An open letter to Paul Graham
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To the degree to which I would apply labels to myself, I'm a capitalist, and I'm a libertarian. I don't trust our corrupt political system anymore, and I certainly don't think the government has the ability to help society as much as it hurts it, at least most of the time. Because of this, I think that any extra taxation that the government levies will commensurately damage our society.
That said, I can't help but think that our entire economy has been swept out from under our feet by the financial sector. It's not tech companies and supposedly "rich" tech founders that capture our economy. It's VCs. A VC can give a company that would otherwise be insolvent the capital it needs to capture an entire market, and then raise the prices. We see it time and time again.
We're trained to believe that, without VC, the tech industry would somehow be stifled. This is simply untrue. Without VC, a lot of our "side" projects that create true innovation would have a chance at success. The reason many of them don't is because they're up against the same thing from a VC-backed competitor. Except, the VC-backed version is cheaper (or free), is backed by an unsustainable, large team of skilled developers, and doesn't care that it's hemorrhaging money, because once it creates a monopoly it will pay dividends for life to the very few who own it.
I would upvote this with all my karma if I could. Very well said.
If I remember back to my anarchist philosophy, that is ceding too much ground. Patents, access to cheap capital, "artificial" interest rates etc... are all government influence that large companies can take advantage of to become monopolistic. Without those the argument goes, that firms would never get so big because competition would sprout up immediately to cut into their market dominance.
If you look at Standard Oil or Bell System, the case studies for all monopolies, they all hinged on some government grated protection. In Bell's case it was initially a patent and then subsequently "legally sanctioned regulated monopoly." In the case of Standard Oil they utilized Trusts, which were legally recognized forms of distributing ownership to stay within the law.
So unfettered capitalism might not lead to long and enduring monopolies, but it would be much nastier and competition much more fierce because the systems on which business is built today would have to go away in total - to include regulated banking, infrastructure standards etc...
The question should instead be: Is the world in which there is no regulation one that you would actually want to live in? I would argue no.
edit: Note that I don't agree with this view, it is however the argument that is made.
That's how the argument goes, but this is neither a proof nor an observation--just a piece of economic theory, and there are others going against it.
Note that anti-trust actions, like what happened with MSFT, typically are executed long before a monopoly is established.
And now that your monopolies have guns and tanks and can openly play dirty, good luck for the small upstarts trying to take them down. They won't be able to.
--
Anyway, I'm pretty sure that if all governments were to suddenly disappear tonight, by tomorrow morning many corporations would be already on their way to forming some new quasi-governments. I believe high-level executives are aware that a) social order is good for business, and b) having a working framework for establishing and enforcing contracts is vital to their operations.
Well exactly. That was my point. In the absence of regulation, there might not be monopolies but it would be a Mad Max style business environment.
The Greek philosopher Polybius referred to this cycle between anarchy and totalitarian state as the anakyklosis
(Increasingly, I'm starting to feel that a lot of things I figure out for myself - often while writing HN comments - is something that's been widely known for thousands of years. I guess I need to sit down and read some of those classic works.)
This particular bit startled me for the reflection I see in current day politics:
>During ochlocracy, according to Polybius, the people of the state will become corrupted, and will develop a sense of entitlement and will be conditioned to accept the pandering of demagogues.
Let's set aside arguments of individuality vs. socialism and whether government should operate for the hugely debatable, ephemeral term, "the greater good". I think that invites a separate essay on its own.
From a purely utilitarian perspective, the rich often leverage their capital to achieve things that would be impossible or difficult to do without access to the capital they created.
Case in point, is Elon Musk. If he didn't take home most of the money he earned from his involvement in Paypal, the odds of Space X, Tesla, and Solar City ever happening are decreased dramatically. When in the hands of an extraordinarily talented individual like Musk, capital can work to create long-lasting ripple effects that benefit society as a whole.
If you had taxed Musk at 80%, and he was left with a paltry $30 million or so, it's likely that one or more of the above companies never happen. The opportunity cost is that less jobs get created, unique and innovative technology never gets formed, and the ripple effects (such as spurring Chevrolet and others to make electric vehicles) never happen.
While not always the case, it is often the case that private capital investments do improve society in meaningful ways.
The economy is a very fungible thing and the idea that it is approaching "zero sum" is an unfounded one in the extreme.
Most people that somehow made a lot of money would not do this.
billionaires don't sit on their capital.
you guys have a lot of neat ideas for other people's money.
One that did. I don't know of any others that did.
Musk is driven in a way that no Gates, Jobs, Ellison or anybody else of such wealth is. I don't see him with a huge mansion or a yacht, just more projects.
I'm sorry, I remember a totally different Bill Gates all too well. I'd definitely not list him as 'the greatest living human being'.
Why?
> it's a product of age and aggression.
Should I wonder about your age now?
Amazing how a person can go from most hated in tech to most revered in the space of few years.
And your ignorance of the fact is probably that you never stop to talk to some of the business owners in your area, and see what they're planning.
You can only find so many stories at the height of public consciousness and Musk just happens to be one of them.
As for buying mansions and yachts, you can't tell me that that's any different than you buying the latest iPhone or car when you already have a perfectly usable phone.
Hell, we could all be getting by with Nokia 3350s if we really want to take that argument there. We don't really need color screens, or internet in our pockets. It's really just a convenience after all, and there are many less fortunate out there in 3rd world countries without phones at all.
Here's where we begin to argue about what poverty means and what 'filthy rich' means. They aren't clearly defined.
I'm for people who earn money, fairly and legally, using it however they see fit. If they want to build space ships, awesome. If they want to buy yachts, awesome.
Even the yachts employ people and produce net effects on the economy that could be argued as positive things. Many engineers and craftsmen are employed by the yacht industry.
