Powerful Thoughts From Paul Graham | Hacker News Reader

Powerful Thoughts From Paul Graham

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110 pointslispython88 comments

> But I have no trouble imagining that one person could be 100 times as productive as another.

This is a smokescreen. I believe it too, that one person could be 100 times as productive as one other. But what the salaries are saying is that one CEO is more productive than all those 100 people below him put together. I think 100x productivity is more standard deviations than that seems to represent.

Everyone, just admit that the CEO's are paid for having contacts in the right places. They aren't outperforming 100 engineers all day every day or even most days. The notion that salaries are some measurement of productivity is complete hokum.

Nor do I buy 54, the idea that rich people create more wealth for society from by-products, like Henry Ford gifting us with the automobile. I don't think it's correlated.

Yes we have some by-products that improve our lives, but we also have Wal-Marts lowering the quality of products nationwide and RIAA lowering the quality of free speech nationwide. So it's not as if rich people lead directly to benefits for society and they could just as easily push the other way.

Being wealthy isn't like being some video game paladin, it's just another form of concentrated power.

> I believe it too, that one person could be 100 times as productive as one other. But what the salaries are saying is that one CEO is more productive than all those 100 people below him put together.

We're not interested in the case where one person is 100x more productive than another because the second person is watching youtube. If the CEO is 100x more productive than the average person working for her, then she is, in fact, more productive than 100 of the people working under her put together. That's exactly what that statement means.

And, anyway, whether or not the CEO is 100x more productive, her output is worth 100x more. How do we know? Because that's what she's being paid.

Is she being paid for her contacts? It doesn't matter, so long as she's steering the company in the right direction. You're implying that "having contacts in the right places" is corruption, but it's not; knowing what to build and who to sell it to is a big part of running a company. CEO's don't spend their time conniving in smoke-filled rooms, they spend it trying to push their company forward.

Rich people don't get that way without providing something people want. Wal-Mart may or may not be lowering the quality of products nationwide, but what they're demonstrably doing is providing goods to people at great prices that let them generate a lot of profit. That's something people want, whether or not you agree with them. The RIAA, on the other hand, is a symptom of the power of the music industry - and the way the music industry got to have so much power, and so much money, is by providing music that people wanted to listen to enough that they paid for it.

> And, anyway, whether or not the CEO is 100x more productive, her output is worth 100x more. How do we know? Because that's what she's being paid.

He's only 100x more if you measure productivity entirely in money.

I'm not implying corruption, I'm saying it's separate from productivity.

Read what you quoted. Karazamov didn't say that the hypothetical CEO is 100x more productive, he said that he/she is worth 100x more.

"And, anyway, whether or not the CEO is 100x more productive, her output is worth 100x more. How do we know? Because that's what she's being paid."

Oh, the babe! Oh, the pure, innocent child!

When did HN turn into Reddit?

"Rich people don't get that way without providing something people want."

Well, to be precise, some ancestor of the rich person at one time provided something (some) people wanted. Not all rich people are "self made", even if you accept that silly phrase at face value.

For that matter, what about successful criminals? There have definitely been people who got rich through fraud, or extortion.

Alternative hypothesis: http://en.wikipedia.org/wiki/Tournament_theory

Do you have a definition of "more productive" that doesn't boil down to "gets paid more?"

I think the way to think about them is not so much as the CEOs actually producing anything, but being more of a productivity multiplier rather than adding to productivity linearly (an engineer). In this way, they can increase productivity by the equivalent of 100 engineers, without directly being as "productive" as 100 engineers.

> Rich people don't get that way without providing something people want.

Thanks for the laugh. So what did the six Walmart billionaire heirs provide?

Nothing, obviously, but most people who are rich in the U.S. did not inherit their wealth.

That may be true in the past, but according to study, who your parents are matters more in US than in most other developed countries.

http://en.wikipedia.org/wiki/Social_mobility

Factors that improve social mobility are not the same thing as inheriting an immense wealth. Bill Gates benefited tremendously from the good financial position of his parents, but his immense wealth came from his own work starting and building Microsoft.

They provided their parents with some happiness and peace of mind. Maybe.

