decend into the depths of multi-millionairehood when their stocks implode.

Beyond that, you're going to have trouble measuring stuff. There are folks in upstate NY still inheriting and generating income from property acquired during the Dutch colonial period. Many, many people are members of LLCs or corporate officers who have the ability to direct money their way and control lots of money that doesn't necessarily "pass" to them and trigger inheritance taxes.

I have some family members who are wealthy enough to think about generational wealth for their descendants. So they structure their life to compartmentalize risk and maximize the ability to transfer wealth at low/no cost. Their homes? Owned by a pseudo-anonymous Nevada LLC. Cars? Owned by another LLC. Investment properties? Owned by individual LLCs, which are in turn owned by some other corporate entity.

adrianbg• 11 years ago

Really interesting. I wonder how politicians would rate.

xiaoma• 11 years ago

The thing I would add to your comment is that inequality in productivity is increasing. And this is actually is good reason for increasing inequality of wealth distribution.

Rent-seeking, tax avoidance, buying political influence, monopolistic behavior, corruption and nepotism should go.

I'm somewhat torn on the inheritance issue though. From the point of view of young children, inheritance is unfair. From the point of view of the people who worked very hard to build wealth, not being able to give it to the most important people in their lives is unfair.

collyw• 11 years ago

What about inheritance from those who haven't worked especially hard to build it?

FLUX-YOU• 11 years ago

Non-avoidable seems very hard to do to me.

Within the law, there only has to be one loophole per generation. Existing structures (I have no knowledge of this stuff) may hide the transfer of inheritance. It's really hard to look at every transaction and verify that it's not inheritance.

That money can always leave for a different set of laws, so it might be convenient to go die in a different country. Crypto currencies would make it hard to identify any money coming back in as inheritance. Or people just simply leave the country and refuse to pay. How would we convince every country on the planet to enforce this tax?

It may not even be permanent. These are long time lines so it's possible the tax will be there for one presidential cycle and gone the next. People with large amounts of inheritance can afford to wait.

tomp13• 11 years ago

How would we convince every country on the planet to enforce this tax?

A simpler solution would be to prevent wealth being "exported" to countries that don't have the same tax regime (or alternatively, tax the wealth when it's being exported). What's happening right now with various tax havens/bank secrecy havens (Cayman Islands, various British isles, Switzerland) is ridiculous (from the point of view of the public; if makes perfect sense for the ruling elite, of course).

vasilipupkin2• 11 years ago

Exactly. the issue is that economic growth over the last 20-30 years appears to be accruing at vastly different rates to different income brackets ( even if you remove top 1% out of the analysis ), not the starting level of inequality. Since it's the case even for say top 60% bracket vs 20% bottom bracket, having taken out the top 40%, it has little or nothing to do with startups.

ArkyBeagle2• 11 years ago

I don't know why Paul couldn't use the term "consumer surplus" in the essay, because I ( perhaps erroneously ) see that as what he is defending.

Let me define terms. "Profit" - nominally, returns above investment - can either be rents or a reflection of consumer surplus, or a mix of both.

If there is a problem here, it is that we have a hard time distinguishing ... consumer-surplus-bearing-profit from rents. Because this isn't easy. We are also confused because monopolistic - monpsomistic, really - behavior as re the application of the Sherman Act against Standard Oil resulted in lowered end price for consumers. This is a WTF> rich environment.

I suspect that if we worked harder at it, rather than relying on just-so stories, we'd be better at it. So to me, the whole argument looks like learned helplessness. As a culture, we seem to prefer to not be able to distinguish between them.

As to the rest of your list, IMO ( and very aggressively-and-error-prone IMO ):

- tax-avoidance is just inevitable, and there's arguably nothing wrong with it re: Tim Worstall's continued line of reasoning. The entire edifice of using taxes to modify behavior is rather nauseating. It is inherently a game and trying to de-gamify it seems utterly pointless.

If you've ever had a conversation about tax-avoidance with a tax-avoider, it's clearly not much about the money any more. Milton Friedman talks in places about how it costs more to avoid most ( well-made ) taxes than to simply pay them - which is consistent with my observation.

- Buying political influence is of dubious ... provenance - we, again, get just-so stories and bias confirmation instead of hard empirical work. "Access" isn't an obvious good, and seeking photos with famous people who happen to be politicians seems like seeking photos of yourself with famous people, to me. As a thought experiment - is there enough money in the world to make, say Ted Cruz, embrace, say, abortion?

- corruption is well understood and easily preventable. It exists if and only if the public face of the polity presents the contradiction that we want a public servant to work for less than what their market value is. "Renormalizing" the ... values-field of the tax scheme is in order.

To my ear, the (inevitable) corruption surrounding alcohol Prohibition in the US is the mechanism for parsing this out. There's little more to it than constructing good, sound models in which we price corruption and then do what we can to behave as if we mean that.

- nepotism seems insoluble outside of somehow magically adding market pressure to make it unpleasant. It's also hard because we, at the same time, say "hire people you know from within your network because that information is expensive." But I suspect it's its own reward, from firsthand observation.

- inheritance is empirically rather uninteresting outside of a handful of pathological cases.

See how easy this is? I've solved the entire thing in a blog reply. HA! :)

gwright• 11 years ago

In the simplified essay, PG explicitly states that some causes of economic inequality are bad:

But economic inequality per se is not bad. It has multiple causes. Many are bad, but some are good.

He is not "conveniently" ignoring that point.

retube4• 11 years ago

Today, the top 1% control fully half of the planet's wealth

This is a meaningless statistic given negative wealth is possible (indeed common). By this simple measure a recent MBA graduate of Harvard with 200k debt and no assets is poorer than a Mumbai slum dweller with 2 rupees in his pocket.