I happen to live in one of the yacht capitals of the world, Fort Lauderdale, and there are over 100,000 people employed in that industry here alone.
I'll happily agree to that.
> And your ignorance of the fact is probably that you never stop to talk to some of the business owners in your area, and see what they're planning.
You're incredibly funny.
> As for buying mansions and yachts, you can't tell me that > that's any different than you buying the latest iPhone or > car when you already have a perfectly usable phone.
> Hell, we could all be getting by with Nokia 3350s if we really > want to take that argument there. > We don't really need color screens, or internet in our pockets. > It's really just a convenience after all, and there are many less > fortunate out there in 3rd world countries without phones at all.
I'd have bought another one if they let me but I'm still on the nokia dumb phone that I bought 5 years ago and I probably will be as long as it works. I have some smart phones lying around for development and testing (ubuntu, an android phone and an older iphone), but I have never felt the need to carry one with me when I go out the door.
> Here's where we begin to argue about what poverty means and what 'filthy rich' means. They aren't clearly defined.
We're all filthy rich.
> I'm for people who earn money, fairly and legally, using it however they see fit. If they want to build space ships, awesome. If they want to buy yachts, awesome.
Sure. But the space ships are a tad more impressive to me than the yachts.
[1]: http://www.bloomberg.com/news/videos/b/6e27fcba-309d-494e-b8...
It seems that that has been fixed in the meantime.
https://en.wikipedia.org/wiki/SCO%E2%80%93Linux_controversie...
Note that Gates was still very much involved in Microsoft at that time.
And those may be some of the more standout examples, but there are hundreds of thousands of entrepreneurs who have made similar reinvestments or expansions to some smaller effect.
The carpenter who invests his post-tax capital in buying better tools or increasing his skill is producing a net-positive effect for society by improving the quality of carpentry available to people in his area.
Our economy is in large part, the net effect of the sum of all those micro-improvements.
Branson and Jobs for instance own (and owned) huge boats that they had built especially for them and spend(t) lavish amount of money on themselves, their houses and so on.
Instead of building a boat for himself Elon Musk decided to back Tesla.
The Rockefellers and Ford are of a different era, hard to compare their wealth and what they did with it back when they made it with todays world. Disney doesn't even belong in that list (for me).
Take A Tour Of Elon Musk's $17 Million Bel Air Mansion[1]
[1] http://www.businessinsider.com/photo-tour-of-elon-musks-hous...
I don't own my apartment, but if I did, it would be approximately 100% of my net worth.
> He and his five sons had lived in the house for three years, which Musk rented before he felt financially secure enough to buy.
Is an interesting line in that article. The 'still rents a house' line stuck with me from somewhere, I didn't know what kind of a house it was. It's a bit larger than mine, that's for sure :), and I hope he enjoys it.
And why exactly is that wrong?
This person who's making $1 billion will simply put their money someplace else, they will figure out a way so that they need not claim it as income. They may push some of this money back into their company, perhaps raising the wages of some (or all) of their employees. They may form a new company to shelter this income and this new company may do something fabulously exciting and, thus, generate another shockingly large sum for this individual. Both of these sound okay to me.
This is a good point that I've never seen brought up before. How much of increasing inequality (whatever your definition of that) can be attributed to stagnating wages at the bottom 4 quintiles, because the tax climate isn't sufficiently incentivizing reinvestment?
On the whole my first instinct is to oppose new or increased taxes if only on philosophical grounds, but this may be cause for a second look.
"It’s ten percent because that is the standard decreed by Giving What We Can and the effective altruist community. Why should we believe their standard? I think we should believe it because if we reject it in favor of “No, you are a bad person unless you give all of it,” then everyone will just sit around feeling very guilty and doing nothing. But if we very clearly say “You have discharged your moral duty if you give ten percent or more,” then many people will give ten percent or more. The most important thing is having a Schelling point, and ten percent is nice, round, divinely ordained, and – crucially – the Schelling point upon which we have already settled. It is an active Schelling point."
It's still better to get a suboptimal outcome than to not get any outcome at all.
[0] - http://slatestarcodex.com/2014/12/19/nobody-is-perfect-every...
It would be trivial to make the taxation regime more high-resolution so that people who reinvest their cash into other ventures are taxed at a far lower rate, whereas those who wish to retire early and do nothing else are taxed a lot more.
Better to start from the society you want to see and work backwards from there to design a taxation system, rather that say yes or no to one or two one-size-fits-all options, I think.
What you're claiming here is that Musk can allocate capital better than a government, right? That leaving the money in his hands was better than taxing it and spending it on government projects? (note that all three of SpaceX, Tesla and Solar City received substantial amounts of funding from the US government (directly or indirectly) and would likely not be viable without it, even leaving aside all the USG-funded basic research that was necessary to make them possible in the first place).
Even if that's true for Musk specifically (which I doubt), is it true on average? How efficient is the average billionaire at using their money for social good? You gloss over a lot with "While not always the case" - how does the average return to society on a private capital investment compare with a public capital investment?
Receiving money from the government doesn't mean the government could have done the same thing.
Not meaningfully, not yet. They've landed the expensive part of a satellite launch system, which is very cool but the USG did it 30+ years ago. I don't think the difference between a vertical and a horizontal landing is that important.
And fundamentally there's no magic private industry pixie dust. A company is just a collection of people, as is a government; they both have to obey the same laws of physics. In some cases competition drives private industry to be more efficient. In some cases the government's long time horizons, trusted position, and ability to do things where the benefits are widely diffused make it more efficient. But it's only ever a matter of efficiency, not of can or can't.
> Receiving money from the government doesn't mean the government could have done the same thing.
