Economic Inequality (2016)
paulgraham.com
paulgraham.com
Problem with that attitude is that it's mostly circular and asserts its conclusion. Inequality does not matter because social well-being and so on is only a measure of absolute wealth, so the only thing left is to show that wealth is growing etc.
It's worthwhile to question the assumption which people like Robert Sapolsky have done.[1] One thing that he figured out is that even when one accounts for the worse material outcomes of inequality like worse healthcare access, there is an extremely large difference in outcome based on inequality itself. Gaps in social hierarchy matter and inform how people perceive their environment and their place in society. Compressing inequality itself may drastically increase social and individual well-being as inequality appears to induce significant stress in human populations.
The same is true for many studies about happiness. Happiness is indeed influenced by material wealth, but to a significantly smaller degree than one might imagine. Countries like Germany and Nigeria, for example, report similar levels of happiness even despite being magnitudes apart on some wealth and econ metrics.
the key point I want to make is that, even if one disagrees with some particular data points or conclusions, the effect of inequality must be studied at a biological/social / well-being level if one wants to make meaningful statements. Asserting that humans are Homines oeconomici and using it to justify inequality is a tautological exercise.
[1] https://www.scientificamerican.com/article/how-economic-ineq...
Of course this is a super simplistic way to see it. Both success and expectations have many contributing factors themselves.
In another post, you refer to this comment and say that it said that we should go back to being hunter-gatherers. That is even less there.
What part of the characterization "preferring a third-world standard of living as long as no one else has it better" is unfair?
To be charitable, I'm sure the parent would appreciate a high uniform standard of living even better. But he seems to find the situation I describe preferable to the current state of things, which is pretty wild.
> What part of the characterization "preferring a third-world standard of living as long as no one else has it better" is unfair?
All of it? Barrin92 explicitly notes "the worse material outcomes of inequality like worse healthcare access".
> But he seems to find the situation I describe preferable to the current state of things, which is pretty wild.
Not at all. That's you reading into what was said; Barrin92 said no such thing. What he said was that inequality, by itself, causes worse outcomes. He didn't say "therefore go back to hunter-gatherer societies". He didn't say "therefore go to third-world societies". He said that, even after you account for the negative effects of poverty, there are additional negative effects from inequality. No actions were proposed other than to stop assuming that inequality itself has no consequences. Everything beyond that is you reading into Barrin92's comment, and is on you, not him.
Other thinkers in the realm (albeit different expertise) are Gabor Mate and Stephen Porges.
I think there’s a natural inclination for any species to become hierarchical, but it’s a problem when those at the bottom of the hierarchy do not have their basic need of safety met.
Intellectually Honest merits here: - you want to incentivize people to create value for society and optimize globally by raising the quality of life of (most) humans. - Wealth creation itself is not by default at the cost of others.
Intellectually Dishonest: - That startups and wealth creation converge on a quality of life optimization function for humanity.
In other words: startups and wealth creation operate within the randomness of free market. And most software technology in the last 30 years has not unlocked some kind of massive step function value in global problems.
If we could align more Venture Capital funding and R&D output to solve fundamental problems (in other words: can we solve access to affordable nutritious food, reduction of common disease, reducing cost of housing ahead of 5-minute media formats or SaaS Invoicing Applications?)
Housing has continued to become less affordable and poverty still prevalent in the US.
- That there is a binary debate: "should there be wealth or not?"
Social Programs, funded by government, funded by taxes on higher earners and large capital gains, are one lever to address this.
The reason the inequality gap matters is less that its a metric of the _delta in absolute wealth_ but more that opportunity and livability of average Americans has a worse outlook in the last 20 years, not a better one.
Housing: It seems this is largely a policy issue rather than an economic one. Restrictive zoning and a misaligned incentive structure come to mind. Places like SF are the face of the housing shortage, but it’s a problem of supply and demand. To make affordable housing, you need a lot more housing. First, you have to satisfy the needs of all of the wealthy buyers, and this isn’t even clearly achieved. Even with subsidies, there isn’t a financial interest for developers to sell affordable housing. We need to build a ton of housing to meet demand. Policy is the inhibitor here.