I would argue that's not a fair reflection of the actual comparative wealth of the two individuals.

A potentially better measure of wealth would be say energy consumption which is highly correlated with living standards.

Of course the other point is that whilst inequality may be increasing, if measured in absolute cash terms, is that a bad thing if the living standards of the poor are being universally raised? A billion people in India and China have entered the middle class in the last 20 years.

It's ironic that the perceived decrease in wealth of the middle class in the US is exactly because on a global scale inequality, at least amongst the middle 80% is decreasing: an increasing percentage of wealth created is being distributed east-wards rather than remaining concentrated in the historically dominant economic powers of North America and Europe.

random_rr• 11 years ago

Yeah... the example you gave is meaningless. Knowing that wealth concentrates in 1% of human beings is not a meaningless statistic.

EGreg3• 11 years ago

I disagree, simply because it comes down to how much money the MBA graduate has available to him at any given time, given the country's laws. No one is asking him to pay it off all at once. Having a loan you have to pay off over 30 years amortizes your losses, allowing you to have a net profit every month. And if he ever had the situation of the slum dweller, he could declare bankruptcy AND get rid of the student loan by claiming "extraordinary hardship". Finally, the social programs in this country mean that even a homeless, jobless person is richer than some employed people in Africa or Indian slums.

flannelcatering3• 11 years ago

This is a meaningless statistic

It's only meaningless if you cherry-pick your examples and draw your opinions from those examples. For 99 percent of the population, wealth is a fair reflection of the actual comparative wealth of individuals.

retube4• 11 years ago

It's hardly cherry picking. I don't know exactly the percentage, but let's say 50% of the US population is net in debt. So all these people are poorer than the millions in developing nations without a penny to their name? As above, I would argue no, they are not. Hence this statistic doesn't mean much.

cmdkeen5• 11 years ago

Not in the developed West it isn't. I'm a fortunate young professional in that I have a stonking great mortgage and still owe (some, it is the UK) of my student loan. In wealth terms I'm doing OK but not great, certainly not in liquid / disposable wealth terms as well as before my property.

In the long run however my decisions will likely lead to me being much wealthier than if I maximised my present wealth at all times. I'd say for many people in the West that income is a greater factor.

I know plenty of posh people who have inherited money but who have decent but not spectacularly well paying jobs. The cost of modern middle class living in the UK quickly reduces much difference between what they can afford and what I can.

edanm• 11 years ago

Is that true, or are you just saying it?

E.g. this article argues that the numbers are indeed misleading: http://fusion.net/story/39185/oxfams-misleading-wealth-stati...

I have no idea if it's accurate, but you just saying that his comment is a "cherry picked example" doesn't ring true (since most people in the US are indeed in debt). And anyway, you don't provide any reason to think you're right.

tezza2• 11 years ago

It is further ridiculous that the wealth itself is circularly defined with being rich.

  Own a house in Denver    = Awesome
  Own a house in Manhattan = Super Rich

  Own a Dinghy      = Awesome
  Own a Super Yacht = Super Rich

So by this simple example the Denver Dinghy owner is much less wealthy on paper than the Manhattanite with a Super Yacht.

But you can see that the Denverite has both a house and a vessel and may not need a yacht or a downtown house. The extra 'wealth' is of no impact to the happy Denver guy.

flannelcatering3• 11 years ago

The extra 'wealth' is of no impact to the happy Denver guy.

No one is making any arguments based upon happiness or "Awesome"ness or cost of living.

And yes, the Denverite is less wealthy than the Manhattanite, supposing that they both own houses that were sold to them at the median price of their geographic area.

massysett• 11 years ago

I suppose you would equalize this by counting the MBA's future wages as an asset. Even after subtracting out his MBA debt, the MBA has much more earning potential than the slum dweller.

retube4• 11 years ago

Well of course, but this is not accounted for in Oxfam's analysis, hence it's pretty meaningless.

russell_h• 11 years ago

Does anyone know how Oxfam computes that "the top 1% control fully half of the planet's wealth"?

In particular, if someone has more debt than assets does that count as negative wealth? Negative, in that for the purposes of the calculation it would offset the wealth of others with positive net worth?

snowwrestler6• 11 years ago

I would argue that's not a fair reflection of the actual comparative wealth of the two individuals.

Why not?

Perhaps you believe this, because the Harvard MBA has greater prospects for a high-paying job, or maybe they have a family who will support them until they get a job.

But those pools of wealth are already be measured where they are--the high-paying job is with a company, and that company represents wealth that is controlled by its shareholders, partners, owners, etc. That wealth is accounted for in the measurement. Same with whatever wealth is held by the MBA's family.

Edit: In any case, it's clear where to sort a person with $200k in debt, no matter their future job prospects. They're not in the 1%.

librvf• 11 years ago

By this simple measure a recent MBA graduate of Harvard with 200k debt and no assets is poorer than a Mumbai slum dweller with 2 rupees in his pocket.

This is only because this example exaggerates a few obviously valuable assets that are difficult to measure in terms of market value.

(a) The Harvard MBA itself, both the "piece of paper" and the experience itself, has no conveniently measurable market value and thus doesn't count as an asset. Yet, it obviously is worth something.

(b) The raw human potential. A Harvard MBA graduate is going to be literate and is likely to have many cognitive advantages vs a "mumbai slum dweller". The potential has unmeasured value, degree or not.

(c) Social Capital. This not only includes the support networks of family and friends that tend to support new graduates as they bootstrap their careers, but also the general trust of others in society. For example, a Harvard MBA is not likely to have an unreasonably difficult time finding decent roommates in the Boston area, even if they don't have any immediate friends or family available.