>And, anyway, whether or not the CEO is 100x more productive, her output is worth 100x more. How do we know? Because that's what she's >being paid.

This may be true in the perfectly free market you encountered in your Microecon 101 textbook, but like the perfectly frictionless spheres from freshman physics, that is not an assumption that can be applied to the real world.

On the other hand, look at the history of Apple. It had multiple CEOs, and was nearly bankrupt until Jobs took it over, and built it into the biggest company (by market cap) in the world.

This was clearly due to Jobs' decisions, which were enormously productive in that they produced hundreds of billions of dollars worth of wealth.

Indeed, a company of talented people working on the wrong things is worthless. So too is a company of talented people working on the right things but in ways that undermine their chances of success. CEOs (sometimes) have the power to make decisions that determine whether the company they lead is able to be successful.

A CEO isn't a CEO if he doesn't have the decision making authority. CEOs get paid well because their decisions make or break the company.

It is clear? It is a compelling story, but people also see dozens of compelling stories out of sports every year where it is much more obvious that a lot of the variation is chance.

This is not to say Jobs was a bad CEO or it was pure luck, but to say Apple's turn around was mostly due to Jobs' decision making seems not that clear to me.

Steve Jobs was an outlier. It's not useful to use him as an example if you are talking about CEOs in a general sense.

Some CEOs might be worth x100 the average salary. A small few are exceptional, many are middle of the road, and some probably drag the company backwards (e.g. Ballmer at Microsoft).

But Steve Jobs' salary was $1, the lowest at Apple.

This is far from the full picture. He got a generous stock options deal and a corporate jet.

He absolutely deserved those for his achievements, but the $1 salary was a brilliant piece of "optics" that would fit nicely into headlines. According to the link below, this was equivalent to almost $40m per year in benefits.

Of course, no one remembers the mouthy paragraph above, and the "$1 salary" thing get remembered.

http://www.quora.com/Steve-Jobs-2011-biography/Was-Steve-Job...

A bad CEO can do a huge amount of harm to a company, even if it has excellent workers. So perhaps the value of a CEO is more in that they put the right people in the right positions and don't hold them back.

So in a sense to get a measure of the "value" of a good CEO you would need to not measure them against a bad CEO but perhaps against a company without a CEO at all where smart people self-organise.

You aren't paid according to your productivity. I don't know who came up with that idea.

You're paid according to how difficult you are to replace.

Nor do I buy 54, the idea that rich people create more wealth for society from by-products, like Henry Ford gifting us with the automobile. I don't think it's correlated.

Why not?

As I wrote, I think rich people are a form of concentration of power, and this could be used to create factories that make products that increase our standard of living or it could also easily be used to, e.g., lobby congress to create stricter laws to fund for-profit prisons. So the Henry Ford types can happen, but it's not guaranteed that they will IMO.

EDIT: To be clear; I mean "fund for-profit prisons with prisoners."

The question was, "Why do you believe a society can prosper without allowing people to become rich?"

I didn't claim that, so that's an irrelevant question. I claimed that prosperity is not a foregone conclusion after having rich people. That is trivially provable by observing certain countries.

Nor do I buy 54, the idea that rich people create more wealth for society from by-products, like Henry Ford gifting us with the automobile. I don't think it's correlated.

You said, "Wealth for society isn't correlated with rich people." If that were true, then it should be possible to have a wealthy country without letting people become rich. It's not.

Maybe we're talking past each other. You're saying you don't like powerful rich people. I'm saying you have to let people become rich, or your country will be poor. Maybe the countries you're thinking of have rich people, but don't let people become rich except through inheritance. That would result in a poor country.

(Incidentally, PG's essay explores that point, too, which is why it's a bad idea to tear apart his essays into a gigantic numbered list.)

I didn't say I don't like rich people. You are being intellectually dishonest now.

Strawmen must die!

The interesting question is whether there is a correlation between _how_ rich you can get in a country, compared to it's GDP / PPP.

I don't think you'll find a simple correlation if you compare those. Excluding countries that are rich in natural resources, there are some countries with very high GDP/PPP that have a comparatively high income equality / low CEO pay (Sweden / Denmark).