Food: Food deserts exist entirely because of sprawl. The suburbanization of America means lowered density in certain Urban cores. (The Midwest and south especially) Lower density, particularly among lower income residents makes traditional grocery stores unviable. To sell produce you need sufficient traffic or else your stock will go bad. To make things worse, low income residents have less access to transportation. Thus, lower traffic. It’s not profitable to run a grocery store in the middle of urban sprawl, especially given the lack of access to transportation. Transportation is a matter of policy, again.
Healthcare: The problems here are directly correlated with housing and food, but extend to education. There is significant over—utilization of emergency services for non-critical medical services. I believe some universal access to healthcare should exist, but not if we don’t first address the inefficiencies that exist due to a lack of health education. Education is again, largely the fault of policy.
It’s not lost on me that wealth increases access to all of these things, but I don’t think we can blame venture capital and founders. These are deeply societal issues, given poor policy decisions in our history. They aren’t attractive investments because you cannot change them in a matter of a couple of years.
A higher tax on the wealthy would incentivize focusing on these issues, but it would also slow the pace of economic growth. It’s a matter of compromise.
Norway, Switzerland, Ireland, Luxembourg all have much higher per capita GDP and overall GDP growth YOY [1] versus the United States, yet these 4 countries have wildly higher overall tax rates. [2]
Germany, Australia, Denmark, Netherlands, and Iceland are all within 5% of the USA per capita GDP, yet, their taxation is also much higher than the average tax burden of the USA.
This is a wildly polarizing topic because of the sheer number of statistics available to everyone, and the amount of cherry picking everyone does to prove or argue their point. There are facts, and then there is misrepresentation of the facts. I'm not an expert but the raw data truly does not suggest a higher tax rate will lead to a slower pace of economic growth.
Where have I gone wrong in my analysis (if I have done so?)
[1] https://data.oecd.org/gdp/gross-domestic-product-gdp.htm
[2] https://www.oecd.org/tax/tax-policy/revenue-statistics-highl...
[3] https://www.epi.org/publication/ib364-corporate-tax-rates-an...
Edit:
I utilized the 2015-2018 data available from source [1], however, it can be backdated to 1960 but I didn't have the time to tinker around with it much.
Source [3] provides a somewhat reasonable analysis of US corporate tax rates and economic growth since 1947 but not a comparison to the OECD countries.
That said, I’m really curious of the causation of higher tax rates on economic growth. Like, if you want to still be just as rich, you have to work even harder.
Personally I think slightly higher taxes would be acceptable, but I don’t at all trust the economic efficiency of the federal government right now. We need food, transit, houses, healthcare and education... but I don’t think these would be spending priorities.
Capital gains are not only the result of "gambling". If you found a company and later sell it, that is a capital gain. The shares are virtually worthless when you start the company, and later become valuable when you sell it.
Do you consider founding a successful company that provides a useful product and employs many people doing nothing productive?
How many poor people have you seen working on a startup and reaching 10% bracket? How many of those startups failed? Should we really bend the rules to satisfy a cautious 2% outcome?
I don't think people here have much problem with "self made" millionaires. I think what they don't like is how not everyone gets the opportunity to try to become one or how billionaires are exceptions and compromising system based on exception for the rest of us is not a good idea.
Beside, tech is becoming like oil industry with cartels you need to satisfy before you even have a chance at competiting fairly. It happened to many industries before and they stopped progressing and stagnated. They have one or two big names now with nothing else.
What behavior are we encouraging? Founding companies? Why shouldn't we encourage that?
But the way things are setup, you can't easily do that.
I have thought of a few systems -
- Tax VC funding on non essential problems and use that to fund non-profit competing startups. The essential word here is problematic to agree on.