College degrees are the big investment where the value of asset is essentially not measurable (at best you can look in hindsight). And everyone has raw human potential and social capital, but then everyone has differing amounts. For the other extreme: take away the degree. Replace the cognitive advantages with a mental disorder (say, an addiction or a psychiatric disorder). Remove the social capital. Take all that away, and you'll be more likely to find a homeless person or someone heavily dependent on the government to survive.

FreedomToCreate• 11 years ago

PGs argument does not take into account the majority that make it possible for the few to create things, but instead of being bolstered by those few, are instead being left behind. Its sad to say, but his current social position is definitely influencing his thought process.

I turned down a job in Silicon valley. Even a 100K job doesn't mean anything when most of it goes to rent and my free time is spent sitting in a car or on a train commuting. I can imagine the stress the rent hikes are having on everyone else.

yeukhon• 11 years ago

Perhaps I am an ignorant. A little background about me:

* I live in NYC

* I live with my parents, still very young as a recent grad

* I don't make tons of money, but with overtime I probably make 80K? I don't really count my money these days.

* I do spend money on monthly gym membership (I should suspend that to save $100 since I am too busy haven't been there for a few months), netflix and couple other stuff.

* I give my parents allowance (almost half of my paycheck) to help with mortgage and stuff

* I am single all the way (that seems to be a pretty saving...)

* only been working full time for one year

And yet, I am still able to afford nice meal if I wanted to, go to nice places if I wanted to. Of course my wallet will bleed and cry if I were to spend too much, but on a daily basis I have a comfortable life, so I don't really feel an economic hardship, I don't make millions and the wealth is still controlled by that 1%.

It doesn't bother me, until, if I were to have kids to raise, and a mortgage entirely on me.

I think the attitude toward economic inequality needs a context. If you want to go on a cruise 365 days of course we can't afford that. Going to Italy and France once a year? That's gonna bleed for most of us. But in case of affording a good meal? Little but not too much. Then for those who makes significantly less than I make, they will feel the pain the most and I don't see a way out of it.

burkaman• 11 years ago

I'm in a similar situation to you, but:

* One year out of college, you're in the top 30% of the US: http://www.nytimes.com/interactive/2012/01/15/business/one-p...

* You didn't mention loans, so I'm assuming you were able to graduate college mostly or completely debt-free

Just these two points mean you're doing better than most people in the US, and much better than most people in the world. You never have to worry about about food or shelter, you have plenty of disposable income, you can support your family.

Your comment seems to be phrased as "I'm as average guy, and I can be happy with what I have", but you're not average. 80K is "tons of money" for most Americans your age, most people aren't so comfortable that they never have to worry about money, most people can't throw away $100 a month without noticing.

So you're right, discussion about inequality does need a context, but your context is that you're well into the top half of society.

EGreg3• 11 years ago

This is pretty silly. Also, Paul Graham's premise, I'm sorry to say, is sensationalized (by invoking concepts like "inequality" and "startups") but wrong. The premise is, basically, "inequality has bad CAUSES, but startups and technology are never one of them." Only at the end does he hint at what I believe to be the more accurate analysis: AUTOMATION and OUTSOURCING lowers demand for expensive human labor, therefore reducing one of the main ways that money trickles down to the middle and lower class. The better and more widespread the technology, the more I can 1) Outsource jobs to regions with a lower cost of living, leading to two losses of trickle-down: 1a) local workers don't get the job, and the money goes to someone in another country 1b) either way my company writes the expenses off its taxable income, but my country doesn't get the tax $$ from the worker's income to spend on social programs, safety nets etc. This by itself is fine, unless you're a nationalist, because it helps reduce poverty where people are poorer, which is outside your country. However, technology also enables: 2) AUTOMATION, which means I now reduce the amount of HUMAN workers, and once again it has two aspects: 2a) Now, the demand for human labor drops, and since the supply of workers remains the same, their average wages drop. 2b) The worst one: monopolies with server farms, contracts of adhesion, and all the power. Like Amazon, Google, Apple, Microsoft, Facebook, Uber, etc. extracting rents from users and providers, until open source disrupts them. By commoditizing the providers and workers, they get squeezed. See Amazon's dealings with wage slaves, and its tactics with publishers (middlemen which it eliminates). But those same workers are also supposed to be spending money back into the economy on things they need. It takes time to invent new industries and educate everyone, there is no guarantee that will happen forever, and there is no guarantee that demand shocks for labor won't be severe. So, there should probably be unconditional basic income, negative tax or some other scheme for people to KEEP BEING ABLE TO AFFORD THE BASICS even if they face no prospects of making money, which a growing unemployed class will. On the bright side, automation will help wean countries from their dependence on an ever-growing population to fund social security schemes. Endless population growth is unsustainable, and countries are currently worried about birth rates mainly because of that. So in a global sense, the solution is: tax the gains from automation, redistribute the proceeds, use condoms.

vixen992• 11 years ago

Europe as a whole has a <non-replacement> fertility rate of 1.5. In other words: it is dying. Total fertility rate for the US is just below replacement value at 2.09 and the total fertility rate for the world is 2.59, down from 2.8 in 2002 and 5.0 in 1965. Any weaning that goes on will certainly have to be off welfare schemes because they are going to collapse.

PaulHoule2• 11 years ago

It is like that Laffer curve. If your tax rate is too high, you get less revenue because of the negative effects.

It is not just that "taxes kill the economy", but also that when the tax system is corrupt and inefficient people don't pay the tax. For instance the situation is crazy in Italy where officially 30% of the population is unemployed but actually most of them are working "off the books".

This is to not to say Laffer was right or wrong that tax rates were too high circa 1980, but there is truism that taxation has good and bad effects.

In a "perfect equality" scenario there is not incentive to raise your game, but the same is true in "perfect inequality."

We did the experiment in Ithaca where local activist Paul Glover started "Ithaca Hours", a local currency. The system is still there, but it has mostly failed because a few businesses that accepted Hours could not spend the ones they got, so they have accumulated in a small number of places and do not circulate.

