An Optimist's Reply to Ezra Klein
paulgraham.com
paulgraham.com
The problem IMHO is rent and profiteering off taxpayer subsidies, both of which more or less force me to pay tribute to the rich.
I don't care one bit if someone else is infinitely richer than me as long as I don't have to pay tribute to them or otherwise be lorded over by them. I would not care if (hypothetically) there were people alive today who were biologically immortal cognitively enhanced cyberpunk demigods with control of wealth flows in excess of present-day US GDP. In an abstract philosophical sense it seems likely that such sentient entities do in fact exist somewhere in our vast universe and I don't see how this likelihood impacts me at all. There are also (statistically speaking) probably a minimum of several hundred million to a billion people smarter, healthier, and better looking than me.
What I do care about is being forced or at least heavily pressured/coerced into paying tribute to those who are above me economically.
A prime example: housing costs are insane and this is partly a result of rich people from around the world parking their wealth in real estate and extracting rent in exchange for little to no investment in anything productive. In general, idle rent extraction is a social ill and should be taxed to hell and back. I would support cuts to capital gains, employment, and income taxes and large increases in taxes on property speculation (non-primary residences) and other non-productive rentier activity. (We might distinguish between productive capitalism and rentier capitalism, though it's hard to draw an absolute black-and-white distinction.)
Other examples of tribute include the many cases where public insurance is used to back-stop private losses while private gains remain private, such as the 2008 bank bailouts or the government paying in part for the cleanup of BP's gulf oil spill, and cases where taxpayer subsidized research and development is privatized for exclusively private gain (and patented!). How many huge companies have been built on the back of government-funded research? (The fact that so much wealth is built on the back of public research and public infrastructure is a common argument for progressive taxation.)
A huge reason I've lost my faith in libertarian politics is that the 2008 bailouts convinced me it's a scam. The rich advocate laissez faire until their wealth is on the line, at which point they become socialists. It's clear to me that for the poor and middle class to forego the use of government coercion is for them to engage in unilateral disarmament. I've heard today's economy described as a casino in which public funds are used to backstop the losses of the highest rollers, and that seems fairly accurate to me.
It's not transformed me into a conventional liberal though. Personally I don't think anyone on the present-day right or left has a clear path out of this. Both sides advocate things that would make the problem worse.
While couched in liberal or eco-whatever rhetoric, make no mistake about it: SF's NIMBY policies are there so that urban property owners can extract rent and homeowners can profit off appreciation. NIMBYism of this sort is an example of regulatory capture.
And San Francisco's metro area has more than double the population with about 85% of the land.
People ignore this stuff when talking about the San Francisco. It's already pretty dense, compared to the median US city. It's just that a LOT of people want to live there, and those people have the money to pay.
> "I would not care if (hypothetically) there were people alive today who were biologically immortal cognitively enhanced cyberpunk demigods with control of wealth flows in excess of present-day US GDP"
The resources of the Earth are not infinite. If you lived in a world with super wealthy cyberpunk demigods, you're almost inevitably going to clash with them over resources, and as they have the upper hand you'd more than likely going to be paying tribute/rent to them.
At the risk of totally derailing into sci-fi speculation, I'll also say that I suspect any civilization that advanced would also be truly spacefaring. That would probably make a difference too.
This is rediculous. Libertarians were leading the charge against the 2008 bailouts before they even happened, and it was liberals, (e.g. barney frank, paul krugman) who were among the chief architects of the bailouts.
I would also dispute that liberals (or at least only liberals) were architects of the bailouts, which mostly happened under the Bush administration.
Bush himself called the process of the bailout "breaking capitalism to save capitalism". This is a philosophy that aligns strongly with liberalism - that the government must intervene when the market fails. Should it be surprising that liberals helped architect the bailout?
I forgot about that time that Henry Paulson and Ben Bernanke were actually Barney Frank and Paul Krugman's secret identities.
People keep saying that, and I personally agree that there are other related problems that are bigger than inequality, but inequality by and of itself is a problem, and a significant one at that.
"The average well-being of our societies is not dependent any longer on national income and economic growth. That's very important in poorer countries, but not in the rich developed world. But the differences between us and where we are in relation to each other now matter very much."[1]
And even the wealthy in more unequal societies are less well off than less wealthy people in more equal societies. I think this is an important finding because it is counterintuitive, even surprising.
