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How Paul Graham Gets It Wrong in “Economic Inequality”

207 points by jordanlee 11y ago

danhak 11y ago
> Further, there are an abundance of studies that show that reducing economic inequality (even through redistributive means) actually boosts overall prosperity. To me, this sentence and the ones that follow are by far the most salient point. How many Zuckerbergs, Gates, Brins, Pages and Bezos are we missing out on due to the fact that huge swaths of our country do not have the ability to fully explore and develop their talents? How many trillions in lost GDP does that amount to? To me, this entire debate is a missed opportunity to discuss inequality on the basis of shared wealth, growth and prosperity. Instead we tend to debate these things on a moral dimension which immediately politicizes and polarizes the matter. See renewable energy for another example of how that works.
- zappo2938 11y ago
  I can't think of anything more democratic than using money to vote on how to best allocate resources. The reward for doing well is to get more money to decide how that should then be allocated. This system works great until it crosses a threshold when the most talented consolidate the ability to decide how to best allocate resources into a small group of people. A small group of billionaires deciding how to allocate resources is better but not by much than a small group of people at the Gosbank in the Soviet Union deciding how to allocate resources. Progressive taxation is a good solution. We just need to tweak it until it works effectively. Unfortunately, we have gone in the wrong direction for past couple decades. I grew up in a scientific community. People innovated and did research because they were passionate about knowledge and learning. Of course, some of them went on to create startups like Biogen but money was never the biggest motivator. I don't buy the argument that taxing the wealthy slightly more than now stifles innovation.
  - dragonwriter 11y ago
    Using money to vote on how to. allocate resources is plutocracy, which is pretty far from democracy.
    - js8 11y ago
      Exactly. Democracy is designed to prevent the positive feedback loop where people who happen to have more resources can vote for things that gives them even more resources next time. If a system has this feedback loop, it's definitely not a democratic one.
      - douche 11y ago
        Democracy's weakness is a susceptibility to allowing the people to vote themselves bread and circuses.
        js8 11y ago
        I don't see anything wrong with bread and circuses (although I think I prefer pork and porn ;-)). This actually reminds me of Chomsky, who said that if people are really allowed to vote, they might decide to spend more on education and universal health care, rather than on nuclear weapons. Oh, the horrors!
  - jrochkind1 11y ago
    > A small group of billionaires deciding how to allocate resources is better but not by much than a small group of people at the Gosbank in the Soviet Union deciding how to allocate resources. How is it better even at all, even not by much? If we imagine that the small group of central planners were actually democratically elected (in the Soviet Union they were not, although they ideologically pretended to be), it's unequivicably _more democratic_ to have them making decisions compared to unelected billionaires who are not in any way accountable to voters. I'm not quite sure what you mean by 'democratic' when you say you can't think of anything more democratic than those with more money having more political power. I don't see how there's some specific threshold where this becomes more or less true than it was at smaller level of inequality, although it's certainly _less_ democratic the greater the level of inequality, it seems fairly proportional to me rather than there being a 'threshold'.
    - zappo2938 11y ago
      It seems ridiculously simple to me. Let's define wealth equality as 100 people all with 100,000 dollars a piece. Rather than having a small group of people either in a board room on the top floor of 85 Broad St. or a small group of communists allocate resources, let everybody use their money as a vote to decide how to allocate resources. People need to eat so some money will be spent on food. Most people will need transportation so money will spent on cars and trucks. In order to prevent running out of money people will invest some of it. Several people will purchase farm equipment and start growing food, individual small businesses. Others will create an organization and pool their money together to build a factory to make cars because without cooperation none have enough to cover the startup cost. People are rather stupid so there will be losers and some are smart so there will be winners when it comes to return on investment. There needs to be inequality, it's natural. Nobody needs to starve but people who are better at deciding how to allocate resources should be given more even if they decide to invest in a bigger house and a boat. This works until that small group of people in the board room at the top of the building at 85 Broad St. decide to allocate all the resources to build more houses than everybody else needs and bigger houses than they have resources to maintain. They are able to do that because they consolidated all the voting power of money into their control once a threshold is passed. Keep the inequality. Some people will make better decisions and then others. The people who make better decisions for example investing the money into research should be rewarded with money and the ability to decide how to best further allocate it including buying a bigger house for themselves or hire a house cleaner because they are busy innovating. There are no problems with that. The problem happens when they become too powerful. The way to prevent that is a progressive tax. In this case, make it very hard but not impossible to get above controlling 1,000,000. No one person and no small group of people are better at making decisions than a large group of people. That is what I mean by wealth equality is democratic. Perhaps, it is better to say there needs to be a wealth equilibrium rather than wealth equality.
  - zo1 11y ago
    Progressive taxation is a perfectly acceptable solution. Somewhere, there was some notion that said: "Already-rich people probably make money faster than the less well-off", therefore: "We should tax them more to even things out a little and have an upward push for the less well-off. And on the upside is we have a bit more funding for the state/infrastructure/services.". The problem now comes that society in general are not happy with the outcomes of the above. It's now less about how to provide for a stable, secure society and infrastructure, and more about how will we "fix everything". I believe the very existence of a state means people will want it to fix things, because it's there. And now, someone needs to pay for all the "fixing".
    - danhak 11y ago
      But taxes on inheritance and investment are totally regressive (and have become even more regressive), which undermines the benefits of a progressive system for earned income.
      - zo1 11y ago
        There are arguably much more "regressive" things out there, that are completely avoidable. Inheritance tax, on the other hand, usually has a "lower-bound" that prevents the very poor from being affected. Taxes on investment? You mean, capital gains? Or something like dividends?
      - throw_away 11y ago
        I don't understand how estate and capital gains taxes are regressive. Estate taxes (in the United States at least) only kick in on inherited assets > $5M or so (< 0.2% of estates). Capital gains are AFAIK assessed as normal income for short-term gains (so, progressive) and as a flat (neither progressive nor regressive) rate for long-term gains, and even then, only for people with actual investments, which excludes probably the majority of the poor. When I think regressive taxes, I think things that are flat fees, or else things like fica, which cut out after a certain income.