Also I see people in situations where inequality causes them to "not try". For instance I know people with student debt or who owe a lot of child support who perceive that if they make another dollar it will just get taken away, so there is no point in busting your ass or taking things seriously. I funded a business run by one of them, by a guy who knew his market so well and had many of the skills of an excellent salesmen, and it ended it tears.

I know some people, both black and white, who really have been the victims of poverty, discrimination, and such and feel they "can't win." You can point to examples such as Barack Obama and Ben Carson who overcome both real and perceived discrimination to succeed brilliantly, but most don't.

Once when I was teaching I had a black student who was intelligent and very much liked by myself and the other teachers and we all wanted him to succeed and we were all proud that he got a respectable grade in the end in one of the most difficult classes at our school but had his own challenges and one day came around and told us we were treating him differently from other students and he was right, yet it was not at all that we did not want him to succeed but that we didn't entirely understand what to do to help him.

CrowFly• 11 years ago

When I read Graham's original essay I laughed. In my mind, he's a force for greater wealth _equality_. After all, he takes money from rich investors and puts it into startup companies, the majority of which do not produce great wealth.

cryoshon• 11 years ago

I would leave my simplified response at: income inequality prevents creation of startups and is generally bad for society.

We don't want more income inequality at the end of the day. Our wildest dream is not to have a world in which everyone passes by but some are opulent, but rather a world in which everyone is opulent-- no inequality. In lieu of this greater dream, merely reducing inequality is a good start... the motions about being able to reduce poverty without changing economic inequality are laughably out of touch, still.

joshhart• 11 years ago

There's one thing PG seems to implicitly which is that the movement from small company to large, dominating company in a vertical is a good thing.

Ultimately startups seem to be producing winner-take-all companies. I do not believe this is a healthy thing for the economy or even rights of the consumer in the long run. There are a lot of services where if you do not like their terms, there may not be a great practical alternative.

I don't want to see much changed, but I do feel the government should be encouraging competition much more than it is today. I do not think Facebook should have been allowed to buy Instagram, and I think WhatsApp should have been fined an enormous amount for blocking the words "Telegram" to stall their competitor. We put in the Sherman Antitrust laws to reign in behavior in the Gilded age and we should have a modern equivalent to encourage not one Google but 10 Googles in a market.

I'm clearly asking for too much, but after all the recent Airline consolidation several studies have proven that prices are now higher in certain markets as a result of lost competition. Capitalism doesn't magically prevent monopoly or oligopoly - it is up to us to put the right checks and balances in place.

bad_user• 11 years ago

There are natural monopolies and there are government granted monopolies and personally I believe the later are doing more harm than the former. Historically technology has made natural monopolies obsolete, but technology cannot bypass the law. Because when that happens, new trade agreements can be made and the law can simply be changed.

If getting rid of monopolies is the goal, we could get rid of patents and copyrights, government granted monopolies which are about creating artificial scarcity.

ArkyBeagle2• 11 years ago

The actual story of the Sherman Act isn't empirically defensible - J.D. Rockefeller became much richer overnight mainly because of the splits and prices don't seem to have changed much.

But J.D. Rockefeller was rather single minded, set on reducing cost to the end consumer for Yankee cultural reasons.

Higher price may or may not be worse price. With airlines, you live with Robert Crandall's "no airline ever returned its cost in capital" so it's difficult to make any of that make sense :)

Many economists warn "never reason from a price change."

natrius2• 11 years ago

You've reframed the problem to wealth influencing politics, which still isn't something that needs to be fixed by taking money away from people. Redistribution is a decent solution to resource problems, but this isn't that kind of problem.

Ending money in politics is hard to do using the levers of democracy since those levers have already been purchased, so I understand the desire to end extreme wealth instead. There is another solution, though. We can end the influence of wealth on our politics without needing the government to do it for us.

Instead of trying to get the government to stop excess political spending, we should eliminate the incentive to accept excess political spending. People accept money to influence our democracy because they can use that money to get whatever they want from almost anyone, including you. You can't opt out because economic power is invisible. But we can make it visible, and give every individual the freedom to reject economic power that they feel is misused.

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

edc117• 11 years ago

This is a very interesting mixture of two ideas I hadn't really considered before. Has this been discussed or brought up here previously? Is the only real obstacle to this adoption? It seems like an extreme transparency, but the lack of a central authority while maintaining reliability is very compelling.

natrius2• 11 years ago

I bring it up in comments here any time it's relevant, but it hasn't had its own discussion. Adoption is the only obstacle, but tools and infrastructure are obstacles to adoption. There's lots of software to write before it's easy for people to install a mobile wallet app that banishes oligarchical influences from their personal economy.

A bug/feature that needs to be addressed is that this mechanism can be used to enforce any rule enough people decide to pursue. We've discovered a lot of the ways our form of governance can go wrong over the past few hundred years, and we've even fixed some of them. We have to do the same thing for merit capitalism and limit its use until we know how to use it without causing catastrophes. Luckily, we can use merit capitalism to limit the use of merit capitalism: if someone breaks the "constitution" of acceptable uses, they can be sanctioned. We can slowly evolve the constitution as we learn more.

vezzy-fnord3• 11 years ago

Paul Graham, like nearly everyone in today's politics, fails to appreciate the near-universal validity, at least when it comes to social and economic policy, of Ron's First Law: All extreme positions are wrong.

I realize this is tongue-in-cheek, but never forget: https://en.wikipedia.org/wiki/Argument_to_moderation

One could say that the modern world is largely a result of continuous middle-ground reforms that have built up into in an unfathomable and pathological state. Some radicalism might indeed be in order.