It means that government money was a vital part of making it happen. SpaceX built their system on the back of $X from Musk and $Y from the USG (among other sources). If we took some money out of the X pile and put it in the Y pile, maybe the result would have been worse, maybe it would have been better.
Even the landing of the first stage was mostly based on NASA research. Which by the way, NASA had achieved long ago.
SpaceX innovated with their cost cutting, and maybe now their manufacturing processes, and by being lucky by benefitting from a period of cost cutting by NASA whereby they could hire a bunch of NASA engineers/scientists.
http://ecorner.stanford.edu/material_mobile.html?material=34...
Milton Friedman:
“There are four ways in which you can spend money. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money.
Then you can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost.
Then, I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch!
Finally, I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government. ”
How can that be, given what Milton Friedman says? Two reasons. First: there are incentives in place to encourage them to do it. If they buy useless things or spend too much money, someone may notice and they may lose their job. If they find a particularly good bargain, they may be rewarded. Second: most people are not perfectly selfish utility-maximizing homo economicus, and even when spending "somebody else's money on somebody else" they do in fact prefer to do so in a way that benefits the second somebody-else at not too much cost to the first one.
Guess what? Much the same applies in government. Suppose you're a doctor in a nationally-run health system like the UK's. You examine a patient and prescribe a drug. Does the fact that you're spending "somebody else's money on somebody else" really mean that you won't prefer to prescribe a drug that actually helps the patient's problem? Does it mean you won't prefer a cheaper drug over a more expensive one that performs no better? Of course not. And if in fact you are the way Milton Friedman professes to be -- if you prescribe with blithe indifference to whether your patients live or die and to whether your national health service goes bankrupt -- then there's a real risk that someone will notice and you'll be out of a job, or pilloried in the newspapers, or something similarly undesirable.
(I don't at all object to being downvoted. But if I'm thinking incompetently or writing badly or being obnoxious or something, I'd like to know what's wrong so that I can fix it. And I haven't been able to figure out what's downvote-worthy in the parent of this comment.)
The system used to be that, when a party won an election, they'd fire the existing government employees, and replace them with members of their party. "To the victor go the spoils", and this was called the "spoils system". But that meant that the knowledge of how the day-to-day government functioned got lost after every election, which was non-optimal. So laws were passed to eliminate that practice, but at the price of making it hard to fire government employees. (Add in public sector unions, and it gets even harder.)
Er, no, democracy defines it.
If you don't let the voting populace define and work towards social good, wealthy and powerful elites define social good, or more likely, pretend the concept doesn't exist or that they don't understand it as you have.
Of couse we don't live in a perfect world, and so the elite can be counted on to be and stay benevolent. But neither you can count on voters not being stupid, or entrepreneurs not being greedy.
It's not that we can't figure out what problems are to be solved. It's that we let huge amounts of bullshit take precedence.
What NASA has achieved, they've done so with over $1 trillion in inflation-adjusted capital funds over the decades, that have been allocated to them.
What is debatable is whether or not they've made or always made efficient use of the capital they've been allocated.
Space X has innovated on a number of fronts with less than 1500 employees and only a fraction of the capital that NASA has been allocated. For one, the Space Shuttle program was costing the U.S. $450 million+ per launch. A Falcon 9 launch costs an average of $57 million. There is proof that he can allocate capital better than the government.
No it's not. The requirements on the two systems were not remotely the same, and it's not surprising that a system built 30+ years later with the lessons of the previous system in mind would be more efficient.
There are probably lots of smart people out there qualified to allocate society's resources, but they tend to not become billionaires or win elections.
http://www.lrb.co.uk/v28/n07/slavoj-zizek/nobody-has-to-be-v...
He would have thought about futility of giving one's whole life to building something and then watch 80% of it taken away by someone else.
A few options remain for such people. Tax havens, countries with better respect for individual merit and contribution or plainly make money till a point and quit. All the three are equally damaging to any society for a long time.
Eg: See USSR, North Korea, Venezuela, Cuba etc.
You don't achieve anything by making the rich poor. Apart from the sadistic pleasure to soothe your flames of jealousy towards their wealth.
The end result is you scare almost any genuine contributor to the economy, and they learn they are better off in some other place.
Who is proposing to make the rich poor?
The most anyone here seems to be proposing is to make the rich less rich but still rich.
This is backwards. Not sure why this should even be done. And why does this have to end at an individual? Why should some countries be so economically powerful and others not? Will it be ok if wealth from developed nations were transferred to poor nations, every year?
You make poor people rich, you make the sick and malnourished healthy, you make the illiterate literate. You don't make the rich less rich, or the healthy less healthy or the literate less read.
Progress happens in the forward direction, not by pulling people down to make your failure look good.
There is a irrational fear here somehow equating wealth and evil. Not sure why people even think that way.
Only because I copied your phrasing.
I dare say there are people around who want to tax rich people just because they don't like wealth, but that's not what's being proposed by the OP and it's not what most people advocating higher taxation are calling for. E.g., from the OP: "So by taxing the wealthy and spending it on services, we can better ensure that the level playing field you allude to continues to exist." (In case it isn't clear from that quotation, the "level playing field" isn't about equalizing wealth or income, it's about providing public services to everyone.)
> equating wealth and evil
Who's doing that? Here's the OP again: "No one believes that there should not be rich people." "No one wants to take the money you have away." You may think the OP is insincere, but he is very plainly not equating wealth and evil. I don't see anyone here equating wealth and evil, implicitly or explicitly. I'm afraid I think you're just imagining it.
Here are arguments I see actually being made by people in this discussion advocating more tax. I have italicized the only one of these arguments that is on the same continent as the ballpark of "equating wealth and evil", and it's still a fair way away. Governments can allocate capital more effectively than most billionaires. Taxation may incentivize wealthy people to invest more. Taxes are low right now compared with what they have historically been, so raising them might be a good idea. Inequality itself causes social problems. No single person can really be so much more productive than others as to justify billions in wealth; so if someone is that wealthy, they got that way on account of others' work, so they don't deserve it. Economists are saying we need to reduce inequality to avoid disaster.