        danhak 11y ago
  - Frondo 11y ago
    One thing that is more democratic than using money to "vote" is using actual voting to vote, whether on policy directly or on politicians who will determine policy.
  - malandrew 11y ago
    I've generally agreed with this sentiment and usually sum it up with the thought "One million people will usually better allocate one million dollars than one investor allocating one million dollars". That said, this isn't a hard and fast rule. There are certain types of "moonshot" projects that will never get built under such a scenario because you'll almost always fail to allocate enough money to such projects. Moonshot doesn't even have to mean something like sending a human to the moon. Moonshot can also be relative to an economy locally, like the decision to invest in power plants and transmission lines in many parts of the developing World that are underserved with regards to electricity needs.
    - douche 11y ago
      A million people with $1 apiece will buy a million McDoubles or coffees. Or a million Candy Crush credits...
- arkaeologic 11y ago
  It seems to be that people are reacting to a potential threat to an axiom of their's. That is: "Income inequality is bad because A,B,C, and should be prevented at all costs." I'm not saying no part of this is founded in reasoning and evidence, but you are right that the author does not actually respond to PG's sentiment. Rather, his reaction is automatic.
- thanatropism 11y ago
  > How many Zuckerbergs, Gates, Brins, Pages and Bezos are we missing out on due to the fact that huge swaths of our country do not have the ability to fully explore and develop their talents? But this has nothing to do with inequality. It has to do with "too many people below economic level X". If this seems related to inequality it's because you've already bought into the pie fallacy.
  - danhak 11y ago
    No, it has nothing to do with the pie fallacy. Yes, even the poorest in America lead better lives in absolute terms than most people have throughout history. But regardless of the absolute "economic level x" of the poorest, the wealthiest among us will enjoy disproportionate access to the latest technology, education, healthcare, influence etc.
    - douche 11y ago
      > the wealthiest among us will enjoy disproportionate access to the latest technology, education, healthcare, influence etc What exactly do you intend to do to change that? If you start everyone at a baseline level, some of them are going to be smarter, stronger, savvier or whatever, and will be more successful, and thus wealthier, and thus have greater access to whatever benefits that wealth can buy. Even if you zero everyone out each generation, genes matter. Unless you are artificially suppressing people from rising above mediocrity, you will have some that do better than others.
      - danhak 11y ago
        It seems to me that there is probably some optimized point between total economic equality and extreme inequality. I believe we are drifting further away from that point. In concrete terms, I don't believe those with pre-existing access to capital should receive privileged tax treatment. I'm im favor of lowering taxes on earned income and raising taxes on inheritance and investment income.
        11y ago
- mhaymo 11y ago
  Sounds like you're saying the problem is poverty. That is also what PG is saying. If you want to increase the opportunities for the population as a whole, attacking the income of the rich is not obviously a good solution.
  - danhak 11y ago
    Making it less easy for the wealthy to accumulate wealth exponentially !== attacking income of the rich. Poverty is always relative and is inextricable from the issue of inequality.
    - mhaymo 11y ago
      How are the issues you listed relative? How does Mark Zuckerberg being super-rich contribute to "huge swaths of our country do not have the ability to fully explore and develop their talents"?
gkop 11y ago
dang: would you consider un-burying this please? It's constructively in dialogue with PG.
ZenoArrow 11y ago
As I said last time this came up, the answer is a maximum wage. We can still set the maximum wage beyond the level of most people (e.g. $1,000,000 per annum after tax). I don't see how it would discourage innovation, but I do see how it'd help curb financial inequality.
- xyzzy4 11y ago
  It would discourage innovation for a lot of reasons, and one is that high earners would move to other countries.
  - ZenoArrow 11y ago
    If they want to move, let them. The opportunities for making money would still be present. There's a bizarre notion going around that protecting the economy requires protecting the rich. However if you look at it, it doesn't make any sense. The strength of an actor in the economic system is directly related to their participation in that system. The rich are where they are because they hoard more of their wealth. Hoarded wealth slows down an economy. The rich are poor economic actors, let them hoard their money elsewhere.
    - shitgoose 11y ago
      "The opportunities for making money would still be present." who will take advantage of those opportunities? people who take advantage of opportunities to make money have already moved out, haven't they?
      - ZenoArrow 11y ago
        Let's use a hypothetical example. We bring in the wage cap, some wealthy people move elsewhere. Let's say one of the wealthy people ran a profitable supermarket. Are you saying we couldn't find someone who lived in the country to run a supermarket in the same location?
  - crdoconnor 11y ago
solomatov 11y ago
>while this report by the OECD found that “income inequality has a sizable and statistically significant negative impact on growth. Actually it doesn't do this. It shows that income inequality is associated with lower economic growth. Mixing correlation and causation.
- lisper 11y ago
  Except that the data support a particular theory: extreme income inequality limits growth because growth is ultimately driven by broad-based consumption. If there's a plausible theory purporting to explain how the causality could possibly be the other way around, I haven't heard it.
  - solomatov 11y ago
    There might be other factor affecting both inequality and economic growth. For example, consider culture, natural resources, climate, etc. If you can't find a plausible way to explain something (inequality causes lower economic growth), it doesn't mean that there's no other way to explain it. Actually, the history of science shows that explanation of effects might be very surprising. P.S. My comment doesn't support one side or the other. I am just pointing to a logical mistake.
    - lisper 11y ago
      > If you can't find a plausible way to explain something (inequality causes lower economic growth), it doesn't mean that there's no other way to explain it. Actually, the history of science shows that explanation of effects might be very surprising. Indeed so. But the central principle of science is that at any time you (tentatively) accept the best available theory that is consistent with the evidence. Right now, AFAICT, that's the theory that concentrating wealth in a small minority reduces growth because it reduces demand.
  - tdaltonc 11y ago
    Capital (and an executive elite) is more mobile then labor. When there's a local downturn, people who derive their income from labor suffer, but the capital class does not --> increased wealth inequality.
anateus 11y ago