- Force people to sell some percentages of their shares every year and tax that on the same level as income.
- Press a soft limit on time to create taxable profit. It will be set by industries differently but at some point, if your revenue is huge and you aren't creating profit, you will start getting taxed on 20% of the total revenue or similar share.
- Tax hedge schemes. So if Mark Zuckerberg uses his wealth to create more social media companies, he should give up some share of the company to the government. He won't have to do that if he tries something else than a social media company.
Encouraging founding companies is important but when a few players hog all the opportunities to do that. That might become net negative.
Not only are people going to disagree what is essential, as you say, but many things that later become essential do not start out that way. Personal computers were expensive toys for hobbyists. Google was a research project by a couple of grad students. An online bookstore? Why would we need that? Just go buy a book at Borders. And so on.
Research is another matter entirely. I am only leaning towards taxing when someone has already thrown a product in the market for commercial interest.
If google is making profit or big enough revenue and taking VC funding to grow, then it will be taxed on the funds granted to create another non-profit search competitor.
That way, initial funding is not taxed but hacks to growth are.
That's not what I am saying. Growth hacks are not fair to the market and people. How is developing a situation where monopolies will be created better? It will be unfair to everyone that comes after.
Do you consider being lucky enough to be born into a wealthy family to be doing something productive?
If your problem is with inheritance, tax inheritance. Don't tax capital gains, which are only sometimes related to inheritance and also affect people who don't inherit anything.
You provide liquidity to the market. Your saving and pension are worthless without liquidity.
The exact opposite is true with under represented folks — their “take” needs to be 10x better than than the rich guy with a popular blog to be listened to.
He should write a post on influence inequality.
We don't need PG to point out the existence of wealth creation, nor do we need him to tell us about the dynamics of it, when we have multiple sciences with their own experts (economics, economic sociology, world political economy). It's also a dubious assumption to say that economic inequality only relates to wealth creation. Even if that was the only relation, writing about economic inequality and the actual fact of wealth creation are still not identical, they are only related.
PG is more qualified than most to talk about this, but he's certainly not the most qualified, and the study of the matters of inequality are tangential to his work at best.
But we do, because so much of the popular discourse around inequality assumes a zero-sum economy.
I will be happy to disqualify PG's opinion here if you will also disqualify all the economically illiterate populist takes on the other side.
I feel the opposite. What keeps many people from starting startups is financial risk (the prior probaility of success is quite low!). Increasing the safety net, even if it means decreasing the gains, might cause more people to take the risk.
> "For example, let's attack poverty, and if necessary damage wealth in the process."
How does this not contradict his earlier point about driven people no longer wanting to start startups if they can't get rich doing it?
> "One of the most important principles in Silicon Valley is that "you make what you measure."
I'm completely behind this statement. Attacking wealth inequality by, say, robbing the rich, is not the right approach. But I think he's mixing up what people mean when they say they don't like inequality and what they actually want to do about it. Nobody is claiming we all go back to being hunter/gatherers.
> "I think rising economic inequality is the inevitable fate of countries that don't choose something worse. "
This is a huge statement. I'm happy to see PG has iterated over every possible economic system under every possible level of technology and come to this axiom though; this will save the economists of 2532 a lot of effort they might have spent running this simulation :)
> "The acceleration of productivity we see in Silicon Valley has been happening for thousands of years... You do not want to design your society in a way that's incompatible with this curve"
What acceleration? Uber and Instagram are hardly quantum leaps from what we had > 10 years ago. The iPhone I have in my pocket today is functionally not all that different from the one 5 years ago. What's even worse is that it's questionable as to whether or not the things churning out of the valley are even good at all. No one is betting a curve: the curve is in his imagination. Change feels linear lately.
Also, where is the talk about externalities?
The top comment on this thread, which predates your comment by an hour, is saying essentially that. Doesn't matter what the absolute wealth level is, only that the variance is small.