The problem isn't "wealth inequality". The problem is EXTREME wealth inequality. I'm not super rich (or even non-super rich), but I do well enough that I don't really suffer.
My mother, though, she's got a ton of debt, working a 35k/yr job without benefits, and no real retirement plan. Thanks to Obamacare she can buy insurance, but it has such a high deductible that it doesn't really do anything. She has no home, and can't even rent because most places refuse her if she has more then 5k in debt REGARDLESS of cosigner. And we know that she's so much better off than some others: She has food, isn't crippled by medical issues (yet), no one else to care for, and I'm providing a roof.
When you go from an extreme different between the top 1% and the bottom 10%, then have a few decades where that 1% has vast, rapid growth and the bottom 10% has things stay steady or get worse, THAT's your problem.
To say that wiping out inequality will stifle innovation...well, that's not really the discussion at hand. Wiping out EXTREME inequality shouldn't have that effect, because it didn't have that effect historically. The difference between the top and the bottom can still be quite pronounced. If/When we achieve that we will still have some people complaining that they can't get their kids the latest $1k/ea toy fad, but that's an entirely different problem I'm willing to tolerate.
PG goes on to say that financiers aren't the problem he's talking about...but that is the problem that many others are talking about. PG's original essay seemed quite defensive, and this one does too. He's trying to convince others that he's right, but not noticing that he seems to be talking about the impact of an entirely different discussion.
"Decreasing poverty is not identical with decreasing economic inequality. Some measures for decreasing poverty could well increase economic inequality. For example, if you gave every child in America the same quality of education Bill Gates had, that would surely decrease poverty. [5] But you would then create a lot of new Bill Gateses as well. These kids wouldn't all stop short at middle class. The more ambitious ones would shoot right out the other side."
Poverty is bad. Institutionalized Income inequality is also bad, but neither of the authors are much addressing that problem.
That said, I'm pretty sure the Ezra Kleins of the world would much prefer to have those multiple Bill Gates. And in a world that had so many innovators, I doubt you'd have the wealth concentrations we tend to see, but that's certainly an arguable point.
Nonetheless, I feel PG's essay was defensive about points that aren't being generally attacked, and his response addresses the individual points without ever correcting his initial mistake.
That's the fixed pie fallacy [1], which is the biggest source of misapprehension in this whole debate.
In a healthy economy, entrepreneurs get rich when their customers get rich, in the form of an improved standard of living.
Apple, Microsoft, Google, Ford, Samsung, Southwest Airlines are all examples of companies that have become successful because they made the lives of ordinary (and in some cases, low-income) people vastly better through, respectively, affordable computers, software, knowledge, cars, phones/televisions and air travel.
In some cases, they enabled many more people to become financially richer too (eg, the many people who now make a very good living writing software).
And that's not to mention the flow on effects like medical discoveries made possible by the use of computers, and lower cost manufacturing parts and processes thanks to the automotive industry that benefit more niche industries.
In all these cases, the income captured by the entrepreneurs is a small fraction of the benefit they deliver to society.
This is not to say that there are no negative effects from the activities of these companies or the related income disparities (job losses, housing affordability, environmental harms, etc).
But this is the key point: attack the negative effects, not the generators of the innovations from which we all benefit.
[1] https://mises.org/library/why-larry-summers-doesn%E2%80%99t-...
I dislike egalitarianism but this is fundamentally not true, the whole point of economy is resource allocation and the more money you have the bigger the role you have in allocation - so "big players" like Bill Gates and Larry Page have a considerable impact on prices/availability of things to everyone else (even when considering economy isn't a zero sum game and new value is created to get rich).
It's plausible that a more egalitarian society would make basic things like housing more affordable say at the expense of R&D like developing new tech and medicine.
Poverty and income inequality are more strongly linked than a lot of people seem to accept. In most economies, when the average income goes up, you also get increases in living costs. Poverty is struggling to pay housing costs, medical costs, food costs, utility costs, and so on, and all of these depend to one extent or another on changes in income in the rest of the population. If your income goes up by 3% over a decade, but living costs go up by 10%, there's no use in saying 'a rising tide lifts all boats'.
I'm starting to think PG is intentionally missing the point. Comments similar to yours about the differences between inequality and excessive inequality have been the leading response to the last three articles he's written on the topic, yet he only addresses it in passing, if at all.
He also continues to make grand claims such as 'Eliminating great variations in wealth would mean eliminating startups.' without providing any form of supporting evidence.