If that were true, then it should be possible to have a wealthy country without letting people become rich. It's not.

Yeah, 'cause every beggar or migrant worker (that make up most of the population) in the petro-sheikhdoms, is secretly a millionaire.

> Everyone, just admit that the CEO's are paid for having contacts in the right places.

I haven't been able to fully shake the idea that our modern notions of wealth, money and currency are built on a type of social proof pyramid. But I can't quite articulate why. What do you think?

This sounds like an interesting viewpoint. Could you elaborate on the properties of this pyramid?

For example, I want to connote that acqui-hires rather than buying traditional economic value, symbolize an acquisition and alignment of social proof.

One of the best life lessons is that labor is a market just like any other, and prices are set based on supply and demand. Whether a CEO creates more value than 100 engineers under him is neither here nor there.[1]

[1] Which is a fact that cuts both ways. It means that CEOs aren't "overpaid" just because they aren't more productive relative to their salary, but it also means that it's non-sensical to use income as a proxy for anything else as is often done.

Yes, exactly. That's why claiming the salary has anything to do with productivity is absurd. It's a combined measurement of how badly the company wants your skillset and how well you can negotiate.

Well, sometimes it's because your friends are on the board of directors, and they are doing you a favor (with someone else's money) in the hopes that you will return the favor to them when the time comes.

Or sometimes the CEO stacks the board with his buddies, so he almost certainly won't be fired and any votes on pay increases will sail through.

And don't forget including your culture's belief of how steep the power law curve of rewards is supposed to be.

The CEO-pay market isn't the same as a generic market though. The influence of the principal-agent problem is obvious, where 'management' is motivated to increase its own remuneration over time, and rarely drop it. (Yes, external directors are involved in remuneration but they're still not as motivated as the investors to keep costs in check.)

If only stock investors set the demand for management against the available supply and management was not involved (and at times, the price was allowed to drop significantly), it'd be more like a normal market.

http://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem

One of the best life lessons is that labor is a market just like any other, and prices are set based on supply and demand.

Unfortunately, the labour market is a particularly illiquid and inefficient one, where things like actual value generated or risks taken tend to correlate poorly with compensation.

That is, prices in the labour market are set based on supply, demand, and huge distortions mostly caused by inability to judge value accurately and/or conflicts of interest.

CEOs of public companies are in the business of extracting wealth from that company. The ruling caste of equity lords all work towards this goal together by creating closed network systems of board members and executives; an executive Dave in Company A will get paid by board member Steve while Dave in turn sits on the board for Company B and assures payment for Steve who is an executive there. The selection process for an executive position is based on who is next in line in the network. I don't see any market forces at work here.

Considering the web of contacts and interrelationships between CEOs of companies and board members responsible for hiring and determining the pay of those CEOs, I highly, highly doubt that the market for CEO labor is anything approaching a free, efficient market that would arrive at an ideal price.

The range of potential CEO productivity effect is much greater than that of most employees and I suspect is a multiplier effect on the whole company rather than a simple addition. The worst case is a negative effect on a scale that bankrupts the company. On the positive side if a great CEO gets 1% more productivity out of their staff than a good one that difference in a company employing thousands is worth paying upto 1% of the total salary budget for a great rather than good CEO (if that is what they cost in the market and you can identify them).

There are big issues about how you identify great CEO's but there are real reasons to pay massively for the best.

The other factor is that people (CEO's, traders, salesmen) who can directly point to profit/income that they are responsible for can more easily show their value and in many cases claim a portion of that rather than a wage based on more normal market competition.

I don't even think CEOs are paid for their contacts. If you look at the number of CEOs who jump to unrelated industries, it's doubtful many of their contacts carry along. Also if contacts were so paramount, sales people would have an almost insuperable advantage - it is their job to fatten their rolodex everyday; whereas people from other departments can and often do become CEO.