Although PG makes a few turns of phrase, one of which is quoted in OP, that implies a straw-man who wants to end all economic inequality, he also talks several times about tackling the effects of economic inequality. The footnote in OP referring to studies that cover the negative effects on economic inequality supports rather than disproves PG's stance on this: economic inequality has multiple negative effects. One of PG's core arguments is that while the inequality is caused by a lot of factors, a big one of which is the snowball effect of capital, when all those factors are removed, the wealth creation aspect will still remain. He explicitly says that attacking the non-virtuous feedback loops that increase economic inequality is desirable for him, he's just interested in targeting those as well as specific negative effects (e.g. poverty) rather than have the conversation framed around "economic inequality".
- gkop 11y ago
  > The footnote in OP referring to studies that cover the negative effects on economic inequality supports rather than disproves PG's stance on this: economic inequality has multiple negative effects. No, that's the inverse causation of PG's stance. PG said "There are lots of things wrong with the US that have economic inequality as a symptom." If we all agreed that economic inequality is the cause then nobody would be complaining about framing the conversation around economic inequality.
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sradu 11y ago
Coming from a former communist country, I don't understand why smart, capable people want to give away their money to a corrupt, incompetent state to manage it for them. The US is fundamentally different than Nordic countries, where socialism appears to be working: * The Nordic countries are tiny compared to the US. * They are highly educated. * Their society is homogenous. It seems like everybody is assuming that there will be this rational actor collecting money from the rich and distributing them to the poor. What actually is going to happen is that instead of entrepreneurs becoming rich, politicians will grow even richer than they are now. The politicians will have more power, power that they want to keep, and the only way to do that is to suppress the press and the people. And that's how communism starts. It might sound like I'm taking it too far, but it's happened a number of times already.
- danhak 11y ago
  > Coming from a former communist country, I don't understand why smart, capable people want to give away their money to a corrupt, incompetent state to manage it for them. You are inventing a complete straw man. That is not what I want nor is it what most other people who are concerned about wealth inequality want. What we want are policies that do not make it so absurdly easy for those who already have access to capital to continue to accumulate wealth and influence at an exponential rate while those who are not born under such fortunate circumstances live with an ever-increasing disadvantage. Of course this is inevitable to some degree due to the nature of compound interest. But there are ways to mitigate it. See: progressive taxation. Now it's time to take a look at other things such as the estate tax and taxes on capital gains and dividends. The latter are the most egregious in my estimation. The U.S. currently taxes income earned through labor, time and talent at a higher rate than income earned through investment, thus continuing to privilege those who already have access to capital
  - Pyxl101 11y ago
    > What we want are policies that do not make it so absurdly easy for those who already have access to capital to continue to accumulate wealth and influence at an exponential rate What specific policies are those? Most people who advocate for such policies recommend taxation, which is what the GP is referring to: the government forcibly seizes the money. The GP is not really addressing a straw man when the most common solution is tax. It's worth remembering that taxing is taking, so a "policy" that prevents people from becoming wealthy is just a societal license for seizing their assets. Personally I've seen the government squander or tax revenue on pointless wars and ineffective programs like F-35, and would be happy for those who are fortunate to keep their wealth and invest it smartly; they will drive more positive change in society than the government will.
trav4225 11y ago
"I’m going to be charitable here and assume that PG is not arguing against those that want to, literally, end economic inequality completely [...] I’ve never met anyone arguing for this." Interesting. Perhaps I'm misinterpreting their rhetoric, but my impression has been that many people are arguing for precisely this.
- totalrobe 11y ago
  I've also never seen anyone arguing for this. Many argue for specific issues and policies like estate taxes, single payer health, cost of housing and education, but I've never met anyone that thinks everyone should have the same income.
  - krainboltgreene 11y ago
    Hey, it's me. The person arguing for this.
    - totalrobe 11y ago
      Oh, hi! How would that work?
pg_is_a_butt 11y ago
PG IS A BUTT
Pyxl101 11y ago
Is economic inequality a problem in and of itself? Why? Economic quality seems like a red herring for actual issues like how well off people are. Is the actual concern about how poorly off the poor are? Imagine a thought experiment where aliens come to earth and give every human 100x the resources they have currently (or 100x a year's min wage), as an annuity. The poor are all now rich, and the wealthy can buy their own space stations. Is this intrinsically a problem, and why? If the actual concern is about how well off the lower and middle class are, then that's reasonable: we're talking about the welfare of actual people. But actual people are not harmed or affected directly by some mega-rich person being much richer. I expect that someone will reply to explain that inequality is the symptom of or cause of some other dysfunction, and it is the actual problem - and that's great, that's what I'd like to understand better. Whatever the actual problem is, let's talk about it. If the problem is about lack of adequate education, opportunities, etc. then let's discuss those concerns directly.
- danhak 11y ago
  The issue is always inequality and not absolute wealth, so your hypothetical of everybody having 100x the resources is not fundamentally different than the current situation. The issue is that wealthy people do not have a monopoly on talent, good ideas or intelligence. But they have a monopoly on power and influence. Society therefore suffers when the best ideas do not necessarily compete on an equal basis within the marketplace or the political arena, if they make it there at all.
  - trav4225 11y ago
    I think many of us agree that "society therefore suffers when the best ideas do not necessarily compete on an equal footing". Where many of us disagree is regarding the extent to which we have the moral license to do anything about it policy-wise. Just my 2¢ :)
  - DevX101 11y ago
    Multiplying everyone's MONEY by 100x wouldn't make any difference, but multiplying everyone's RESOURCES (what OP said) by 100x would absolutely make a big difference in human society.
brushfoot 11y ago
This seems like the exact type of confusion Graham mentions. E.g., what does Bannon's insistence that public education is necessary have to do with Graham's essay? Graham clearly is not arguing against social programs or a mixed economy.
OmarIsmail 11y ago