ZenoArrow4• 11 years ago

"I realize this is tongue-in-cheek, but never forget: https://en.wikipedia.org/wiki/Argument_to_moderation "

"Vladimir Bukovsky points out that the middle ground between the Big Lie of Soviet propaganda and the truth is a lie, and one should not be looking for a middle ground between disinformation and information.[2] According to him, people from the Western pluralistic civilization are more prone to this fallacy because they are used to resolving problems by making compromises and accepting alternative interpretations, unlike Russians who are looking for the absolute truth."

Seeking absolute truth is a fool's errand. To use a physical analogy, truth is not a single point, it's a range. If you seek absolute truth you'll blind yourself to the range of possibilities.

HSO3• 11 years ago

truth is not a single point, it's a range

Uh, that really depends on the domain. I agree that politics is the art of compromise but that does not mean there are no facts and logic.

mattmaroon• 11 years ago

I think that large income inequality has been harmful in the past because of scarcity. If a small number of people had a lot more money than the masses, it meant the masses were starving.

Technology has the ability to potentially change this. It hasn't yet; it's mostly just given us the ability to play Candy Crush and look at what our friends ate for dinner while waiting in line at the store. But it will. And it's a mistake to assume that because income inequality in a world defined by scarcity causes social ills, it will necessarily do so in a post-scarcity society.

Unfortunately using political influence for rent-seeking is a huge problem. I would like to believe, at least in our humble little democracy, that the masses are slowly awakening to this. At some point billionaires won't be able to use social-issue boogeymen like abortion and gay rights to convince poor people to vote against their own economic self-interest. I hope.

I think that's implicit in the argument PG is making. Income inequality has always been bad in the past, but the future is not the past. There are variables that may change that.

AnimalMuppet2• 11 years ago

But human nature is not as variable as human circumstances. Jealousy and envy can be just as strong even if you aren't starving.

ikeboy• 11 years ago

http://www.vox.com/2015/1/22/7871947/oxfam-wealth-statistic http://fusion.net/story/44648/why-its-silly-to-add-up-wealth... http://blogs.reuters.com/felix-salmon/2014/04/04/stop-adding...

Can we just stop repeating that line?

ThomPete4• 11 years ago

It is also important to realize that startups might produce jobs but they are mostly capital intensive companies NOT labour intensive. This is especially true with technology companies who are notoriously hiring relatively few compared to the capital they spend.

This trend will continue as technology removes more and more functions.

eugenejen• 11 years ago

The only thing I don't like people to repeat about 1% owns 50% wealth is because that's just a mathematical truth from Pareto principle.

If 20% populations owns 80% resources. Just recursively applying Pareto principle. You see 0.8% populations owns 51.2% resources.

So we are in fact now efficiently using resources around the world to support 7 billions populations.

Of course this ignores our biological tendency of protecting our offspring. So we try to pass down what we have to our children by non productivity related measures (such as lenient estate tax, immigration restrictions). That's the real reasons for the 99% population feels 'unfair'.

If we are really fair, we should open first world border to all poor people around the world, right? But we don't. Same as people of wealth want to pass down their wealth to their children as much as possible. Or even try to starting a dynasty.

ogrisel2• 11 years ago

The Pareto distribution has a parameter (alpha in the mathematical formulation used on Wikipedia). If the value of that parameter evolves over time that might demonstrate an evolution of economic inequality.

But indeed access to credit and amount of debt makes it hard to interpret the results on wealth. Income distribution might be easier to interpret.

joefarish• 11 years ago

I don't understand the obsession with wealth inequality, the focus should be on eliminating poverty not eliminating the number of billionaires.

soheil• 11 years ago

I read pg more as describing a phenomenon than trying to justify its existence. I'm not sure why so many people are so hostile to a simple explanation of what is.

jernfrost3• 11 years ago

Great reply, although I disagree with the typical simplified assertions that the Soviet System didn't work. Without doubt the system had major flaws. But it is perhaps much more shocking that the system worked as well as it did given so many obvious problems with it. Taking a primitive peasant society and turning it into a space traveling civilisation was quite astonishing. One has to also keep in mind that for decades the Soviet Union had very impressive GDP growth.

The problem with discussing any of this is that the anti-socialism and communism feelings run so deep that people can't have a neutral discussion of the merits and flaws of socialism and communism. Anything positive can so easily be dismissed by the utter tyranny and inhumanity practiced by Stalin.

By the irony of this is that Stalin does reflect the nature of socialism nearly as much as people believe. Both China and Russia were terrible and totalitarian societies long before socialism and communism.

Still both the Soviet Union and China have turned into far more humane societies during socialism than they were at any earlier times.

jtome• 11 years ago

Still both the Soviet Union and China have turned into far more humane societies during socialism than they were at any earlier times

What do you mean be this? Surely modern != humane

jernfrost3• 11 years ago

I am comparing to Imperial China and Czar Russia which were rather inhumane societies. Russia had serfdom and peasants were treated terribly e.g. 1980s Russia was a lot more humane society.

vezzy-fnord3• 11 years ago

It's not as astonishing as you describe it. It's basic intuition that the relative growth of something will be greater in real terms the lower your starting point is. Robinson Crusoe finding a second stick to pluck berries with has doubled his capital structure and his output, but that's not particularly impressive. Starting from nothing, you can afford to just pump resources and treat the economy like it's a hydraulic system. It's what you do once you're up to parity that matters.

By all means, planning was inefficient. You had chronic surpluses and shortages. The attempt to replace profits and losses with "socialist competition" resulted in a disincentive to create surpluses, because it would quickly be integrated as a benchmark in the next Five Year Plan. This then resulted in the phenomenon of shturmovshchina where laborers would mostly idle and then expend massive crunches of labor during the final quarters.