> Will it be ok if wealth from developed nations were transferred to poor nations, every year?
Yes, that would probably be a good thing. Is it supposed to be obviously not? Most developed nations do in fact transfer some of their wealth to poor nations every year. So do citizens of those developed nations. We call the first of those "aid" and the second "charity" and while it's possible to argue about how effective they are it's certainly not obvious that they're a bad idea.
Read this thread over again. There is a sad sentiment regarding Elon Musk's Mansion.
>>Governments can allocate capital more effectively than most billionaires.
Demonstrably wrong. See wars in history.
>>Inequality itself causes social problems.
Like what? Your USSR, North Koreas, Venezuelas of the world. In fact every failed communist nation in the past century falsifies this claim.
>>No single person can really be so much more productive than others as to justify billions in wealth; so if someone is that wealthy, they got that way on account of others' work, so they don't deserve it. Economists are saying we need to reduce inequality to avoid disaster.
Appreciable sentiment if you till the land with a shovel in your hand. Increase of productivity is not always measured through human effort alone. But also through tools which humans invent to amplify their productivity through automation of some kind. There are kinds of effort, one where you do all the work alone. One where you work to invent a tool that does that the job for you. Latter is also commonly known as 'progress'.
On the rest: I wonder whether you misunderstood what I was doing in that paragraph. I am not endorsing any of the arguments I mentioned (though as it happens I agree with some of them). I was listing all the things that people in this discussion had (at the time) said in favour of higher taxes, and pointing out that none of them involved saying that wealth is evil or that rich people are evil.
So responding by countering a few of the arguments misses the point. I wasn't making those arguments myself. I was pointing out that none of them involves the idea that rich = evil.
It will, and it happens; think the rich Western European countries putting money into Europe, which they pay out to the economically less developed countries in the east and south. It's what allowed Greece to not go bankrupt. There's also basic relief coming from the UN, and of course taking in Syrian refugees.
> There is a irrational fear here somehow equating wealth and evil. Not sure why people even think that way.
Because money buys power, and if, say, someone wants to build a wall to keep Mexicans or Canadians out, enough money will buy enough power to do that. Corruption. Second, the rich in the US got rich at the expense of the now nearly non-existent middle class and the poor, and the relatively rich country isn't putting its money into basic services like decent, affordable health care, basic income, or decent jobs (something above a McJob that doesn't require a university degree).
It's not the rich that are the problem, it's the fact the middle class is going extinct because of them or their businesses. It's the companies like Amazon that offer low prices due to low-paid but hard-working employees (that will soon be replaced by robots), or the food companies with dollar menus (whose employees are also being replaced by robots / computer screens). There's no real higher-level jobs becoming available for those people - also because higher-level educations have to either be paid out of pocket, or paid out of various grants (like the ones that will pay your education if you happen to be good at sports or chess or whatever).
[/rant. Probably wrong. But, perceptions]
Every cent they earned is off the back of the investment the US government and society has put into our infrastructure, workforce, culture, work ethic, etc. If the government that created the atmosphere which allows these people to exist chooses that they get to keep 20% of the obscene billions of dollars they are taking from the poor they should be delighted. If they try to evade taxes we should lock them in jail or confiscate all of it.
They also often waste their capital on complete failures. Whether the rate of wasted spending among the rich is greater or lesser than the rate of waste in government is open to debate. But "from a utilitarian perspective," you can't ignore the fact that there is also massive waste and fraud in the private sector.
But.. I think the idea that a government would allocate the money better than Elon Musk, is indeed suspect. The point here is that Elon Musk is an unusual person.
A more useful question might be - how can we optimize the number of people like Elon Musk who get to execute?
Moving capital to the government probably isn't going to help with that, but concentrating money in the hands of 'investors' is probably not optimal either. In many ways they are just a lesser version of government - a bit less bureaucratic, and a bit more open, but nevertheless not the people who create new wealth. They may have created wealth themselves in the past which is a better qualification than being a politician, but unlike Musk, who is executing himself, for the most part investors are not.
It seems to me that the real constraint is not on who gets to pick winners (govt vs investors), but enabling more people to take a shot.
From that point of view PG's piece is doubly weird, since YC was started from this very premise.
Does the current kind of increasing inequality reduce the pool of people who get to take a shot or increase it? If it reduces if then we need to change something.
If we tax it, we can actually do something good for society on purpose with it. We can give the business/tax subsidies that are required for all of Musk's ventures to succeed. We can educate Musk's workers. We can maintain and create and enhance the infrastructure required for Musk to continue to make his obscene profits, which we continue to tax and reinvest in the country.
Or we can just keep hoping that the rich and powerful class of billionaires have weird hobbies that tech people happen to think are cool.
I agree that what Elon did would not be possible if he was taxed at 80%. But he is an extreme case. He is an outlier in the outliers group. Most rich entrepreneurs, frankly, don't give a shit. The few that do have often tied hands (there's only so much you can do if your company has shareholders deciding about stuff). But most don't give a shit. Can you imagine, say, CEO of Oracle investing all his wealth to literally force an electric car into market viability because he believes that we need to do something about sustainable energy right fucking now? I can't.
So maybe that 80% tax would stop an occasional Elon Musk from saving the world. But if it also makes everyone much better off, then maybe it's worth it. Especially if it could relax the current economic pressures, so that we wouldn't need crazy millionaires going against the market to fix something on this planet.