I've been reading a lot of Thorstein Veblen lately, who is very thought provoking; and I think what he would say (not that I completely agree, but it's an interesting viewpoint) is that CEOs are paid to be the right social class. The board of directors prefer to rub shoulders with someone they can easily relate to; a person who, say, plays a decent game of golf and can casually discuss the market for mansions as well as the features of the latest model Porsche. (Let's be serious, all else being equal we all prefer interacting with someone who shares our interests.) So they are willing to sacrifice 0.1% of the company's bottom line in return for smoother interaction with the person who will, in effect, be their main point of contact. People who already earn a lot of money (and would, of course, not switch for a decreased salary) thus have a big advantage when interviewing for the chief position. In fact, if nobody in the company is already living a sufficiently wealthy lifestyle, this model would suggest it's more likely for an outsider to be brought in (upon, say, acquisition).

>Wal-Marts lowering the quality of products nationwide and RIAA lowering the quality of free speech nationwide.

I am at a loss to understand how you can equate a company that is successful by helping poor families lower their cost of living with an industry group that uses the power of government to stifle competition and maintain an artificial, obsolete business model.

"Why Nerds are Unpopular" was always my least favorite of the pg essays. The thought "Nerds serve two masters. They want to be popular, certainly, but they want even more to be smart" is arrogant. I don't think nerdiness implicitly makes the things you do more important or smarter. Being bullied in school is undeniably wrong and hurtful, but claiming it's evidence of your intelligence or that you're above social "games" is silly. Even nerds bully, and seek some form of status the essay claims nerds aren't.

And is it really true? It's certainly possible to be well liked and smart, and I don't think intelligence implies that you lack social skills. It's more true that certain levles of nerdiness causes a lack of social skills.

Weren't a nerd in school, then, were you?

Some of the most popular people I knew in high school went on to full rides at Stanford, Harvard, UNC, and the like.

Being a "nerd" means what? Because it has no correlation to intelligence, and is purely a social label, generally self-inflected/self-assumed.

Edit: public high school

Going to Stanford or Harvard certainly doesn't make you a "nerd". Quite the opposite in fact.

Hahaha, what?

That was my point. =))

>Being a "nerd" means what?

The definition that I like is a nerd is someone who is good at something but lacks social skills. This is in contrast to a geek (excels at something and has social skills), a dork (doesn't excel and has no social skills) and a normie (doesn't excel but has social skills.)

What does this mean?

I programmed and played video games in high school. I prioritized academics over everything. I sometimes ruined the curve (in some classes because I was actually gifted, in some classes in spite of the fact that I was terrible).

I drank on weekends. I played -- and enjoyed playing -- sports. I hung out with kids who wore football uniforms, with kids who had disgustingly massive gauges, with kids who wore fedoras.

Am I a nerd? I thought so. Other people thought so.

You were clearly a child prodigy. Good at academics and social life.

Sometimes I think I am the only nerd who never had a traumatic high school experience. Sure, I never got along with the jocks, but I never really wanted to either. I was perfectly happy hanging out with my nerd friends.

I think this misses the central idea in the essay - it's not that nerds are arrogant for thinking they are above social games (they're not), but that nerds are "nerds" because they prioritize the pursuit of knowledge over the pursuit of popularity (in broad strokes).

In fact, nerds would very much like to play the social game and be at the top of the ladder, but at the stage in life being discussed (high school), nerds don't have the kinds of life experiences or knowledge to play the game well, precisely because they spend most of their time tinkering/hacking/learning about other things.

I think there's another part of the equation as well. The market(HS Students) is valuing its peers by what type of value they can provide each other TODAY. It's NOT DISCOUNTING each other for future value, because the students don’t know what will be valuable in the future (ie more resources), or don’t care(they’ll never see each other or too short termed thinking).

It makes sense that football players or cheerleaders would have more perceived value since they can unite the school at events. If theres a football game friday night and the team wins, the student body immediately benefits. Jocks are also more likely to be physically fit which signals a strong potential mate to females. Although being physically fit seems like it is the number 1 indicator for providing resources, we find intelligence takes the cake later in life.

As PG stipulates, nerds focus more attention on being smart because they enjoy it more or look to reap the future returns (more opportunities, more resources). Either way, nerds focus more value on being smart. Nerds are not above social games though. As they tend to become extremely valuable for the short and long term, you see the ones that want to get ahead ‘play the game’. Look no further than Silicon Valley for proof.