The first seven years of Soviet rule were marked by massive hyperinflation. Wages were determined on a purely piece-rate basis, leading to workers toiling and factory managers manipulating quotas for greater wage returns. Attempted reforms under Khrushchev based on bonuses then only encouraged more homogeneity of production and made wage rates more volatile.

The reason Soviet planners could even calculate in a system of purely vertical transfers of resources was because of the establishment of the Comecon in 1949, piggybacking on Western price indexes. Kosygin introduced a reform in 1965 allowing some measure of profitability and sales, resulting in some growth but no movement in aggregate productivity because of the underlying Five Year Plan incentives. More radical reforms involving decentralization and minimization of bureaucracy in 1973 and 1979 were both rejected.

The Brezhnev era was marked by a large stagnation. Couple that with oil shocks affecting the key USSR exports, perestroika opening up the flood gates and the failed coup in 1991, the USSR was doomed to its failure.

It had nothing to do with Ronald Reagan or anyone "ending communism". It ended itself.

The Soviet system was a disaster and I can't imagine how anyone could say otherwise.

jernfrost3• 11 years ago

It is astonishing because if you look around the world at other countries you will find many many countries in the developing world which were not fully socialist like the USSR, which yet failed to ever develop even remotely at the level Soviet did. You could pick India as an example. While they did have a lot of state intervention they non the less had a market with market prices. People could start their own private companies and they did. Yet India did not see the kind of development that the USSR experienced. And if you look beyond mere economic factors and look at health care, education, literacy etc, they were completely outperformed by the USSR which had a very highly regarded educational system and health care.

You have to add to this story as well that the USSR was devastated from WWII and received no marshal help, and yet managed to recover surprisingly quickly.

grecy2• 11 years ago

To extend on this with an anecdote; A buddy of mine lived and worked in Cuba for many years, and has very positive things to say about life there. He lives in Canada, and enjoys life in Cuba as much as he does in Canada, which I think says a lot.

Every single person has healthcare, food and shelter. Every single person has a job, and their kids go to a good school. Because everyone is paid the same, work is not the focus of life, social interactions are (which echos my experience during 2 years in Latin America) There is no point working harder or longer, it doesn't get you anything, so you go home to your family.

When you see a friend or distant acquaintance on the street, you stop and talk for 20 minutes. You prioritize family and spending time with them, rather than prioritizing work.

Obviously it's not perfect, but it's very far from the disaster it's made out to be.

ggreer2• 11 years ago

Your buddy is whitewashing to an absurd extent. The Cuban government regularly engages in censorship[1], religious persecution, stifling of free speech, indoctrination of children, and imprisonment of political dissidents.[2] It's getting better, but it's still really bad.

1. https://en.wikipedia.org/wiki/Censorship_in_Cuba

2. https://en.wikipedia.org/wiki/Human_rights_in_Cuba#Contempor...

lucianomt• 11 years ago

I find it very ironic that someone would mention Cuba in this post. Cuba is the epitome of income inequality where the ruling party (Castro and friends) controls all the capital, while the 99.9% hold virtually nothing.

You may argue there are benefits and people can be happy under a communist regime, but you cannot deny that income inequality is extremely high. If anything, your argument actually corroborates PG's statement that income inequality is not inherently bad.

wordbank• 11 years ago

You should read about the amount of slave labour and deaths by purges that was required for these "astonishing" results.

Also "space travelling" means nothing when more than half of your citizens don't have access to toilet paper and use newspapers for wiping until 90s. (Sorry, no sources on this but I'm Russian born in 80s.)

billions• 11 years ago

Innovation is the primary driver for improved quality of life. The kings of 1900 did not fly across the globe in hours, have access to the variety of foods of our lower class, and connect with loved ones in seconds. Basics such as a bed or filtered water came from innovation. Taxing or otherwise slowing innovation will put brakes on quality of life improvements for everyone. When have top-down mandates ever been as efficient at fixing problems as an individual grinding away at a cause they care dearly about?

ubercow13• 11 years ago

Did you read the article?

Sealy• 11 years ago

In the long run this leads to oligarchy and possibly even economic and societal collapse. We are nowhere near there

I totally agree with your point. I disagree with your opinion that we are nowhere near there... Just look at what the oligopoly practices of 'big banks' that were 'too big to fail' did to the global economy. They ALL used their money to influence the regulatory rules and the governments that governed them. Goldman Sachs was the worse at this, they were shameless in putting their ex employees into key White House positions.

They built a gated community around themselves to protect their giant profits and when it all went south, the TAX PAYERS, US, WE PAID FOR THAT.

serge2k• 11 years ago

We tried it. It didn't work. No reasonable person disputes this.

I'd dispute that it was really tried, but I still don't think it would ever really work.

minimuffins2• 11 years ago

The "we already tried that" argument throws all the non state-capitalist ideas down the toilet with Soviet central planning though (it does belong there, of course, but so does American capitalism).

There's a pretty wide range of ideas between anarchism and social-democratic capitalism that aren't included in the false binary of US/USSR models.

jhh• 11 years ago

What is the top 1 percent's share of the world's consumption? Wouldn't this be a more useful metric than looking at wealth or income distribution?

Consider the following scenario: In a (conventional) socialist society the state controls an overwhelming majority of wealth. However, this would be justified by a (hypothetical) proponent of socialism by referring to consumption products being provided by this capital. Therefore, it seems the same measure should be taken with regards to market economies.

dccoolgai• 11 years ago

Capitalism is the best system for distributing wealth and governing trade - and simultaneously one of (though perhaps not the) worst forms of government. Societies that lose the ability to maintain that distinction - from either side - are inexorably doomed. We have regressed to a point where our grasp of that dichotomy seems tenuous at best.

akmiller• 11 years ago

One step in solving it is adding more marginal tax rates. It's silly that they stop at 400k and 39%. I'd also introduce progressive taxing on capital gains as that's a primary way the wealthiest individuals get around income tax. The estate tax should also be progressive. These ideas aren't popular and would never get passed since the government is ruled by the wealthiest Americans but they would indeed be steps in the right direction.

marcusgarvey• 11 years ago

In the long run this leads to oligarchy and possibly even economic and societal collapse. We are nowhere near there [...]