It is insane (and also very educational) that so many people are completely missing pg's point - author of this response included. I blame pg a little for using the phrase "income inequality" at all since it seems to be a trigger for many people and shuts down their critical reading and reasoning abilities. Let me try to phrase it in a clearer way. If you focus on reducing "income inequality" then you will reduce income inequality, but that will have many negative unintended consequences (killing startups at the extreme, etc). Instead, people should focus on the REAL problems which is lack of economic opportunity, crushing poverty, and political corruption. The real solutions all come from helping the people at the lesser end of the inequality equation without having to touch many of the people at the greater end. Universal healthcare, universal education (day-care/pre-school/public schools/job retraining), universal basic income. Just those three policies alone would have an unimaginable positive impact on whatever country institutes them. And my guess the money for these things already exists if you eliminate ridiculous wasteful spending, subsidies, etc. If, at the end of day you eliminate wasteful spending and there is still a shortage of funds for these programs, then sure increase taxes on the wealthiest. My guess is that many would be fine with it (since it's going to a "good" cause).
- josephpmay 11y ago
  Exactly, and I'm not sure why you're downvoted. PG and the author of this Medium article are basically arguing for the SAME thing. They want policies that allow the poor to have more economic growth opportunity. The main point of contention is the terminology "income inequality."
  - wanderingjew 11y ago
    Are you suggesting that by using the term 'income inequality', PG is not communicating effectively?
- ZenoArrow 11y ago
  The problems of economic inequality do not just boil down to lack of opportunities for the poor, it also encompasses disproportionate levels of power for the rich. Improving opportunities for the poor is important, but so is providing a fairer playing field in both the economy and politics.
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Thriptic 11y ago
Out of curiosity, would it be possible to mitigate most of the perceived negative effects of inequality (unequal access to opportunities) by simply re-allocating our existing tax revenue? For example, instead of paying for costly wars in the US / silly development projects like the F35, could we use that money to grant our citizens free college education, better access to health care under a single payer system, basic welfare, and job training programs? Could we employ an infrastructure development program to put people to work at good wages?
- jgord 11y ago
  That really would be the rising tide that lifts all boats - trickle up from the bottom.
appleflaxen 11y ago
Why not a death tax? Give a flat amount to the family (capped at say 5 million), then a flat 100% tax after that No living person pays more taxes Children can get an incredible windfall, but not eye-popping. Tax revenue goes through the roof.
- knughit 11y ago
  [estate tax] Bing it.
- puredemo 11y ago
  First, it would be trivial to reroute inheritance funds through trusts or protected business assets, so very few wealthy families would fall victim to this sort of tax in reality. Governments have been trying to steal from the rich for a very long time, and the rich are fairly skilled at protective countermeasures. Beyond that, your policy comes off as just the most base form of theft. Generational wealth is important, it's core to our survival instincts to look after our offspring when we die -- beyond just their basic needs, we want them to thrive. We want our grandchildren to thrive as well. Also, generally speaking, I trust the children and grandchildren to spend money in more interesting / authentic ways than our government, who has, for example, the yearly defense budget we carry. And the yearly prison budget we maintain. What if a child whose rich parents died would have started the largest cancer research center in the US with his billion dollars, but instead that money is seized by your "tax plan" and simply goes toward the defense industry coffers? Is that a net gain? Taking from the rich and giving to Halliburton and Blackwater?
- marvin 11y ago
  While this might look like a superficially good idea, this means that the government gets 100% ownership of all businesses after 50 years or so. There are multiple reasons why this would be very bad, for example politicians would not have the specialized knowledge required to make the owner decisions of every business. It would also give politicians an unprecedented amount of power.
dools 11y ago
Universal income and job guarantees/full employment are PRO STARTUP but ANTI-VC. Given PG makes all his money from the glorified HR scheme that is the VC industry, it's not surprising he is against a system that empowers people to take risks on starting companies that don't require any investment. If people are able to start companies without risking the health of their family, or their long term prosperity, they don't need as much investment and there wouldn't be room in this world for VC funding, and thus not as much money to trickle down to the inaptly named "super angels" like PG and the YC crew.
zxcvvcxz 11y ago
> Bill Gates gave an excellent summary of the argument against unchecked levels of economic inequality[2]: High levels of inequality are a problem — messing up economic incentives, tilting democracies in favor of powerful interests, and undercutting the ideal that all people are created equal. This is the problem right here. The "ideal that all people are created equal." The truth is, they are not. There are differences in IQ, differences in emotional capacity, differences in physical strength, differences in programming ability, etc. Because every human has a unique set of DNA -- that will only ever occur once and never again be repeated -- they will have unique combinations of various skills and traits. People are not equal and you cannot make them so. Thus they will have different outcomes economically. It couldn't be any other way. What you can do is provide equal opportunities to those with objectively worse environments, i.e. those in poverty. Attacking this problem will be the most meaningful solution. But economic inequality is still not the yard stick to use for this. How these obvious issues get conflated through the use of the trigger term "economic inequality" is beyond me. Perhaps it stems from the self-esteem movement where we started giving trophies to every kid who could kick the ball. Do people complain about "soccer inequality" because they don't play on FC Barcelona? And should one blame Messi for such a thing, or should they find ways to sponsor youth soccer leagues instead.
- AnimalMuppet 11y ago
  > This is the problem right here. The "ideal that all people are created equal." The truth is, they are not. There are differences in IQ, differences in emotional capacity, differences in physical strength, differences in programming ability, etc. Here's what that phrase originally meant: European-style nobility is a mistake. It's not that you are better than me, not because of IQ, emotional capacity, physical strength, or anything of that nature. Instead, the idea was that you were better than me because your great-great-great-grandfather helped the king put his trousers on every morning, and got rewarded with a hereditary title, and you inherited it, and therefore you are my "better" because you have a title and I don't. And the older the title, the better it was, even though that means the less it had anything to do with you! So when the Declaration of Independence says "all men are created equal", it's not talking about IQ or physical strength. It's not even talking about different economic outcomes. It's talking about social/political standing conferred by birth. I'm not saying that you are wrong in your conclusions...
aminok 11y ago
It takes a special type of arrogance to support using violent force to take from some group of people to give to another, who you believe to be more deserving of that plot of wealth. Bill Gates has it. Paul Graham doesn't. And thus the supporter of income inequality is the more humble of the two.