There was a subtle dig at the end of this article that some may have missed...
"By definition perfect social mobility would seem unfair to anyone with a mistakenly high opinion of their abilities. Indeed, I suspect this phenomenon is already a factor in people's opinions about economic inequality even with the imperfect social mobility we have now."
To give an added perspective on the implied meaning...
https://twitter.com/paulg/status/672112234521231361
Putting both together, it appears that criticism from technically minded people who haven't struck it rich just comes from insecurity about their abilities, regardless of whether they're interested in being a millionaire or not. I suspect that's why he's not listening, because he's ignoring the views of 'losers' (his term, not mine).
I think the most disappointing thing for me about the first essay was the list of people who he thanked for pre-reading it -- were none of those people conversant enough with the discourse around income inequality that they couldn't spot the straw men, or were they just not willing to tell him to scrap it?
I mean, sometimes smart pundits go outside their wheelhouse and say clueless things. It happens to everyone eventually. (Heck, Tom Friedman has made a career out of it.) So the fact that he published this clued-out essay on income inequality didn't really perturb or disappoint me -- I was just like, "yeah he did that smart guy thing where he's stumbled into a conversation that he's not nearly as up on as he thinks he is and is going to tell us all How It Is."
But the fact that all of his pre-readers are equally clued-out is I think indicative of something larger and more disturbing about Silicon Valley groupthink.
Has Paul ever interacted with the Forbes Wealth team? My book research has overlapped their interests going back to the 1990s, and every time I've spoken with them, I've been impressed with how much work they put into trying to come up with the best possible approximations. Most of their numbers are pretty good -- and in some cases, their research trumps the public boasts that various rich people offer up on their own behalf.
If Paul had said Forbes's numbers were "imprecise," he could have made his point. But "nonsense" is a loaded word, and Paul has been around long enough to know that. If he wants to be taken seriously in this conversation, a better discernment/name-calling ratio would be nice.
My issue was mostly with PG's presentation style, where he offers up data, dismisses it in a footnote, and then says it will do anyway. It's a weird way to make an argument. On an intricate issue like this, I appreciate exposition that is steadily nuanced, rather than battling self-made contradictions.
That doesn't mean the Forbes team is doing poorly – the point is that it may not be possible to get better than "nonsense" as a result.
"But though the graph has the word "startups" on it, it is not a graph of the number of startups, but of all new businesses."
* http://www.merriam-webster.com/dictionary/start%E2%80%93up http://www.oxforddictionaries.com/us/definition/american_eng...
That's saying that if money weren't, well, money, it wouldn't matter much if some people had a lot of it and others didn't have any.
But money is money; that's why they call it money [1]. Wealth inequality directly translates into social immobility, because the first thing rich people do is try to make sure their children stay that way, and there's only so much room at the top. Wealth inequality directly translates into political inequality, because why not? If you get to meet the President what are you going to talk about, but the political issues that directly concern you or your business?
Strict equality is impossible, of course. Some degree of inequality may in fact be desirable. But immense inequality tears society apart.
[1] Paraphrased from Heist, 2001. http://www.imdb.com/title/tt0252503/quotes
I am a supporter of redistributing wealth at the top for expanded education opportunities, which is why I do believe making the connection between income inequality and poverty is important. I don't understand why as a people we've accepted paying out of pocket for an education. We used to expect that public education provided everything you required to achieve a middle class lifestyle.
Offer Bill Gates style education to a cross-section of the poorest kids in the country and I don't think you'll get much in the way of improvement.
Inequality is as much a result of fragmenting families and the dissolution of social capital as it is new startups. When 80% of kids don't have a dad in the home, live in chaotic places, and face other setbacks, it'll take more than a high-end pedagogy to set things right. Raise taxes and spend more on education if you'd like, but first lets take a minute to see where that actually works.
The issue of modern interest is rather one of economic mobility - how feasible is it for someone of lower income to increase their income. When we consider rent extraction by wealthy individuals or disparate allocation of resources by the government we're observing mechanisms that decrease the resources available to lower income individuals, thus inhibiting them from increasing their economic status.
No one would care about economic inequality in an economy with sufficient economic mobility to reach the upper echelons with plausible (though significant) effort - in fact, economic inequality of the degree that we observe would likely not be possible in such a society. Furthermore, I think philosophically if there's anything to be said for any of the American values most people would agree with the sentiment of the "American dream" - that if you work hard you can better your own condition and that of your families.