Why do people think it's ok to take other people's money? If a billionaire has money - regardless of whether they earned or inherited it - it's THEIR money. If they earned it lawfully, they should pay the same % of tax that everyone else pays - and keep the rest to do whatever they please. Who are YOU to tell them how to spend THEIR MONEY better?
If you're jealous of them having more money than you - this is a truly free country, nothing is stopping you from earning just as much as they have. Yes, life isn't fair, they may be born into wealth and you're not - but try being born in North Korea, then talk about it not being fair.
This is the principle that America was founded on, and what's allowed it to be successful.
And as someone who studied just a bit of history, it seems completely insane to me that people think taking money from the rich and distributing it to the poor think it will turn out OK. The same exact thing happened in dozens of socialist countries - those that are in charge of the distribution, somehow distribute the most of it to themselves, and then take away people's freedoms so they would stay in power. To think that something else is going to happen is just plain ignorance of basic human nature.
It is impossible for one person to make a billion dollar 747. One man simply doesn't have enough intelligence or strength to do construct such a sophisticated device. If a 747 is worth a billion dollars then creating a billion dollars of paper money or making the plane itself are both equivalent concepts.
Thus why is it possible for one man to make a billion dollars in paper money but it is not possible for one man to make a billion dollar 747? Why do billionaires exist?
Billionaires exist only because the paper money was taken from the wealth produced by other people. The Billionaire needs to employ workers to build a 747.
In short, for Billionaires to be Billionaires they must be an owner of some corporation where the wealth produced by the labor of employees is unfairly distributed to them. This is wealth inequality. This was the problem your old country attempted and somewhat failed to resolve with communism.
Whatever you think communism is, wealth inequality is a feature of capitalism and it is fundamentally unfair because it is taken from others.
Yet its easily possibly possibly to start working towards and move in that direction. That's how anything big ever built, was built.
>>Thus why is it possible for one man to make a billion dollars in paper money but it is not possible for one man to make a billion dollar 747?
Because any big thing company, individual wealth or 747 is built on a concept that works similar to stamina. You don't run a marathon on day 1. It takes a good deal of work over years to make a billion dollars.
Ever wondered why some people are so good at saving money even in stifling financial conditions and then make smart investment decisions? Such people have already tried a lot, failed a lot and have a lot of mental stamina and cache of knowledge in their brains which helps them succeed above people who have far better sources of money but have a equally bad spending habits.
>>Billionaires exist only because the paper money was taken from the wealth produced by other people.
Its a symbiosis. But where you want to belong is really upto you. You now have two options a) to work 20 hours a day, be a god programmer, get a job at wall street, make a few millions and retire. b) take life as usual, work 9-5 and be a commoner.
People who take the option a) are not evil. They only have better priorities than you.
>>wealth inequality is a feature of capitalism
Capitalism offers freedom to chose priorities. And that independence is hard to handle for a lot of people.
>>it is fundamentally unfair because it is taken from others.
Nothing is taken from others. If you think about it very carefully, capitalism gives you what you want. Based on how you look at it and what kind of a person you are, it can be very good or terribly bad news.
This is impossible. One man cannot build and design the 747. The total man hours required exceed several life times.
>>Its a symbiosis. But where you want to belong is really upto you. You now have two options a) to work 20 hours a day, be a god programmer, get a job at wall street, make a few millions and retire. b) take life as usual, work 9-5 and be a commoner.
It is not a symbiosis. Ask anyone who chose option b.
What a coincidence. Everyone who chose option a thinks it's a symbiosis, everyone who chose option b doesn't. Wonder why. Tell me, in your life, did you happen to choose option a?
You are right regardless of whatever you think. If you thinks its possible, its possible. If you think its impossible, its impossible.
>>One man cannot build and design the 747. The total man hours required exceed several life times.
There are men on this earth who have cleaved an entire mountain. https://en.wikipedia.org/wiki/Dashrath_Manjhi
Like I said, what ever choice you make you are right.
>>It is not a symbiosis. Ask anyone who chose option b.
A person makes the wrong choices in life, but expects all the right outcomes.
>>Tell me, in your life, did you happen to choose option a?
Yes, not the wall street part. Because I'm an Indian. That was just an example of what choices a person can make, and how those will actively shape their lives.
I've seen the socialism rot from quite close. Most Americans have no clue what they are talking about, very simply because the exposure is only through reading stories or anecdotes on internet or books.
In reality there is no such thing called as free. Or worst free in almost all cases is more expensive than the cost you would've other wise played. Socialism also has other problems which deeply stems from motivations human beings have towards doing anything in life. In reality, in a socialist society, the opportunities are always scanty, almost every one thinks everybody else who earns more apart from them owes them something, and they are entitled to endless free stuff. Corruption is common, because opportunities are scanty. People think one-off cheating is perfectly fair.
Good people are always leaving to greener pastures(other countries). In fact most of them are quite tired of the masses calling them greedy for working hard. There is endless glorification with poverty, and rich people hating which after a while looks like excuses to remain poor because the poor are entitled to free money anyway. The wealth generated is consistently on the decline largely because no sees any point in doing some thing big and watching the results of their work taken away, and the good people are constantly moving out. In all this in the constantly declining pool of wealth, people fight for whatever is left with whatever means they can.
Socialism/Communism has failed over the century because it works against the human nature and the way we perceive work-reward scenarios.
But no man has ever built a 747 by himself whether you or i or anyone has believed it or not. Additionally no mountain was cleaved by any man. This man simply spent 22 years digging a hole. This is certainly a plausible feat.
The foundations of your argument rests on the fallacy that anything you believe can become reality. Well. I believe I am right and that you are wrong. Look. Now it's reality.
The point that everyone who talks about how inequality is bad is missing is that without the billionaire in your example, there would be NO jobs. Pure labor doesn't produce - there needs to be a business idea, vision, strategy, organization, sales - all those things that the businessman in charge provides.