207 points by jordanlee 11y ago

> Further, there are an abundance of studies that show that reducing economic inequality (even through redistributive means) actually boosts overall prosperity. To me, this sentence and the ones that follow are by far the most salient point. How many Zuckerbergs, Gates, Brins, Pages and Bezos are we missing out on due to the fact that huge swaths of our country do not have the ability to fully explore and develop their talents? How many trillions in lost GDP does that amount to? To me, this entire debate is a missed opportunity to discuss inequality on the basis of shared wealth, growth and prosperity. Instead we tend to debate these things on a moral dimension which immediately politicizes and polarizes the matter. See renewable energy for another example of how that works.

zappo2938 11y ago
I can't think of anything more democratic than using money to vote on how to best allocate resources. The reward for doing well is to get more money to decide how that should then be allocated. This system works great until it crosses a threshold when the most talented consolidate the ability to decide how to best allocate resources into a small group of people. A small group of billionaires deciding how to allocate resources is better but not by much than a small group of people at the Gosbank in the Soviet Union deciding how to allocate resources. Progressive taxation is a good solution. We just need to tweak it until it works effectively. Unfortunately, we have gone in the wrong direction for past couple decades. I grew up in a scientific community. People innovated and did research because they were passionate about knowledge and learning. Of course, some of them went on to create startups like Biogen but money was never the biggest motivator. I don't buy the argument that taxing the wealthy slightly more than now stifles innovation.
- dragonwriter 11y ago
  Using money to vote on how to. allocate resources is plutocracy, which is pretty far from democracy.
  - js8 11y ago
    Exactly. Democracy is designed to prevent the positive feedback loop where people who happen to have more resources can vote for things that gives them even more resources next time. If a system has this feedback loop, it's definitely not a democratic one.
    - douche 11y ago
      Democracy's weakness is a susceptibility to allowing the people to vote themselves bread and circuses.
      - js8 11y ago
        I don't see anything wrong with bread and circuses (although I think I prefer pork and porn ;-)). This actually reminds me of Chomsky, who said that if people are really allowed to vote, they might decide to spend more on education and universal health care, rather than on nuclear weapons. Oh, the horrors!
- jrochkind1 11y ago
  > A small group of billionaires deciding how to allocate resources is better but not by much than a small group of people at the Gosbank in the Soviet Union deciding how to allocate resources. How is it better even at all, even not by much? If we imagine that the small group of central planners were actually democratically elected (in the Soviet Union they were not, although they ideologically pretended to be), it's unequivicably _more democratic_ to have them making decisions compared to unelected billionaires who are not in any way accountable to voters. I'm not quite sure what you mean by 'democratic' when you say you can't think of anything more democratic than those with more money having more political power. I don't see how there's some specific threshold where this becomes more or less true than it was at smaller level of inequality, although it's certainly _less_ democratic the greater the level of inequality, it seems fairly proportional to me rather than there being a 'threshold'.
  - zappo2938 11y ago
    It seems ridiculously simple to me. Let's define wealth equality as 100 people all with 100,000 dollars a piece. Rather than having a small group of people either in a board room on the top floor of 85 Broad St. or a small group of communists allocate resources, let everybody use their money as a vote to decide how to allocate resources. People need to eat so some money will be spent on food. Most people will need transportation so money will spent on cars and trucks. In order to prevent running out of money people will invest some of it. Several people will purchase farm equipment and start growing food, individual small businesses. Others will create an organization and pool their money together to build a factory to make cars because without cooperation none have enough to cover the startup cost. People are rather stupid so there will be losers and some are smart so there will be winners when it comes to return on investment. There needs to be inequality, it's natural. Nobody needs to starve but people who are better at deciding how to allocate resources should be given more even if they decide to invest in a bigger house and a boat. This works until that small group of people in the board room at the top of the building at 85 Broad St. decide to allocate all the resources to build more houses than everybody else needs and bigger houses than they have resources to maintain. They are able to do that because they consolidated all the voting power of money into their control once a threshold is passed. Keep the inequality. Some people will make better decisions and then others. The people who make better decisions for example investing the money into research should be rewarded with money and the ability to decide how to best further allocate it including buying a bigger house for themselves or hire a house cleaner because they are busy innovating. There are no problems with that. The problem happens when they become too powerful. The way to prevent that is a progressive tax. In this case, make it very hard but not impossible to get above controlling 1,000,000. No one person and no small group of people are better at making decisions than a large group of people. That is what I mean by wealth equality is democratic. Perhaps, it is better to say there needs to be a wealth equilibrium rather than wealth equality.
- zo1 11y ago
  Progressive taxation is a perfectly acceptable solution. Somewhere, there was some notion that said: "Already-rich people probably make money faster than the less well-off", therefore: "We should tax them more to even things out a little and have an upward push for the less well-off. And on the upside is we have a bit more funding for the state/infrastructure/services.". The problem now comes that society in general are not happy with the outcomes of the above. It's now less about how to provide for a stable, secure society and infrastructure, and more about how will we "fix everything". I believe the very existence of a state means people will want it to fix things, because it's there. And now, someone needs to pay for all the "fixing".
  - danhak 11y ago
    But taxes on inheritance and investment are totally regressive (and have become even more regressive), which undermines the benefits of a progressive system for earned income.
    - zo1 11y ago
      There are arguably much more "regressive" things out there, that are completely avoidable. Inheritance tax, on the other hand, usually has a "lower-bound" that prevents the very poor from being affected. Taxes on investment? You mean, capital gains? Or something like dividends?
    - throw_away 11y ago
      I don't understand how estate and capital gains taxes are regressive. Estate taxes (in the United States at least) only kick in on inherited assets > $5M or so (< 0.2% of estates). Capital gains are AFAIK assessed as normal income for short-term gains (so, progressive) and as a flat (neither progressive nor regressive) rate for long-term gains, and even then, only for people with actual investments, which excludes probably the majority of the poor. When I think regressive taxes, I think things that are flat fees, or else things like fica, which cut out after a certain income.
      - danhak 11y ago
- Frondo 11y ago
  One thing that is more democratic than using money to "vote" is using actual voting to vote, whether on policy directly or on politicians who will determine policy.
- malandrew 11y ago
  I've generally agreed with this sentiment and usually sum it up with the thought "One million people will usually better allocate one million dollars than one investor allocating one million dollars". That said, this isn't a hard and fast rule. There are certain types of "moonshot" projects that will never get built under such a scenario because you'll almost always fail to allocate enough money to such projects. Moonshot doesn't even have to mean something like sending a human to the moon. Moonshot can also be relative to an economy locally, like the decision to invest in power plants and transmission lines in many parts of the developing World that are underserved with regards to electricity needs.
  - douche 11y ago
    A million people with $1 apiece will buy a million McDoubles or coffees. Or a million Candy Crush credits...
arkaeologic 11y ago
It seems to be that people are reacting to a potential threat to an axiom of their's. That is: "Income inequality is bad because A,B,C, and should be prevented at all costs." I'm not saying no part of this is founded in reasoning and evidence, but you are right that the author does not actually respond to PG's sentiment. Rather, his reaction is automatic.
thanatropism 11y ago
> How many Zuckerbergs, Gates, Brins, Pages and Bezos are we missing out on due to the fact that huge swaths of our country do not have the ability to fully explore and develop their talents? But this has nothing to do with inequality. It has to do with "too many people below economic level X". If this seems related to inequality it's because you've already bought into the pie fallacy.
- danhak 11y ago
  No, it has nothing to do with the pie fallacy. Yes, even the poorest in America lead better lives in absolute terms than most people have throughout history. But regardless of the absolute "economic level x" of the poorest, the wealthiest among us will enjoy disproportionate access to the latest technology, education, healthcare, influence etc.
  - douche 11y ago
    > the wealthiest among us will enjoy disproportionate access to the latest technology, education, healthcare, influence etc What exactly do you intend to do to change that? If you start everyone at a baseline level, some of them are going to be smarter, stronger, savvier or whatever, and will be more successful, and thus wealthier, and thus have greater access to whatever benefits that wealth can buy. Even if you zero everyone out each generation, genes matter. Unless you are artificially suppressing people from rising above mediocrity, you will have some that do better than others.
    - danhak 11y ago
      It seems to me that there is probably some optimized point between total economic equality and extreme inequality. I believe we are drifting further away from that point. In concrete terms, I don't believe those with pre-existing access to capital should receive privileged tax treatment. I'm im favor of lowering taxes on earned income and raising taxes on inheritance and investment income.
      - 11y ago
mhaymo 11y ago
Sounds like you're saying the problem is poverty. That is also what PG is saying. If you want to increase the opportunities for the population as a whole, attacking the income of the rich is not obviously a good solution.
- danhak 11y ago
  Making it less easy for the wealthy to accumulate wealth exponentially !== attacking income of the rich. Poverty is always relative and is inextricable from the issue of inequality.
  - mhaymo 11y ago
    How are the issues you listed relative? How does Mark Zuckerberg being super-rich contribute to "huge swaths of our country do not have the ability to fully explore and develop their talents"?