Additionally, through this perspective Silicon Valley has a clear advantage over Wall Street - skills versus pedigree, bootstrapping versus degrees. I won't belabor that point, as I don't think it's particularly important.
Basically for reasons both of interpretability and of causality I think it's more appropriate to consider our economic state through the lens of economic mobility rather than economic inequality.
1. Startups are companies that try to grow quickly into billion dollar businesses.
2. Founders have substantial equity in their startups.
3. Therefore founders get really rich when their startup succeeds.
4. More successful startups means more really rich people.
5. More really rich people means more inequality.
6. Therefore more startups means more inequality.
PG defines startups as companies that become large and make their founders rich. So yes, you then trivially get "more startups == more inequality". However, this loses sight of the fact that when the goal is to create a billion dollar company in a few years there is a huge incentive to game the system, and to produce all sorts of externalities.
Take AirBnB. They are effectively an unregulated hotel business. How can a bed and breakfast compete with an airbnb, when they have to face regulations and taxes? How do the neighbors like it when new people move in every couple of days and party all night long? Sacrifices have to made in the name of growth.
Another example is Uber or other sharing economy startups. Employees become independent contractors, who are always on the edge of being fired. Who have to pay for their own uniforms, cars and other equipment in order to do their jobs. It's pretty ruthless exploitation, but Uber is valued at $70 billion and it's super convenient for the customer, so we look the other way.
When it comes to software if you want to serve the most people you work with open protocols, you open source your software (so it can be inspected for quality and security), you make importing and exporting to competing products easy and fast and so on. If you want to make a billion dollar business you keep everything proprietary and you create a walled garden with tremendous lock in.
Just look at all the open source products that our startups are built on top of. Billions of dollars worth of free software. What do the contributors get? Nothing. (Not strictly true; they get angry bug reports, but you get my point). This is not the natural order of things, so we should question whether this is just.
There's a big difference between companies that provide a huge amount of value, and companies that can CAPTURE a huge amount of value. Startups have to be in the second category, and that has huge social implications worth thinking about. The founders necessarily play only a small role in the success of their business -- we all stand on the shoulders of giants after all -- so why should the founders be the ones who capture all the rewards?
If Uber drivers are being "exploited", why don't they quit? Because no one else would give them a better job, presumably. But that seems perverse to blame on Uber. All they're doing is giving drivers a better deal than they would otherwise get.
Suppose your father got cancer, and you decided to sell your grand piano to get some money for treatment. All the other buyers offer $1,000 for the piano, and then I come and offer $1,500. $1,500 isn't enough to pay for cancer treatment, of course, but it'd be crazy to say I was "exploiting" you - I'm giving you a better deal than anyone else would. The problem is the cancer, not the piano buyers, and certainly not me.
My impression is that driving a taxi is a useful side income for people, as they can fit it around other commitments. For example, if someone has a job as a waiter at a restaurant, but needs to make some extra money on the side to pay their rent/living expenses, then they could take a job with Uber to supplement their income.
However, a job that fills a financial necessity can still be exploitative. For example, when it comes to Uber, there's not much in the way of job security. Furthermore, whilst people could theoretically quit, a theoretical new job doesn't put food on the table.
So they have to work many hours just to get to the 0 point after which they start to earn money for themselves. If they quit they're stuck with the lease, which they cannot afford to pay and makes no sense for them to have with any other low paying job. So the lease serves as lock in -- bondage -- of the worker to Uber, even though they're technically not employees. I think being indebted to your employer in this way is barbaric.
Disclaimer: I heard this, haven't verified it myself.
[1] https://get.uber.com/cl/xchange/
[2] Lease cost. Taxes. Fuel. Insurance.
"Flexible leases from Xchange Leasing, LLC are 36 months with the flexibility to return the vehicle after 30 days with a two week notice and a $250 disposition fee."
The point of society is, or should be, to make sure that its people do not fall in a situation so dire that any deal is a better deal.
I've written up the argument you're attributing to PG here: https://sequiturs.com/arguments/therefore-more-startups-mean...
This is the argument I interpret you to be making in the second half of your comment: https://sequiturs.com/arguments/so-more-startups-has-also-br...
Most of the money the founders and early employees of a startup end up making would never be considered income (right?) and therefor not skew the Gini coefficient?