The thesis of PG's article is that it's important to be precise about what we mean, because many are talking about the "robbing the rich" meaning, and the way it ought to be treated is really different.
I'd say the recent shift in terminology from poverty to inequality, and in measurement from "% below an objective threshold" to "ratio between quantiles," is happening explicitly to accommodate the meaning you're disclaiming here.
>Increasing the safety net, even if it means decreasing the gains, might cause more people to take the risk.
Sure, but the operative thing here is increasing the safety net, which you could do without substantially closing the gap between rich and poor. In fact a stronger safety net might lead to more entrepreneurship and thus more founders getting rich, making the inequality stats worse.
EDIT: clarity about top comment.
This is a pretty good article as Paul distinguishes the "good" (creating wealth) and "bad" (rent seeking) sources of economic inequality, and suggests addressing the bad and attacking poverty vs. simply punishing the rich.
Consider the current presidential candidates - Bernie and Warren seem to talk a lot about punishing the rich, while Andrew Yang emphasizes a more bottom-up approach of giving every American a dividend of $1,000/month. The former sounds more like a vindictive blanket punishment, the latter is directly eradicating poverty and helping people.
Given Paul's focus on the value and promotion of entrepreneurship, it would seem that Yang's $1,000/month would do more than any other policy being discussed to further that cause. I'd imagine way more people would start businesses and take greater risks in general if they knew worst case scenario they'd have $1,000/month to fall back on.
But yes, the government could procure services from providers on your behalf the same way it procures everything else, and that would greatly reduce dependence on employers.
dang once told me that a post's score tends to fluctuate up and down. The key, I've learned, is to not bother what people who have no counter-arument think about your opinion. A downvote is the equivalent of someone saying "nyeh" or flipping over the chessboard. Just move on.
Making it acceptable to downvote based merely on differences in opinion lowers the quality of discussion, promotes groupthink, and makes people not want to waste time putting any actual effort into writing comments.
I would go open a business today which has a fairly good chance of being successful (there is a huge demand) but I don't have money neither the connections to get it. I know kids from rich folks who do nothing all day and sleep on their phones, waste cash on microtrans online. I wish, I had folks like that. I could take risks to start different ventures, afford moving out and getting necessary medical treatment, going to a good school, attending events, hire a personal trainer for improving communication skills, posture, public speaking, learning different languages, etc. I can do some of them right now but it's learning on hard mode with increased worrying about everything else in life because you can't afford to lose. Years are lost on one loss while others with family capital gains or connections can afford to stand back up again immediately.
One thing is absurd is poor environment forces you to decide on poor life choices. So the claim that poverty and difficulty may make you stronger is dubious or based on survivorship/exception bias. Poor people don't know how to manage their finances, search for valid information, not to fall for scams or make long term plans because they have been trained not to.
I'm pretty sure you can get money from the bank. You just have to put together a business plan and convince some people that your idea is viable.
For more information Google,"How to start a business".
Happy winning!
Stated another way, your boss has power over you. Why? It could be because they earned a lot of money through their own labor, or it could be because they had access to capital that you do not. Uber loses money hand over fist, but Uber management has more power than their drivers. Why? Management has access to capital, and drivers do not.
There is a bigger problem with unlimited, pay-to-play democracy: corruption. This starts with candidates having to raise vast sums from wealthy donors and a continuing appearance of corruption keeping them happy over the needs of the many. That's a critical flaw, because, for example in the US, many judges, sheriffs, district attorneys (public prosecutors), city council members and state legislators all require raising campaign funds for their elections. It's ridiculous.
Here's where the Greeks are known to actually have had something different, but better in this specific regard: "jury duty" for public service.
A modern adaptation would work like this (simplified):
- everyone with taxed income or profits is assigned to specialties and/or leadership lotteries based on their field and expertise
- public jobs are randomly assigned based on expertise
- 1 year term limit
- fulfilling the term prevents one from being chose for X years (say 15 years, changed based on demand from jobs and supply of eligible)
- able to be removed for cause
- unlike jury duty, vaccines or "comfort animals," there would be fewer exceptions and deferments (new parent, elder caretaking, disability, etc.)