gkop 11y ago

dang: would you consider un-burying this please? It's constructively in dialogue with PG.

ZenoArrow 11y ago

As I said last time this came up, the answer is a maximum wage. We can still set the maximum wage beyond the level of most people (e.g. $1,000,000 per annum after tax). I don't see how it would discourage innovation, but I do see how it'd help curb financial inequality.

xyzzy4 11y ago
It would discourage innovation for a lot of reasons, and one is that high earners would move to other countries.
- ZenoArrow 11y ago
  If they want to move, let them. The opportunities for making money would still be present. There's a bizarre notion going around that protecting the economy requires protecting the rich. However if you look at it, it doesn't make any sense. The strength of an actor in the economic system is directly related to their participation in that system. The rich are where they are because they hoard more of their wealth. Hoarded wealth slows down an economy. The rich are poor economic actors, let them hoard their money elsewhere.
  - shitgoose 11y ago
    "The opportunities for making money would still be present." who will take advantage of those opportunities? people who take advantage of opportunities to make money have already moved out, haven't they?
    - ZenoArrow 11y ago
      Let's use a hypothetical example. We bring in the wage cap, some wealthy people move elsewhere. Let's say one of the wealthy people ran a profitable supermarket. Are you saying we couldn't find someone who lived in the country to run a supermarket in the same location?
- crdoconnor 11y ago

solomatov 11y ago

>while this report by the OECD found that “income inequality has a sizable and statistically significant negative impact on growth. Actually it doesn't do this. It shows that income inequality is associated with lower economic growth. Mixing correlation and causation.

lisper 11y ago
Except that the data support a particular theory: extreme income inequality limits growth because growth is ultimately driven by broad-based consumption. If there's a plausible theory purporting to explain how the causality could possibly be the other way around, I haven't heard it.
- solomatov 11y ago
  There might be other factor affecting both inequality and economic growth. For example, consider culture, natural resources, climate, etc. If you can't find a plausible way to explain something (inequality causes lower economic growth), it doesn't mean that there's no other way to explain it. Actually, the history of science shows that explanation of effects might be very surprising. P.S. My comment doesn't support one side or the other. I am just pointing to a logical mistake.
  - lisper 11y ago
    > If you can't find a plausible way to explain something (inequality causes lower economic growth), it doesn't mean that there's no other way to explain it. Actually, the history of science shows that explanation of effects might be very surprising. Indeed so. But the central principle of science is that at any time you (tentatively) accept the best available theory that is consistent with the evidence. Right now, AFAICT, that's the theory that concentrating wealth in a small minority reduces growth because it reduces demand.
- tdaltonc 11y ago
  Capital (and an executive elite) is more mobile then labor. When there's a local downturn, people who derive their income from labor suffer, but the capital class does not --> increased wealth inequality.