The reality of the situation is that workers can be replaced - that's why they get paid less. But the businessman creator can NOT be replaced - without him/her in charge, there would be nothing else.
Soviet Union and other socialist countries tried taking the businessman in charge away - and we know exactly what happened after that.
I know this system isn't "fair", but it's better than the alternatives.
I disagree with the fact the billionaire can't be replaced. The billionaire isn't some special human being. I would argue if you replace the current CEO of apple with a random apple SW engineer, the company wouldn't change much.
In fact I would argue that skilled work, the work of software engineers is by far much more irreplaceable. The person who coded the critical infrastructure for the apple operating system, he is by far harder to replace then the billionaire on top. Also note: Steve jobs died, Apple stock has gone up since his death.
> I would argue if you replace the current CEO of apple with a random apple SW engineer, the company wouldn't change much.
That's exactly what happened in the 80's - they forced Steve Jobs out, and the company lost all their market share and was on the verge on dying, before he came back.
> Steve jobs died, Apple stock has gone up since his death.
By that time, Steve Jobs knew he was going to die and picked his successor very carefully - Tim Cook is definitely a great choice. Some would argue, however, that Apple is still thriving because of Steve's ideas, and as soon as they run out of them, Apple will start to decline. The jury is still out on that one, however.
I don't know about that; I've heard plenty of people talk about eliminating income inequality as an end goal (but I live in the SF Bay Area, so maybe a reflection of demographics out here?)
It's like saying no one but the fringe is going to vote for donald trump, and yet those poll numbers...
>> What people are talking about is a progressive income tax to reduce inequality.
Well, we have that. Taxes are historically low, so I'd be ok with raising them somewhat, but not too much.
>> So by taxing the wealthy and spending it on services, we can better ensure that the level playing field you allude to continues to exist.
This is really the crux of my argument: instead of increasing taxes first, we should hold the government more accountable over spending and look at programs and how they help or do not help the poor. Poverty is the metric that should be focused on, not inequality. If inequality is reduced as a side effect, all the better. But poverty is the problem. If government got more money from taxes, what makes you think they would use it to effectively reduce poverty?
I work with government agencies and I am all for them being more accountable, I have no doubt that they could spend a lot less than they do. On the other hand, I am entirely unwilling to wait for them to become more efficient before deciding to severely tax the five people who make over 1 billion per year.
Wiser management of federal resources would go a lot further than throwing more money down the hole.
That sounds to me like, "We can't get our ship in order, so lets rob someone who can instead of fixing it and we'll fix it later (but we won't because note what we've done in the current example)."
The problem for government is less "not enough money" and more "we don't know how to spend it to accomplish specific and measurable goals"
No. Inequality is the problem. Poverty has nowhere near the same damaging effect.
This book is essential reading on the topic:
http://www.amazon.com/Spirit-Level-Equality-Societies-Strong...
The authors use two test-beds: a comparison of countries around the world and a comparison of states within the US. With these, they show that with overall wealth held constant, it's the larger inequality that causes more social problems.
For example, the UK and Japan have roughly equal GDP and similar average incomes, but Japan is less unequal. On almost any measure you might choose of how well a society is doing, Japan is better. Mental health, drug use, teen pregnancy, violence, divorce, abuse, the whole lot. The same goes across all of the states and countries they looked at.
The sheer scale of the evidence is overwhelming. It's very rare in the social sciences for literally hundreds of studies to point to the same broad trend across so many different parts of the world.
Their work is a revolution as it overturns the common assumption which you expressed that poverty is the problem.
This book presents the thesis that many ills of today's society (obesity, mental illness, rates of drug abuse, ...) can be attributed to large income inequality. The authors make this point using two-dimensional scatter plots, with income inequality on the x-axis, the prevalence of some form of social ill on the y-axis, and dots in the plot representing individual countries. These plots generally show a positive correlation between income inequality and various social ills.
As a statistician, I would like to comment on the soundness such argumentation: unfortunately virtually all graphs are plagued be a confusion of correlation with causation.
Reviewer then explains correlation and causation. I could claim "inequality is good" using the same methods. I'd argue inequality is immaterial but does tend to be correlated with poverty, which is what we should focus on.
Not to be outright dismissive (I should read the book), but this is a problem in social sciences in general. I think software simulations would be a lot more useful at this point than scatterplots comparing two variables used by so many economists today. I think I've read about people starting to do that in various areas, not sure about how prevalent it is in economic modelling. AFAIK not very.
I was still mightily impressed with their data.
The range of studies is extremely broad (into the hundreds), and there is a very wide range of experimental procedures in use. Not all are correlations.
>inequality is immaterial but does tend to be correlated with poverty
This point, they explicitly refute with a vast array of data. In cases where there is both poverty an inequality, there is a problem. When poverty alone, the problems are massively reduced.
I read the book with a critical eye. I've taught social science for the best part of 10 years and this was not lacking in statistical rigour. Other academics in the field who I've discussed it with agree.
I think you'll enjoy the book. It challenged a lot of my preconceptions to the point where I changed my mind, which is was unexpectedly refreshing.
This is so over-simplified it's wrong. If I drop a weight, what happens? Is there a causal chain there? Would an animal unable to perceive a causal chain be able to live very long?
If you are going to be doing science, you will not prove causal links. You will develop a theory which explains some phenomenon and implies some predictive assertions and then provide evidence for that theory and test the assertions. Cause is much deeper than science can currently tread.
On first blush it seems too neat a solution. Just look at Texas—massively unequal, there are oil barons and illegals within the same zip code, but Texas is doing well because it's possible to live the life style of an upper middle class person in NY on a pair of civil servant salaries down south.