Anyway, seems like an error to me, if I am wrong, please help me understand what error I am making.
Oddly, this might be construed as an argument in favor of (or at least not against) more progressive tax rates: in the end, it's not going to stop people from getting rich.
This is a ridiculous thing to day. For one thing there is no public conversation about income inequality. The press is owned by corporations, whose majority ownership is billionaires. Even this forum is owned by Y Combinator, a corporation which owns shares of companies who have collectively raised billions of dollars.
I mean, elected political parties like Hezbollah in Lebanon have television channels like Al-Manar. When someone like Javed Iqbal in the US sets up receiver satellite cards so Americans can watch this channel - he was sent to prison for over six years. That's the "public conversation" in the USA.
There have been somewhat open channels of public discussion on the Internet like Usenet. Which is why the US government and last-mile monopolies got together to work to crush Usenet a few years ago, which for the most part worked in severely harming it.
Then it's also in the interest of the idle class heirs who expropriate surplus labor time from those of us who work to try to muddle the conversation. The idle class is who has been working to take the "focus" off "specific underlying components". It's farcical that the people working to confuse the issue then go on to complain how it seems so unfocused.
It's pretty simple - any created wealth is created through work. Heirs who do not work can then only live by expropriating surplus labor time from those of us who do work. It's as simple as that. It's been happening for 10,000 years, whether it's called slavery, or serfdom, or modern wage slavery. It's all the same thing. Among we who do all the work and create all the wealth has been awareness of the 1% parasites who feed off of our labor.
If the focus of the issue is confused, it's because the offending group wants it to be confused - the people who own the press, who jail the Javed Iqbal's who allow different views from elected parliamentary parties, who crush public forums like Usenet etc.
Iqbal was imprisoned because he entered into a business relationship with Hezbollah, a terrorist organization, not because of the content of the broadcast. From the New York Times:
"But Judge Richard M. Berman of United States District Court rejected that view last year, ruling that the prosecution was based not on the content of speech but on conduct — allegations that the men provided material support to a foreign terrorist group.
In court on Tuesday, Mr. Iqbal admitted that his company, HDTV Ltd., received money for providing television services to Al Manar — “the beacon” in Arabic — which the United States Treasury Department has designated a global terrorist entity." http://www.nytimes.com/2008/12/24/nyregion/24plea.html
Terrorist attacks by Hezbollah: https://en.wikipedia.org/wiki/Hezbollah#Alleged_suicide_and_...
Hezbollah is more than just a terrorist organisation...
http://www.irinnews.org/report/26242/lebanon-the-many-hands-...
"Hezbollah not only has armed and political wings – it also boasts an extensive social development programme. The group currently operates at least four hospitals, 12 clinics, 12 schools and two agricultural centres that provide farmers with technical assistance and training. It also has an environmental department and an extensive social assistance programme. Medical care is also cheaper than in most of the country’s private hospitals and free for Hezbollah members.
Most of these institutions are located in the country’s more marginalised areas, such as Beirut’s southern suburbs, in South Lebanon and in the Bekaa Valley. “We have special sections all over the country that provide financial and food assistance to the poor,” said Hezbollah spokesman Hussein Nabulsi. “We also run an emergency fund for instant care in case of immediate hospitalisation.”"
You quote from the Times but leave out the next sentence:
"Prosecutors have said Hezbollah operated Al Manar in Lebanon as a way to raise money and recruit volunteers for attacks."
So his "business relationship with Hezbollah" is Hezbollah makes money off its channel in some manner. Under that criteria, every television channel in the US, every magazine, every newspaper could be banned according to your reasoning, yet you can contort this in some theoretical way so that it has nothing to do with the content.
Startups provide the value of coming up with new quality of life options for society.
Given that financiers have stopped adding real value and instead have introduced new risks, I don't see the two groups as contributing the same way. Thousands of startups that try and fail are still more valuable to society than people creating artificial opportunities to make the rich richer and society to bail out failures.
Bringing in more refugees will increase inequality. Refugees are actually good for the economy. Therefore inequality is not strictly bad.
As Ezra said, only certain things are bad. He called out finance. We should focus on the root causes. Inequality is a too far removed at best and a red herring at worst.
I can't say the same about the financial system where banks were bailed out with public money or big companies "legal" tax evasion etc, this is the inequality people complain and Ezra was pointing out.