anateus 11y ago

Although PG makes a few turns of phrase, one of which is quoted in OP, that implies a straw-man who wants to end all economic inequality, he also talks several times about tackling the effects of economic inequality. The footnote in OP referring to studies that cover the negative effects on economic inequality supports rather than disproves PG's stance on this: economic inequality has multiple negative effects. One of PG's core arguments is that while the inequality is caused by a lot of factors, a big one of which is the snowball effect of capital, when all those factors are removed, the wealth creation aspect will still remain. He explicitly says that attacking the non-virtuous feedback loops that increase economic inequality is desirable for him, he's just interested in targeting those as well as specific negative effects (e.g. poverty) rather than have the conversation framed around "economic inequality".

gkop 11y ago
> The footnote in OP referring to studies that cover the negative effects on economic inequality supports rather than disproves PG's stance on this: economic inequality has multiple negative effects. No, that's the inverse causation of PG's stance. PG said "There are lots of things wrong with the US that have economic inequality as a symptom." If we all agreed that economic inequality is the cause then nobody would be complaining about framing the conversation around economic inequality.

deleted 11y ago

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sradu 11y ago

Coming from a former communist country, I don't understand why smart, capable people want to give away their money to a corrupt, incompetent state to manage it for them. The US is fundamentally different than Nordic countries, where socialism appears to be working: * The Nordic countries are tiny compared to the US. * They are highly educated. * Their society is homogenous. It seems like everybody is assuming that there will be this rational actor collecting money from the rich and distributing them to the poor. What actually is going to happen is that instead of entrepreneurs becoming rich, politicians will grow even richer than they are now. The politicians will have more power, power that they want to keep, and the only way to do that is to suppress the press and the people. And that's how communism starts. It might sound like I'm taking it too far, but it's happened a number of times already.

danhak 11y ago
> Coming from a former communist country, I don't understand why smart, capable people want to give away their money to a corrupt, incompetent state to manage it for them. You are inventing a complete straw man. That is not what I want nor is it what most other people who are concerned about wealth inequality want. What we want are policies that do not make it so absurdly easy for those who already have access to capital to continue to accumulate wealth and influence at an exponential rate while those who are not born under such fortunate circumstances live with an ever-increasing disadvantage. Of course this is inevitable to some degree due to the nature of compound interest. But there are ways to mitigate it. See: progressive taxation. Now it's time to take a look at other things such as the estate tax and taxes on capital gains and dividends. The latter are the most egregious in my estimation. The U.S. currently taxes income earned through labor, time and talent at a higher rate than income earned through investment, thus continuing to privilege those who already have access to capital
- Pyxl101 11y ago
  > What we want are policies that do not make it so absurdly easy for those who already have access to capital to continue to accumulate wealth and influence at an exponential rate What specific policies are those? Most people who advocate for such policies recommend taxation, which is what the GP is referring to: the government forcibly seizes the money. The GP is not really addressing a straw man when the most common solution is tax. It's worth remembering that taxing is taking, so a "policy" that prevents people from becoming wealthy is just a societal license for seizing their assets. Personally I've seen the government squander or tax revenue on pointless wars and ineffective programs like F-35, and would be happy for those who are fortunate to keep their wealth and invest it smartly; they will drive more positive change in society than the government will.

trav4225 11y ago

"I’m going to be charitable here and assume that PG is not arguing against those that want to, literally, end economic inequality completely [...] I’ve never met anyone arguing for this." Interesting. Perhaps I'm misinterpreting their rhetoric, but my impression has been that many people are arguing for precisely this.

totalrobe 11y ago
I've also never seen anyone arguing for this. Many argue for specific issues and policies like estate taxes, single payer health, cost of housing and education, but I've never met anyone that thinks everyone should have the same income.
- krainboltgreene 11y ago
  Hey, it's me. The person arguing for this.
  - totalrobe 11y ago
    Oh, hi! How would that work?

pg_is_a_butt 11y ago

PG IS A BUTT

Pyxl101 11y ago

Is economic inequality a problem in and of itself? Why? Economic quality seems like a red herring for actual issues like how well off people are. Is the actual concern about how poorly off the poor are? Imagine a thought experiment where aliens come to earth and give every human 100x the resources they have currently (or 100x a year's min wage), as an annuity. The poor are all now rich, and the wealthy can buy their own space stations. Is this intrinsically a problem, and why? If the actual concern is about how well off the lower and middle class are, then that's reasonable: we're talking about the welfare of actual people. But actual people are not harmed or affected directly by some mega-rich person being much richer. I expect that someone will reply to explain that inequality is the symptom of or cause of some other dysfunction, and it is the actual problem - and that's great, that's what I'd like to understand better. Whatever the actual problem is, let's talk about it. If the problem is about lack of adequate education, opportunities, etc. then let's discuss those concerns directly.

danhak 11y ago
The issue is always inequality and not absolute wealth, so your hypothetical of everybody having 100x the resources is not fundamentally different than the current situation. The issue is that wealthy people do not have a monopoly on talent, good ideas or intelligence. But they have a monopoly on power and influence. Society therefore suffers when the best ideas do not necessarily compete on an equal basis within the marketplace or the political arena, if they make it there at all.
- trav4225 11y ago
  I think many of us agree that "society therefore suffers when the best ideas do not necessarily compete on an equal footing". Where many of us disagree is regarding the extent to which we have the moral license to do anything about it policy-wise. Just my 2¢ :)
- DevX101 11y ago
  Multiplying everyone's MONEY by 100x wouldn't make any difference, but multiplying everyone's RESOURCES (what OP said) by 100x would absolutely make a big difference in human society.

brushfoot 11y ago

This seems like the exact type of confusion Graham mentions. E.g., what does Bannon's insistence that public education is necessary have to do with Graham's essay? Graham clearly is not arguing against social programs or a mixed economy.