Their hypothesis is that as social animals, we are wired to respond neurologically to status Higher/lower status individuals experience dramatically different levels of certain neurotransmitters, which is something that they cite animal studies to support. Experimentally manipulating the social environment e.g. by placing a monkey in cage where it was surrounded by either smaller or larger peers caused observable changes in brain chemistry as the monkey moved from alpha male status to subordinate and back again.
There's a good argument for an evolutionary role here, as you can see that being on the bottom of a social hierarchy may be dangerous, so those who experienced it as stressful and were motivated to escape it somehow may have had higher chances of survival.
Being trapped in such a position appears to cause a deeply stressful state of mind, where people are literally unable to function normally. This doesn't happen when people are more equal as the perceived status differences are small, so the effect is lessened.
Really?
Because your description sounds very flimsy. Can you really compare Japan and the UK without correcting for a bunch of confounding cultural variables that have nothing to do with equality?
Is there no society that is "more equal" than Japan, and yet scores terribly on the metrics you suggest?
It sounds simple, but as remote work becomes easier it becomes more tempting to do it in another country (a country that won't tax that person $800,000,000).
Pg addresses this issue in his essay "So if you made it impossible to get rich by creating wealth in your country, the ambitious people in your country would just leave and do it somewhere else."
This is exactly what is happening, even now.
Why do you think ridiculously smart and hard working people in countries like China and India, graduating from the top universities in their countries come to the US and take great pains to stay and work in the US.
If you make it impossible to succeed people don't even try, or find loopholes or else go where the rules of the game are fair.
Not only does GDP not measure wealth, but as wealth increases you might actually expect GDP to decrease. E.g. when self-driving cars put 20M Americans out of work, wealth will have increased, but the GDP will decrease.
An alternative scenario would be to tax driverless car companies and give the money back to the people whose livelihoods were taken.
I have no doubt that in a fully-automated world, society will either be socialist or communist. If wealthy people start thinking about inequality and actively work to improve things, then we will have socialism. If they don't, it will just spread misery and resentment among the lower class and will likely lead to a more dramatic change in the state of affairs.
Oppression leads to extremism. Just look at what happened after world war one when Germany was burried in insurmountable war reparation debt... It created a generation of resentful german extremists - And along came WW2.
Cheap access to driverless cars will be a huge boon for the poor. Can you imagine what it would be like to have cheap access to goods no matter where you live? To receive delivery of materials cheaply and quickly? That's not a wealth destroyer. That's wealth creation infrastructure.
If automation replaces 90% of jobs, then you're going to have a lot of unemployed people with no money.
I disagree about automation becoming a commodity. Automation is all about monopolies. You only need to write software once and only the company with the best technology will control the whole market... Why would a consumer use a piece of technology if it is less efficient than a competing piece of technology?
Just look at Intel vs AMD. Intel's CPUs became just a little bit faster, and as a result, in just a few years they decimated AMD financially.
Technology is a winner-takes-it-all game.
Why PG chose to make a side on argument towards that leaves me a little bemused, however
But that is just a myth. When someone "makes it", can you really disregard?
- his teacher from school
- the doctor that saved his life when he was young
- the guy on the street that maybe said something that triggered a chain of actions that ended in his success
- the books he read
- the peace of mind provided by living in a safe place
- etc.
Is it enough that you paid for that doctor appointment? I don't know. But you would not be here at all without it, and that doctor himself benefited from all of the above.
A different way of looking at things could be that, as we as a society don't know what works and what doesn't, we invest in people. Some are lucky, and based on their circumstances (and on their personal merit, I won't deny that) will manage to succeed in life.
So, by this completely rational view of the “pie,” it is, in fact, trending towards a zero sum game.
It doesn't even matter how growth is trending. Graham's misguided criticism of the 'myth' misses a simple mathematical fact: that the growth in income among the top 1% dramatically outpaces overall economic growth. Consequently, contrary to his assertion, the rich are increasing their income at the expense of the poor. There is no where else the money can be coming from. You can argue (wrongly, in my opinion) that this is solely because the rich are smarter and harder-working than the poor. But you cannot rationally argue that such a shift is not happening in a broad sense.
It's not.
I am not sure what the number is, but when I hear 80% taxes, I think someone (maybe me) is not doing their math.
But I do agree that one must first make sure to understand the argument of the other side before articulating a counter-argument. I think in this case, there is also the problem that the message gets diluted because of the messenger: unfortunately PG does not have credibility in this area because (presumably) he has not been on the ground dealing with poverty issues as many others. Then again, many economists haven't either, even as they also postulate solutions.
Instagram (for another example) had 13 employees when sold for $1 billion.
Simplifying the tax system and increasing the top marginal tax rates back to something closer to where they were 40 years ago is preferable in my opinion.
The OP article is definitely factual with its four main points-- I'd also like to add that the trick of putting yourself into the opposing position's shoes and reconstructing their argument is one of the best rhetorical techniques that exists.
I see what you are saying, though-- the exact prescription may not be something any of these four have said, though they certainly detail the consequences of inequality.
They work at a little organization called the International Monetary Fund, and they conclude:
"We find that increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20 percent results in lower growth—that is, when the rich get richer, benefits do not trickle down."
https://www.imf.org/external/pubs/cat/longres.aspx?sk=42986....
I would like to add one thing. Given that Mr. Graham has put forth an essay on an (macro) economic topic, and his employment of the 'per se' argument method, there is an obvious lack of proper treatment of the basic and foundational economic concept of 'ceteris paribus'.
Without employing the tool of 'ceteris paribus' in his his essay Mr. Graham has left the door wide open for discussion of all sorts of things which might form a critical response to his argument: "But economic inequality per se is not bad." On the same topic, in his follow-up he weakens his argument substantially by prefacing it with: "I thought it might help clarify matters if I tried to write a version so simple that it leaves no room for misinterpretation." Less words does not necessarily make for a smaller room, Mr. Graham.