False. We are there. http://www.bbc.com/news/blogs-echochambers-27074746

dgregd• 11 years ago

PG:"We will not do a good job of fixing the bad causes of economic inequality unless we attack them directly.

But if we fix all the bad causes of economic inequality, we will still have increasing levels of it, due to the increasing power of technology"

I still don't get what PG is trying to say.

For example few years ago Google and Apple bosses made secret agreement to not hire employees of the competing company. The goal was to transfer wealth from engineers to shareholders and bosses. There are a lot of other examples. That's why the essay had so much negative comments. PG should clearly condemn these practices.

PG:"we will still have increasing levels of it, due to the increasing power of technology"

That is just narrow VC point of view. Think about what cheap printing technology did for our civilization. There are countless of other examples. Today UK monarchy can only dream about the power they had.

I had a dream that the technology (Internet, DVCS ...) will make legislation process more transparent. Tax loophole? Just file a bug, propose a fix, vote for the fix. Think about what Stack Overflow and Github did for software development. Something similar can be done for the law.

zepto11• 11 years ago

How do you know what the goal of the conspiracy was? Another possible goal was to stop the destabilization of projects by having the leads strategically poached. Neither goal makes it legal, but since you don't know the goal, the example doesn't support your argument.

nimblegorilla• 11 years ago

It seems PG is thinking backwards on this. Instead of fixing the bad _causes_ of inequality we should try to fix the bad _consequences_ of inequality.

mcguire• 11 years ago

"But if we fix all the bad causes of economic inequality, we will still have increasing levels of it, due to the increasing power of technology."

This is the sentiment of the man who is certain he will be at the top of the heap when the dust settles.

malmsteen• 11 years ago

More simplified summary of the debate :

PG: "Startups create economic inequality. But it looks like they drive the economy and create value. I'll defend Startups so let's say that economic inequality is not a core problem"

Crowd 1: - "OMG ECONOMIC INEQUALITY IS BAD !" - "OMG you defend concentration of power in rich people !" - "OMG your pinterest wall is more important that educating you children, that's what you call value ?!" - "OMG !"

Crowd 2: - "Startups don't create that much economic inequality anyway" - "They don't actually drive the economy either" - "We're not sure they create value" - "Everyone know economic inequality is fine, we should adress poverty"

Elon Musk: - When do we go to Mars guys ??!!!!????

lackbeard2• 11 years ago

Yes. It's bizarre to see everyone responding to something that wasn't actually said.

jazzyk• 11 years ago

Most people agree that inequality is not a bad thing in itself. But we have two problems with inequality right now:

1. The sheer amplitude of it.

Having people whose net worth is equal to the GDP of a small country poses interesting questions (separate topic). This is caused by the winner-takes-it-all nature of globalized economy. Example: Ads featuring Gisele Bundchen sell to potentially billions of women all over the world, and she gets a cut. A generous one, because the market is global, not local as it was 30 years ago.

2. The fairness.

Again, nobody has a problem with Steve Jobs making a lot money, because he produced. But there are people out there who got rich, just because of connections, etc. Al Gore has sat on (among many others) Apple's board of directors. Which part of iPad did he design?

Even if you ARE qualified, there almost always is the luck factor. There are many other genetically blessed young women who look at least as good as Gisele Bundchen, but who, for whatever reason, never became the "it" girls. The are not starving (though they look like they do), but they are not raking in millions either. The same applies to more serious industries as well.

lackbeard2• 11 years ago

This, and Ron's original version, and most of the "my response to Paul Graham's essay" esssays I've seen aren't actually responses to Paul Graham's essay.

Here's what I see happened: pg said, "Income inequality is a consequence of freedom and technology. If you want to reduce income inequality, be careful you don't wind up just making everyone less free and more poor."

And then a lot of people said: "Paul, you asshole! Rich people can buy political power!" which is totally unrelated, and pg agrees is a bad thing...

Apocryphon• 11 years ago

PG's simplified essay and a lot of its proponents seem like people, in the middle of a drought, start warning about the potential for flooding.

Yes, inequality is inevitable. Yes, the poor you will always have with you. Yes, central planning has been tried and found wanting. But that doesn't mean that the state of things is good, nor does it mean we need further deregulation, less taxes on the wealthy, and so forth. It's really weird to see threads where people argue against that the very existence of progressive taxation is some sort of statist plot.

We need less philosophizing, and more evaluation of the current state of affairs and discuss what pragmatic steps need to be taken to alleviate the situation.

guelo• 11 years ago

Globalization/free trade has caused wage stagnation in developed countries by allowing capital to more easily move jobs to the developing world. This system has created way bigger profits for capital, increased wages for millions in the developing world, and more wealth overall.

All this has been enabled by the great triumph of "free trade" treaties that are the first way that humans have figured out how to create enforceable laws across countries. For example, the US recently repealed meat labeling laws due to a WTO ruling. This mechanism has allowed capital to bypass democratic forces that tend towards protectionism.

But the free trade treaties arere heavily rigged towards manufacturer's interests with intellectual property industries now trying to influence them more. If labor had a seat at the negotiation table for creating cross-country enforceable rules the outcome for workers could be better. Some ideas I can imagine off the top of my head,

- free movement of labor, not just capital

- environmental rules that prevent capital from shopping for the jurisdiction where they can pollute the most

- prohibitions on child labor, slave labor, trafficking, etc

- all countries provide free education through teenage years

- global tax shelter rules to prevent capital from hiding its profits

ggreer2• 11 years ago

Today, the top 1% control fully half of the planet's wealth.