That is my experience. In contrast, I've felt that places like UK treat you like an untermensch if you have less money. And addressing PG's point, in the UK rich classes have lobbied to set laws in their favor. Pure rent seeking or as PG puts it here stealing. For example, they have architected the real estate market in such a way that if you are poor it's hard to climb the property ladder and you will be poised to give them a big chunk of your income.
How easy is it to immigrate into Scandinavia and become a citizen?
Depends on what you mean...Sweden actually has slightly higher wealth inequality than the USA, despite the much higher income inequality in the USA.
https://en.wikipedia.org/wiki/List_of_countries_by_wealth_eq...
When inequality becomes too extreme, a country becomes a third-world country with high corruption, low civic involvement and is often perched on the cliff of revolution. Brazil and the US come to mind.
Another problem is the word "democracy" doesn't have one meaning. The most wide-held view would seem to be: officials are elected and do the people's work. The US, as with many developed economies, has become a de-facto klepto-plutocracy masquerading a democracy (psephocracy, technically) because very little attention is given to the people's problems with most policies, money and effort going towards catering to and subsidizing the rich. Furthermore, "democracy" has a different meaning in diplo-speak, it means "whatever the prevailing hegemony wants" in that context. In addition, regular people often conflate democracy with many of elements anarchy, which also doesn't scale in the real world.
Democracy in Ancient Greece explicitly meant that only the wealthy city elites would be able to vote.
Housing is an example. If a bunch of founders make a pile of money, they can (and do) suddenly outbid everyone else (like say the school teachers and firemen) buy a bunch of land and build mega mansions that squeeze a lot of other people out.
The issue today is that the gains/rewards for certain ideas (at certain times) are disproportional to the actual utility to society.
An example of that is the contrast between Tim Berners-Lee's networth and Mark Zuckerberg's
> In the real world you can create wealth as well as taking it from others. A woodworker creates wealth. He makes a chair, and you willingly give him money in return for it. A high-frequency trader does not. He makes a dollar only when someone on the other end of a trade loses a dollar.
In a market economy, people and companies are rewarded if the market sees the given service or product worth the price. The woodworker didn't create wealth out of thin air, and he gains wealth by taking it from the people that buy his wares. Same goes for a high-frequency trader, even though she doesn't build anything with her hands, the process of trading is seen as valuable by the market and if done well rewarded accordingly. The only groups that can "create wealth" are national treasuries which can print money.
A simple example, would a tax on wealth above 100 million USD discourage startup founders? I don't think so.
The AMT was put together to hit the top ~150 people in the 1960s. Because of how the underlying system changed and it hasn't, the AMT now regularly hits people under $100k and is only likely to drift lower.
Congress has a bad track record here.
If we do, then more startups will get off the ground. Some of them will make it big, and their founders will get rich. Our action will have made society more unequal.
So clearly we should leave it, right? But that doesn't seem right. So maybe inequality is not exactly the right framing of what we care about.
We've had progressive taxes for a long time, and that's good, but they have not prevented inequality. So again, is it really the measure of goodness?
>If the rich people in a society got that way by taking wealth from the poor, then you have the degenerate case of economic inequality, where the cause of poverty is the same as the cause of wealth.
He could have saved himself the time it took him to write that article by just looking at the wiki page: https://en.wikipedia.org/wiki/Wealth_inequality_in_the_Unite...
In summary the bottom 50% of Americans have lost all their wealth since 1989 and then gone into debt to the tune of 25% of their former wealth.
So in short Paul, yes, we are in the degenerate case and a round of guillotining is in order.