[1] http://www.paulgraham.com/sim.html
[2] https://medium.com/@RickWebb/paul-graham-s-second-inequality...
Consider the author's idea of levying an 80% tax on people who earn $1 billion a year. Chances are that anyone who is smart enough to earn $1 billion a year is smart enough to hire a small army of accountants/tax attorneys to reduce her tax load. The relevant tax authority thus has to counter by hiring their own army of auditors/tax accountants to enforce these sorts of tax laws.
In the end, the tax authority may collect more money, but they also have to spend significantly more. In the end, will such a scheme really result in more money in the government's coffers??
And then, what happens to money once it reaches the G?? How much of the money is wasted on poorly planned/executed programs? How much is wasted by massive, overstaffed organizations? How much of the money designated for 'social services' ends up in the hands of lower income people versus how much ends up paying for bureaucracy?
Please tax the wealthy, but first, it's a better idea to run government in the most efficient way possible.
Yeah, if someone tells me that they can spend Elon Musk's money more productively than he can, I'd kind of like them to be able to point to some track record of having done that in the past with all the other money they've had their hands on.
One might just as easily say "no VC should invest money in any company whose founder has a poorer track record than Elon Musk" which is of course a ridiculous posture.
If there was ever political will to tax the wealthy at such a rate, there would also be the political will to end the loopholes allowing people to avoid that rate, otherwise it would be pointless.
One can argue if enormous capital gains should be taxed or not, but the problem starts when rich park their money where it inflates "normal people"'s necessities.
Best jobs are concentrated in few big cities, workers have to live there. Rich don't have to live there but they corner the housing market in order to extract maximum percentage from workers' salaries.
I don't care how much money the rich have as long as they don't inflate the housing so I can afford to buy my own.
Capitalism has learned to extract more surplus value from labour about the moment when worker productivity and salaries started diverging. It used to be that the rich are very few and once they bought all the London property normal people could live their lives. Nowadays there are so many foreign billionaires (China) who either have money or can access cheap debt that they can corner property market in every major city.
- the top marginal rate of tax was 62% in 1932 (up from 25% in 1931)
- rising to 91% in 1963 (income over $200k)
- It was at 70% in 1981 (before dropping to 50% in 1982)
and a graph here: http://visualizingeconomics.com/blog/2010/02/04/historical-m...
Though I can find very little that talks about the affects of this taxation on society.
I feel like the author of this post reads PG totally different. He seems to think PG is saying, "Inequality isn't a big problem and it can't be fixed and screw these dumb poor people."
It seems really backward and regressive if anything.
The iphone did not come from a startup. Nor did the internet. The world needs startups but if the startup fails like the way most of them do... then it's just wasted capital producing a good that has zero utility.
Anybody have a good argument for why we need startups for every little stupid business idea? PG almost describes the "entrepreneur" as some sort of genetically superior being.
Poverty is a circumstance of living in a world with limited resources where trade offs have to be made in virtually all decisions. When I have lunch today, I am, in a twisted interpretation, depraving someone else of that food.
In a world where everything has a cost, whether hidden or real, poverty in some form will exist.
Inequality is bad. People want to reduce inequality. Startups strive to strictly increase inequality. Now what? An extreme progressive tax plus startups will STILL increase inequality. Not decrease.
To be honest I want to increase inequality even more. Because I want to allow more immigrants and refugees. You can't let in hundreds of thousands of refugees without increasing inequality. It's not possible.
What some of these posts say, without actually saying it, is that oh some types of inequality are bad and some are good. A small local business that earns it's owner a 6 figure salary? Well that's obviously good. When people say inequality is bad they meant those filthy point-oh-one percenters on Wall Street. Not the plumber who has 10 employees and made $350,000 last year. Obviously.
Inequality is at most a 2nd order derivative. It doesn't actually matter much. Things can be good with high inequality or they can be bad with low inequality. It gets far more attention than it should, imo.
If you are a rich person, then you're answer is expected. Normal. People concoct very articulate and valid logic to fit their own biases and situation. The logic is so sound that it's often hard to find bias. What can always be observed however is... does the logic benefit the individual who introduced said logic.
I feel people need to introduce their background before they introduce their arguments. Like PG did, one should always announce whether or not they are a manufacturer of wealth inequality or not before they spill their arguments.
To answer, that depends entirely on how you depend poor or rich. And to who you are comparing.
Within the United States the median household income is $50,000. Average household income is $69,000. If someone makes more than mean/median and they receive a raise than is an increase in inequality.
There's hardly a US based programmer on HN that doesn't qualify as rich and strive to increase inequality by seeking career growth and raises. I don't think that's a bad thing. I would be such a programmer.
Sure, you're right that nothing is set in stone, and you could have a country that has low inequality but it's still a terrible place to live by other metrics, but this is useless hypothesizing and speculation. What evidence do you have to support the statement that "An extreme progressive tax plus startups will STILL increase inequality. Not decrease." Seems to me, in the years when the top marginal tax rates were higher, those were some of the years with the least income inequality in American history.
Why not look at what people who study our current economies are saying instead of speculating?
From the IMF:
"We find that increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20 percent results in lower growth—that is, when the rich get richer, benefits do not trickle down."
https://www.imf.org/external/pubs/cat/longres.aspx?sk=42986....
Not all increases in inequality are equal. They can not be treated as such.
The cost of RAM memory seems to have stagnated. The prices of vital drugs are going up. Property prices are going up.
The era of value-creation is over. The real winners are those who can make other people create all the value and just capture that value.
Ah, yes. One can be rich, but don't you dare be TOO rich!
Am I banned now?