OmarIsmail 11y ago

It is insane (and also very educational) that so many people are completely missing pg's point - author of this response included. I blame pg a little for using the phrase "income inequality" at all since it seems to be a trigger for many people and shuts down their critical reading and reasoning abilities. Let me try to phrase it in a clearer way. If you focus on reducing "income inequality" then you will reduce income inequality, but that will have many negative unintended consequences (killing startups at the extreme, etc). Instead, people should focus on the REAL problems which is lack of economic opportunity, crushing poverty, and political corruption. The real solutions all come from helping the people at the lesser end of the inequality equation without having to touch many of the people at the greater end. Universal healthcare, universal education (day-care/pre-school/public schools/job retraining), universal basic income. Just those three policies alone would have an unimaginable positive impact on whatever country institutes them. And my guess the money for these things already exists if you eliminate ridiculous wasteful spending, subsidies, etc. If, at the end of day you eliminate wasteful spending and there is still a shortage of funds for these programs, then sure increase taxes on the wealthiest. My guess is that many would be fine with it (since it's going to a "good" cause).

josephpmay 11y ago
Exactly, and I'm not sure why you're downvoted. PG and the author of this Medium article are basically arguing for the SAME thing. They want policies that allow the poor to have more economic growth opportunity. The main point of contention is the terminology "income inequality."
- wanderingjew 11y ago
  Are you suggesting that by using the term 'income inequality', PG is not communicating effectively?
ZenoArrow 11y ago
The problems of economic inequality do not just boil down to lack of opportunities for the poor, it also encompasses disproportionate levels of power for the rich. Improving opportunities for the poor is important, but so is providing a fairer playing field in both the economy and politics.

deleted 11y ago

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Thriptic 11y ago

Out of curiosity, would it be possible to mitigate most of the perceived negative effects of inequality (unequal access to opportunities) by simply re-allocating our existing tax revenue? For example, instead of paying for costly wars in the US / silly development projects like the F35, could we use that money to grant our citizens free college education, better access to health care under a single payer system, basic welfare, and job training programs? Could we employ an infrastructure development program to put people to work at good wages?

jgord 11y ago
That really would be the rising tide that lifts all boats - trickle up from the bottom.

appleflaxen 11y ago

Why not a death tax? Give a flat amount to the family (capped at say 5 million), then a flat 100% tax after that No living person pays more taxes Children can get an incredible windfall, but not eye-popping. Tax revenue goes through the roof.

knughit 11y ago
[estate tax] Bing it.
puredemo 11y ago
First, it would be trivial to reroute inheritance funds through trusts or protected business assets, so very few wealthy families would fall victim to this sort of tax in reality. Governments have been trying to steal from the rich for a very long time, and the rich are fairly skilled at protective countermeasures. Beyond that, your policy comes off as just the most base form of theft. Generational wealth is important, it's core to our survival instincts to look after our offspring when we die -- beyond just their basic needs, we want them to thrive. We want our grandchildren to thrive as well. Also, generally speaking, I trust the children and grandchildren to spend money in more interesting / authentic ways than our government, who has, for example, the yearly defense budget we carry. And the yearly prison budget we maintain. What if a child whose rich parents died would have started the largest cancer research center in the US with his billion dollars, but instead that money is seized by your "tax plan" and simply goes toward the defense industry coffers? Is that a net gain? Taking from the rich and giving to Halliburton and Blackwater?
marvin 11y ago
While this might look like a superficially good idea, this means that the government gets 100% ownership of all businesses after 50 years or so. There are multiple reasons why this would be very bad, for example politicians would not have the specialized knowledge required to make the owner decisions of every business. It would also give politicians an unprecedented amount of power.

dools 11y ago

Universal income and job guarantees/full employment are PRO STARTUP but ANTI-VC. Given PG makes all his money from the glorified HR scheme that is the VC industry, it's not surprising he is against a system that empowers people to take risks on starting companies that don't require any investment. If people are able to start companies without risking the health of their family, or their long term prosperity, they don't need as much investment and there wouldn't be room in this world for VC funding, and thus not as much money to trickle down to the inaptly named "super angels" like PG and the YC crew.

zxcvvcxz 11y ago

> Bill Gates gave an excellent summary of the argument against unchecked levels of economic inequality[2]: High levels of inequality are a problem — messing up economic incentives, tilting democracies in favor of powerful interests, and undercutting the ideal that all people are created equal. This is the problem right here. The "ideal that all people are created equal." The truth is, they are not. There are differences in IQ, differences in emotional capacity, differences in physical strength, differences in programming ability, etc. Because every human has a unique set of DNA -- that will only ever occur once and never again be repeated -- they will have unique combinations of various skills and traits. People are not equal and you cannot make them so. Thus they will have different outcomes economically. It couldn't be any other way. What you can do is provide equal opportunities to those with objectively worse environments, i.e. those in poverty. Attacking this problem will be the most meaningful solution. But economic inequality is still not the yard stick to use for this. How these obvious issues get conflated through the use of the trigger term "economic inequality" is beyond me. Perhaps it stems from the self-esteem movement where we started giving trophies to every kid who could kick the ball. Do people complain about "soccer inequality" because they don't play on FC Barcelona? And should one blame Messi for such a thing, or should they find ways to sponsor youth soccer leagues instead.

AnimalMuppet 11y ago
> This is the problem right here. The "ideal that all people are created equal." The truth is, they are not. There are differences in IQ, differences in emotional capacity, differences in physical strength, differences in programming ability, etc. Here's what that phrase originally meant: European-style nobility is a mistake. It's not that you are better than me, not because of IQ, emotional capacity, physical strength, or anything of that nature. Instead, the idea was that you were better than me because your great-great-great-grandfather helped the king put his trousers on every morning, and got rewarded with a hereditary title, and you inherited it, and therefore you are my "better" because you have a title and I don't. And the older the title, the better it was, even though that means the less it had anything to do with you! So when the Declaration of Independence says "all men are created equal", it's not talking about IQ or physical strength. It's not even talking about different economic outcomes. It's talking about social/political standing conferred by birth. I'm not saying that you are wrong in your conclusions...

aminok 11y ago

It takes a special type of arrogance to support using violent force to take from some group of people to give to another, who you believe to be more deserving of that plot of wealth. Bill Gates has it. Paul Graham doesn't. And thus the supporter of income inequality is the more humble of the two.