But most nerds want to be smart as a proxy/substitute for being popular. This isn't necessarily bad, as reallocating "popularity" based on "intelligence" rather than "secondary sexual characteristics" seems like a beneficial thing for society. But they are not monks, squirreled away reading books. They compete, they associate, they judge others who would be the "smartest." It's the same game, different arena.

I discovered PG's essays by depressedly googling 'why' when I was depressed because I didn't fit in sometime early in high school. "Why Nerds are Unpopular" was the second result.

> Sed Itious • 8 hours ago − > Let's remember that what Graham preaches as Axioms are his > political and social truths, as much as he'd love to claim > them as Truths.

> For example, (38) is a point based on an assumption that History is the history of the 20th century. There were extremely powerful and long lived countries with despicable civil rights. Currently China's getting more and more powerful and is hardly a beacon of civil rights.

> (31) is a point most used to excuse the abuse of minorities, for example through racism. It's inconvenient to not have the usual privilege to mistreat those with less power and money than you, truly an unacceptable burden created to limit those free, rich, privileged spirits like Graham. How dare society, the government (fill in the anti-genius malevolent force of your choice).

> As for Graham's idol Jefferson, and quoting that slave holder regarding rights and limited government, can we remember that Jefferson's ideological followers fought a abattoir of a civil war to uphold their concept of civil rights as property rights above the rights of others (that is slavery). The libertarianism Graham finds so attractive will sell the civil rights of a poorer person at the alter of the property rights of those with more economic power.

> What I'd like to understand is why tedious ex-nerds like Graham feel an irresistible urge to proselytize Ayn Randian blather. If he's at peace with his success, what is up with the insufferable sanctimoniousness? Feels like a giant dose of bubbling narcissism.

Best comment from the article, saved for posterity here.

The criticism of #38 is misplaced. Historically, powerful and rich nations were ones with progressive (for its time) civil policies. Greeks were powerful, until corruption set in. When Rome was a Republic, it was powerful. When any one individual tried to become the emperor, it begun its slow decay. It's not something that occurs over night. What PG is saying that, all else being equal, the richer nation will be more prosperous. There are going to be unaccountable natural advantage a particular region will have (Middle East), that no matter how corrupt, it will be prosperous so long as it has what the rest of the world wants.

Currently, China is getting more and more powerful, and at the same time the government is implementing and exploring more liberal policies towards civil rights. This is pretty telling.

The criticism of #31 doesn't make sense. How does PG's statement (or thought process) excuse racism? I'll copy and paste PG's statement here:

    I suspect the biggest source of moral taboos will turn out to be power struggles in which one side barely has the upper hand. That’s where you’ll find a group powerful enough to enforce taboos, but weak enough to need them.

First, it's really important that you recognize "Greeks" means many different city-states with completely different cultures.

Nations didn't exist until a couple hundred years ago.

Rome did not begin its decline with Julius Caesar.

What do you mean by "progressive (for its time) civil policies?" You seem to be following a linear model of history, and that's fine, but what exactly is progressive?

Was Sparta progressive?

I think this is wrong:

>53. If I had a choice of living in a society where I was materially much better off than I am now, but was among the poorest, or in one where I was the richest, but much worse off than I am now, I’d take the first option. | It’s absolute poverty you want to avoid, not relative poverty.

This is one of these situations where the first (pg's) choice is rationally better, but has also been shown to result in higher chances of low self-esteem and depression. It's very hard to shake off the feeling of being "among the lowest", even though in absolute terms you're perfectly well-off.

It's not not necessarily irrational, it just seems that way because the hypothetical is artificially simplified. In the real world, relative wealth imbalances lead to power imbalances, which have global ramifications.

This is the heart of the current American malaise. Americans don't feel wronged because their standard of living is so terrible (it's not). They feel wronged because they feel that the rich have leveraged their wealth in a way that captures a disproportionate share of new wealth creation--wealth their labor is ultimately responsible for creating.

