"When the math cleared from their analyses, the economists estimated that 14 percent of the increase in the share of income going to the top 1 percent of Americans between 1975 and 2012 "may be explained by an increase in innovation." The economists say those increases are temporary, they generate economic growth and they're associated with stronger upward mobility. Those are all good things. Point, Graham.
If you take that as a proxy for the Silicon Valley effect, though, you're left with a problem: 86 percent of the recent inequality increase can't be explained by innovation. You're also stuck with the fact that startup formation for tech companies has been falling for more than a decade even as inequality has been widening, and not rising, as Graham implies. Total venture capital funding remains well below late-1990s levels, even before you adjust for inflation, according to data from the National Venture Capital Association.
In light of all that, it's difficult to conclude that startups are mostly driving the income gap."
Furthermore:
"Other recent studies also suggest high levels of rent-seeking are driving inequality. Brian Bell and John Van Reenan, a pair of economists in Britain (which resembles the United States in many ways when it comes to inequality), reported in 2014 that increased bonuses for bankers accounted for two-thirds of the growth of top 1 percent incomes in Britain after 1999. There are all sorts of reasons to believe that premium financial sector pay is almost entirely rent-seeking; the British paper would suggest that at least two-thirds of inequality could be linked back to "bad" sources, in other words."
"But while there are a lot of people who get rich through rent-seeking of various forms, and a lot who get rich by playing games that though not crooked are zero-sum, there are also a significant number who get rich by creating wealth."
It's unclear what the WaPo writer is responding to when he says "it's difficult to conclude that startups are mostly driving the income gap."
The writer also has this odd paragraph: "If there is middle ground between Graham and this body of research, it's the idea that policymakers shouldn't go after inequality with blunt instruments, like big tax hikes just for the sake of soaking the rich. Perhaps, instead, they should target rent-seeking, which economists agree is bad for everyone who isn't a rent seeker."
This doesn't look like a middle ground; rather, it's what PG suggests: "if there are people getting rich by tricking consumers or lobbying the government for anti-competitive regulations or tax loopholes, then let's stop them. Not because it's causing economic inequality, but because it's stealing."
And: "startups aren't the problem, [the problem is] corrupt practices in finance, healthcare, and so on."
(But it's a long essay; please let me know if I've missed parts that support a different interpretation.)
For PG, the former (startups) is clearly a huge source of wealth, whereas the latter is just a proposition. In the quote you cited, he literally qualified the idea of corporations engaging in anti-competitive behaviour with "if", as if this is some unproven supposition. It's clear he thinks startups are the larger effect.
For the WaPo writer, rent-seeking is most of the inequality growth and startups are a small piece. But this writer has some data to backup his assertions, while PG doesn't. I understand where PG went wrong - he's a startup investor. He's surrounded himself with startups for the last decade. Intuitively, he overestimated their impact relative to, say, banker bonuses, something he doesn't encounter regularly. That's natural.
I don't think that's the right interpretation of that phrase. PG has been complaining about rent-seeking corruption for over a decade:
"[Buildings are ugly because of] the notoriously corrupt relationship between the government and construction companies." - http://www.paulgraham.com/usa.html, 2004
"[Corruption includes] construction firms that fund politicians' campaigns in return for government contracts, or rich parents who get their children into good colleges by sending them to expensive schools designed for that purpose." - http://paulgraham.com/inequality.html, 2005
"There are a lot of people who get rich through rent-seeking of various forms, and a lot who get rich by playing games that though not crooked are zero-sum...[There are] corrupt practices in finance, healthcare, and so on. Once again, that is exactly my point. The problem is not economic inequality, but those specific abuses." - http://paulgraham.com/ineqold.html, 2016
I think ghufran_syed's interpretation, using 'if' in the logical sense, is correct. (I think it was a poor way of expressing it.)
> It's clear he thinks startups are the larger effect.
I think he had plenty of opportunities to say that startups were the larger effect, and he didn't say that. This sentence would have looked different if he'd meant that: "But while there are a lot of people who get rich through rent-seeking of various forms, and a lot who get rich by playing games that though not crooked are zero-sum, there are also a significant number who get rich by creating wealth."
If startups were the larger effect, the natural way to end that sentence would have been "most get rich by creating wealth." His version was longer and wordier.
For what it's worth, I didn't get the impression that he thought startups were the larger effect, which is why the WaPo article sent me searching for something I might have missed.
The rest of your comment I agree with.