I've seen that statement debated, so I was curious if it was actually true. I had to follow quite a few links before I hit bedrock. Garret links to an NPR piece[1], which links to an Oxfam "study"[2], which references a Credit Suisse report[3], which is 64 pages long and covers way more than global wealth inequality. I finally found the relevant bit on page 10, in a section named, "Distribution of wealth across individuals":

Our estimates for mid-2013 indicate that once debts have been subtracted, an adult requires just USD 4,000 in assets to be in the wealthiest half of world citizens. However, a person needs at least USD 75,000 to be a member of the top 10% of global wealth holders, and USD 753,000 to belong to the top 1%. Taken together, the bottom half of the global population own less than 1% of total wealth. In sharp contrast, the richest 10% hold 86% of the world’s wealth, and the top 1% alone account for 46% of global assets.

Finally! Can the author please link to that instead? It would have saved me so much time. So the statement is mostly true, except note that debt is counted. That means a significant fraction of people have negative net worth. Those trading against future earnings (using student loans, car loans, mortgages, etc) will be at the bottom of the wealth distribution.

Remember, this is world wealth inequality, not US wealth inequality. What does US wealth look like? According to page 46 of the Credit Suisse report, 40% of US adults are in the top decile of wealth distribution. Heck, 7.5% of US adults are in the top 1% of wealth owners worldwide. There's a graph of US wealth distribution compared to the world.[4] It shows the US as a much more balanced place.

More than anything else, "The top 1% control half the world's wealth." is a statement about the inequality of nations, not people. Unless one is advocating wealth taxes to finance foreign aid, it's disingenuous to further a domestic agenda by citing the impoverished masses in developing countries.

I think if Garret took the time to be more rigorous, he could build a very good critical companion to PG's essay. But in its current state, it's not something I can really engage with.

1. http://www.npr.org/sections/thetwo-way/2014/01/20/264241052/...

2. It's just a short overview of others' research: https://www.oxfam.org/sites/www.oxfam.org/files/bp-working-f...

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

4. http://geoff.greer.fm/photos/screenshots/Screen%20Shot%20201...

JohnLeTigre• 11 years ago

The gist of the original essay is that it is kind of stupid to treat a symptom as a cause. Instead, we should address the problems that promote inequalities. The reply doesn't counter-argue this statement.

webXL• 11 years ago

Today, the top 1% control fully half of the planet's wealth. That is awfully close to the second extreme.

I can't stand this malthusian, historically myopic, zero-sum thinking.

Using that same distribution, if I started a business, hired 99 others using half of the equity, then we sold it and I ended up with $500 million, should this inequality be a concern? No. the concern should be whether or not there's real suffering taking place with how that other $500 million is allocated, and the purchasing power it has relative to the past.

If you show me an economy that I can easily increase my real wealth by 5% per year, I don't really care what the guys on top are doing. What toys they are buying. I do care about them buying power, and they can only do that with a weak/corrupt political system. As PG reiterated: attack the causes, not the symptoms.

minimuffins2• 11 years ago

None of you are thinking about class.

To you, this is a technical problem with a technical solution. Just a math problem. “How do we align incentives?” “How do we set the tax rate to maximize productivity and growth?” etc. As though simply increasing the number of startups and corporate wealth in the world will eventually eliminate scarcity and poverty. No big changes necessary, just keep up the good work and the great Polynomial Curve of Technology will propel us to the end of history.

Some of you are more proactive. We should “attack poverty.” Like it’s a disease, and we can “science the shit out of it” and find a cure. But poverty, and disequal distribution generally are not diseases - unpleasant but inexorable byproducts of our evolution - they are inextricable from our political economy. Why? Because we have a society that is stratified by class! Our capitalist economy does solve the problem of distributing resources to everybody (though not equally or fairly, and not without wrecking the planet), and of creating new resources, new products, driving progress, but it also serves the crucial purpose of maintaining class power.

Given the massive forward surge in productivity over the last 50 years, why do most of us now work more and earn less? Surely this isn’t the only way it could be. Even Keynes, the liberal economist thought we’d be working 15 hour weeks by now. So why don’t we?

It’s because we’re in the working class, and the working class serves the ruling class. It’s not in their interest for us to work 15 hour weeks, and they’re in charge, so we don’t. That’s really all. Until working people have some democratic control over the economy, we’ll always work more and earn less, and wealth will accumulate at the top, because that’s what this system is designed to do. And it works.

Our world is not billions of people on equal footing, freely exchanging goods and labor. It’s not woodworking artisans crafting chairs and selling them to each other. It’s owners and workers. Sure you can start a startup. Make a great app that coordinates precarious workers to take out SF yuppies’ garbage for them (yep, that’s a real one!), and transition from worker to owner. Great. You made it. That’s certainly not the norm though, and it certainly won’t eradicate poverty or scarcity. An on a human scale, it’s hardly progress. We used to have a space program, remember? We can do better than capitalism. Anyway we better, or we’re screwed.

stillsut• 11 years ago

If I could summarize PG's thesis (and his critics misunderstanding) in one sentence here it is:

    Beware any promises to cure social ills that make an appeal to economic inequality, just as you'd be cautious of a surgeon trying to cure you by releasing evil spirits.

I don't know why it's taking 100+ comments to get to the bottom of this 1% of the rich "have more wealth" than the Bottom 30%. It's simple: it's a misleading statistic and there's no defending it, or anyone who uses it to make their case.

The reason why it's misleading points to the inevitable problems of using summary statistics of wealth inequality to evaluate economic performance.

My simplified response to Paul Graham's simplified essay

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