While humans may, in general, side with you, I think it is sad that a favorable comparison with others could make one more happy than a healthy and poverty free life.

The point pg is trying to make is that seeking relative material wealth with respect to others is akin to seeking pure status/power without having to do the work required to get it. It is all too easy to move to Costa Rica or wherever and live like a king for $10 a day.

Costa Rica isn't so cheap anymore, BTW.

How did this blogspam get upvoted? If we want to discuss vintage pg essays we can, but breaking a series of essays into a few dozen bullet points while stripping out the reasoning in between does violence to them. If you're only capable of thinking in bullet points, please do the rest of us a favor and don't inflict your mental disability on the rest of us.

Sorry, lost me at this -

> Nerds [...] want to be popular, certainly, but they want even more to be smart.

I don't know a single nerd who wants to be smart. You certainly get a huge kick out of learning new things, but becoming smarter is not a goal.

It is a goal, in some fashion. I don't think geeks are after the smart badge per-se, but most are after proficiency at whatever they create and that is another definition of smart.

> You certainly get a huge kick out of learning new things, but becoming smarter is not a goal.

I think it's clear that you're using a different definition of smart than pg, because the way he uses it that quote is a nothing more than a contradiction.

Wonderful list, I agree with a lot of things, but

"And as for the schools, they were just holding pins within this fake school. Officially the purpose of schools is to teach kids. In fact their primary purpose is to keep kids locked up in one place for a big chunk of the day so adults can get things done."

I don't think this is true, this assumes that if an adult were not working he\she would devote time to their kids (and hence learning would be better). I think (from personal experience) school is a place where a lot can be learnt, and that system is important.

Another one "Good Bad Attitude – Like Americans, hackers win by breaking rules."

This only works when a very strong framework of rules exist that most people abide by, so when a hacker breaks few of those, being a minority, the system persists, or changes gradually. However if you look at a system like China or India, everybody is a hacker (in the sense everyone tries to find the shortest way to do something) and that leads to broken systems overall.

You may be arguing China and India in reverse. Everybody is a hacker there because even those in charge of the systems (e.g. police) are hacking so it becomes a matter of survival.

Cached: http://webcache.googleusercontent.com/search?q=cache:p2hVKwh...

> most people who “can draw” like drawing, and have spent many hours doing it

While I agree with this, it seems that there is a stage where drawing could be part of you easier. Just like someone can learn how to play guitar more easily when they're young vs when they're over 20.

Having said that, I also find that it is much easier to learn how to draw now than ever before. YouTube made it so much easier for people to share skills. So I could learn a certain technique with a certain tool much easier these days than in the 90's.

Is the image supposed to look like The Last Supper?

I think it is. Those are the disciples of PG.

I'm not sure if I find the image a little scary...

Why would listen to these silly points, he doesn't produce anything himself. He is no nerd and has no business judging other nerds.

He's an investor who's gotten lucky and been around smart people.

He's nothing special and I would never take any of his points seriously.

I've had a few exchanges w/ him via email and he just quotes silly sayings and has no real substance in him.

At the end of the day PG is a smart dude and a wealthy dude, but he's not a philosopher or great thinker on social interaction. His essays barely rise above the level of Rush lyrics and angst-y teenage poetry. Use him for inspiration but don't take his BS too seriously.

Any solutions to the problem of schools in sight? I dread the day when I'll have to send my kid off to school. Obviously I'll look at different schools, but I doubt that I'll find many interesting ones. I don't want to waste years of my kids life.

Try reading "The One World Schoolhouse" by Salman Khan.

Paul Graham is a very insightful man, except on matters of salary, compensation, and individual productivity. In this respect he seems blinded by his own success and probably infected with at least some small part of the greed sickness.

I liked these quotes and was surprised to see the negative response.

Sed Itious' comment seems to attack Graham on a personal level, like for being a "tedious ex-nerd" or having "bubbling narcissism", even linking him to racism somehow. Is all this about some issue with Paul Graham's personality that I'm not aware of, or did people sincerely not relate to the quotes? They don't seem that different from the inspirational soundbytes usually upvoted here.

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