- what people think the economic distribution is (extreme power law)
- what people think a fair economic distribution would be (somewhat somewhat smooth but increasing)
- what it actual is (absurd hockey-stick, power law)
"I'm sure most of those who want to decrease economic inequality want to do it mainly to help the poor, not to hurt the rich. Indeed, a good number are merely being sloppy by speaking of decreasing economic inequality when what they mean is decreasing poverty. But this is a situation where it would be good to be precise about what we want. Poverty and economic inequality are not identical."
Tax cuts, carried interest loophole, limited income tax tiers
We need to think about this issue from different scopes at the same time. The optimal solution is probably fragmented across a few of them, we just need to figure out how to put the pieces together.
> Which means by helping startup founders I've been helping to increase economic inequality. If economic inequality should be decreased, I shouldn't be helping founders.
No. Just...no. Founders should be starting companies that reduce inequality. By definition. The idea of a healthy marketplace for both startups and for regular people doing regular things implies a reduction in inequality. Not just a reduction in poverty, but a reduction in inequality. That is easiest done by lifting the poor out of poverty.
PG's take is to stop all progress because he is straw-man arguing against something that nobody is even taking the position on that he's arguing against. The logical fallacy count in the first few paragraphs alone make this piece difficult to read.
What happened? :(
Continuing to read...
> But some are good, like Larry Page and Sergey Brin starting the company you use to find things online.
No conversation at all about the pitfalls and issues that Google has also caused in the world? This is a carte blanche to Google that 100% of their work has been positive and it's not worthy to discuss anything they might have done that would hurt people in the world? Not everything about Google is "Good".
These takes are all so one-sided, close-minded, and wrong.
> The most naive version of which is the one based on the pie fallacy: that the rich get rich by taking money from the poor.
Wait. What. PG thinks that this is a fallacy? I'm going to have to stop reading to protect my sanity. The rich are definitely getting richer at the expense of the poor. The world did not start on some level playing field. The rich had privilege and status and help that the poor do not.
Every action that a rich person takes to enrich themselves rather than trying to level the playing field is by definition taking from the poor.
"Taking"? When a "poor" person chooses to buy an Android or an iPhone, did Google or Apple "take" his money from him? No, the person "chose" to give money to the company because she thought that it provides some utility for her. Alternatively, you can argue that designing a smartphone is leveling the playing field, which would make more sense.
What you seem to get wrong is that BOTH can occur at the same time - leveling the playing field AND enriching themselves.
Agreed, it's possible and these win-wins do happen. Yet there is also plenty of rent-seeking which does enrich the wealthy and often at the expense of those poorer than they.
J.K. Rowling was already a wealthy person before finishing her Harry Potter series. Each additional book further enriched her, but also enriched me because I got hours of enjoyment from reading another Harry Potter book which was a great trade for the ten USD or so I spent on it.
........<really?>
It is difficult to get a man to understand something, when his salary depends on his not understanding it.
- Upton Sinclair
Also, why is this flagged?
“The minimum wage should be the median wage”
I’m not sure if it should be a rule or a goal or be anything at all, but thought it’s a thought worth putting out there.
Edit: thinking in context of country, or province but also in context of company or group.
As a result, the majority of people will have equal wage.
In BC, Canada:
Minimum wage is: $13.85 CAD
Median wage is: $23.98 CAD
Minimum is going up to $15.20 in next 18 months.
It’s not that far...
Edit:
”in developed economies, the minimum wage ranges usually from 35 to 60 per cent of the median wage.“
https://www.ilo.org/global/topics/wages/minimum-wages/settin...
US is 35. France is 60.
BC clocks 57 right now. Will go to about 63 with minimum wage hikes.
So, yes, a higher ratio is worth thinking about....
My concern is it could lead to run away inflation unless there were controls to ensure the costs to rebalance things didn't just passed along to those at the bottom anyway.
P.S - After reading more into this idea I think that setting high ratio goal of Minimum-to-Median (75%???) might be a direction worth exploring... we have an excellent, proactive provincial government in BC, maybe I’ll go look for the suggestion box...