Also note that the paper warns that 17% is an underestimate: "Our results are likely to understate the true impact of innovation on top income inequality at the national level for at least two reasons. First, if successful, an innovator from a relatively poor state, is likely to move to a richer state, and therefore not contribute to the top 1% share of her own state. Second, an innovating firm may have some of its owners and top employees located in a state different from that of inventors, in which case the effect of innovativeness on top income inequality will not be fully internalized by the state where the patent is registered. Nevertheless, overall we find a sizeable effect of innovativeness on top income inequality."
Are you arguing that it's ok to apply blunt instruments that will hurt those 14% as much as the rest, since they are not enough to care about?
The solution is a scalpel, not a pick-axe. That is one of the possible resolutions stated in the article, which is one that I think is worthy.
Normally I don't bother to comment when news writers leave out links to their sources, but the study in question[0] provides an estimate of 17%, not 14%.
> If you take that as a proxy for the Silicon Valley effect, though, you're left with a problem: 86 percent of the recent inequality increase can't be explained by innovation.
This conclusion is a good example of excessive journalistic license, as it is unfounded and almost certainly false. First of all, the 86% or 83% or whatever remainder is not mentioned in the study at all. Second, the 17% represents the percent of income gap widening their model predicts based on one measure of innovation, as is plainly stated. For anyone interested in a much better summary, the study includes some tables (I think the 14%/17% result is on page 44).
[0]http://scholar.harvard.edu/aghion/publications/innovation-an...
>Paul Graham, a venture capitalist and one of the founders of the startup incubator Y Combinator, would have you believe this rising inequality is a good thing. Or, at very worst, the inevitable consequence of a good thing.
Times like this makes me think that different parties write the article titles than those who write the articles.
If only there were some of law that prevented the ultra-rich from buying the political process...
The sad fact is, even when there is a law (like we had before in the US), extreme wealth usually finds a way to eliminate it. And then it's off to the races as a feedback loop is entered. In principle, capitalism is a fairly effective instrument for reducing inequality until the political process is corrupted, and then the advantages of capitalism no longer benefit non-wealthy people due to regulatory capture, socialized risk, etc.
That is, some people would prefer to be one of the wealthiest persons in a poor country over having double that money in absolute terms, but being relatively poorer to their peers in a rich country.
So it depends on the person.
This is exactly what PG was talking about. You're talking about corruption - not inequality.
If people like that can't get political power honestly, then they'll find a way to buy it, and reap the benefits of their political power in government concessions paid by the taxpayers. Then they and their ilk will buy more political power. And then the systems enters a feedback loop, which is where we are now in the US.
Edit: I should add that I don't think that extreme wealth is the natural conclusion of capitalism. In a limited government system, combined with the natural dispersion of wealth that comes from passing money down generations, I think that competition serves to keep the top 0.01% within a reasonable multiplier of the average. Unfortunately, big government combined with big business is the worst of all possible worlds, and serves to increase and perpetuate inequality (a deeply-held belief I find difficult to properly convey to my Democrat friends).
If you have a bunch of the super-rich, and everyone else just at some happy medium, then you'll eventually output a mad god-king - in charge of some ridiculous multiple of the power that the majority of the planet can bring to bear - whose favourite sports are gassing countries where people's skin is the wrong colour and fucking the peasants to death on a Thursday.
Just own it. There is nothing wrong with being envious despite attempts to shame people for it.
And bear in mind that no problems are ever solved if you refuse to acknowledge what they really are.
You use the phrase "fair share of someone else's property". I am not talking about getting a share from someone else's property. I am talking about the elite deciding they should get a larger share of the gains the economy produces.
When people in a company complain that their CEO makes more and more money while their salaries are cut it's not envy but it's a basic question of fairness. Nobody wants to take away from the CEO. They just want to have a fair share of the earnings of the company.
In an actual democracy (without fraud / corruption), this should be your least concern since "the rest of the population" would be the ones deciding (voting)
ETA: money and politics are not separable.
Double edit: oh god damnit no I wasn't even talking about politics was I. Inequality allows the people on top to distort markets.
Having less in the US means you have a hard time paying your bills, etc.
Having less in a third world country means you're dying because you're literally crapping your insides out because there's no drinkable water.
Eliminating poverty (especially extreme) poverty seems worthwhile . Making sure everyone has the same amount of stuff doesn't seem quite as important
Yes, there are a lot of programs to provide help in the US but many of them are far enough away that you'd need a car and if you don't have a car you are out of luck.
I'd argue though that in North America, outright starvation isn't as much of a problem as just having difficulty accessing healthy food. The last stats that I read argue that about 15 million kids in the US experience hunger. They may not be starving, but they will have more trouble learning without adequate adequate nutrition.
That said, that has a LOT to do with our guidelines via the FDA and draws down from that moreso than inequality.