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What do economists say about inequality?
- bitmadness 11y agoHe didn't say we need inequality, he said that some inequality was an inevitable byproduct of a robust startup ecosystem and technological progress. In other words, inequality itself may not be desirable per se, but it is a side effect of things that are very desirable.
- maxxxxx 11y agoThe question is how much inequality. Some is probably good. I definitely think we don't need more. The rewards for startup investors and founders are already plenty.
- joelrunyon 11y agoQuestion, if at the base, poverty was eliminated, would it matter if there was more inequality?
- oldmanjay 11y agoYes, and for the same reason it matters now. Envy is a part of human nature and is not going away.
- Retric 11y agoPolitical power is about more than Envy. The US has some terrible policy due to who is in power vs. what's good for most Americans.
- maxxxxx 11y agoIt's not about envy. It's about not getting one's fair share. It's hard to explain why corporate earnings soar, executive compensation rises but average salaries stagnate. It's basic fairness.
- oldmanjay 11y agoSaying "it's not about envy" doesn't actually demonstrate that it isn't. There certainly isn't anything besides envy hiding behind the notion of a "fair share" of someone else's property. Just own it. There is nothing wrong with being envious despite attempts to shame people for it. And bear in mind that no problems are ever solved if you refuse to acknowledge what they really are.
- maxxxxx 11y agoEnvy has a very negative connotation. You use the phrase "fair share of someone else's property". I am not talking about getting a share from someone else's property. I am talking about the elite deciding they should get a larger share of the gains the economy produces. When people in a company complain that their CEO makes more and more money while their salaries are cut it's not envy but it's a basic question of fairness. Nobody wants to take away from the CEO. They just want to have a fair share of the earnings of the company.
- amag 11y agoYes, envy is part of human nature but not everyone is envious by nature.
- jnbiche 11y agoYes, because I don't want to live in an oligarchy. Do you? That's not a rhetorical question, by the way. If only there were some of law that prevented the ultra-rich from buying the political process... The sad fact is, even when there is a law (like we had before in the US), extreme wealth usually finds a way to eliminate it. And then it's off to the races as a feedback loop is entered. In principle, capitalism is a fairly effective instrument for reducing inequality until the political process is corrupted, and then the advantages of capitalism no longer benefit non-wealthy people due to regulatory capture, socialized risk, etc.
- mc32 11y agoIt depends on the person, some people prefer relative wealth, other people prefer wealth in absolute terms. That is, some people would prefer to be one of the wealthiest persons in a poor country over having double that money in absolute terms, but being relatively poorer to their peers in a rich country. So it depends on the person.
- joelrunyon 11y agoSo, your main complaint is money in politics. This is exactly what PG was talking about. You're talking about corruption - not inequality.
- jnbiche 11y agoNo, my main complaint is that extreme wealth inevitably leads to political corruption and oligarchy. Among the wealthy, there are always some who aren't satisfied with wealth. They want political power, and to crush everyone else underfoot until they are in rags (some people think like this, seriously). If people like that can't get political power honestly, then they'll find a way to buy it, and reap the benefits of their political power in government concessions paid by the taxpayers. Then they and their ilk will buy more political power. And then the systems enters a feedback loop, which is where we are now in the US. Edit: I should add that I don't think that extreme wealth is the natural conclusion of capitalism. In a limited government system, combined with the natural dispersion of wealth that comes from passing money down generations, I think that competition serves to keep the top 0.01% within a reasonable multiplier of the average. Unfortunately, big government combined with big business is the worst of all possible worlds, and serves to increase and perpetuate inequality (a deeply-held belief I find difficult to properly convey to my Democrat friends).
- maxxxxx 11y agoI think it still matters. We have already reached a state where the top x% live in a totally different world than the rest of the population. If their worlds diverge even more it will be pretty hard to find any kind of political consensus.
- joelrunyon 11y ago> If their worlds diverge even more it will be pretty hard to find any kind of political consensus. In an actual democracy (without fraud / corruption), this should be your least concern since "the rest of the population" would be the ones deciding (voting)
- Avshalom 11y agoWe live in what is relatively speaking a capitalist market economy, which means when it comes to businesses people with more money get more votes.
- joelrunyon 11y agoSo, your main issue is money in politics.
- Avshalom 11y agoNo my issue is that some people have way more money to put in politics than others. ETA: money and politics are not separable. Double edit: oh god damnit no I wasn't even talking about politics was I. Inequality allows the people on top to distort markets.
- contactmatts 11y agoAddressing the "elimination of poverty" statement: Isn't poverty a relative construct? Unless full-communism is implemented, there will always be those that have less than others. For example, poor people living in the US have a much different life-style than the poor in a 3rd world country.
- joelrunyon 11y agoYes, but they're unequal in their "less"-ness. Having less in the US means you have a hard time paying your bills, etc. Having less in a third world country means you're dying because you're literally crapping your insides out because there's no drinkable water. Eliminating poverty (especially extreme) poverty seems worthwhile . Making sure everyone has the same amount of stuff doesn't seem quite as important
- mordocai 11y agoThe only problem I have with your comment is that there are quite a few people who starve or nearly starve in the US. Dismissing all poverty in the US as just a hard time paying bills is incorrect. Yes, there are a lot of programs to provide help in the US but many of them are far enough away that you'd need a car and if you don't have a car you are out of luck.
- joelrunyon 11y agoIs there a database of statistics on starvation in the US? Genuinely curious.
- hluska 11y agoFeedingamerica.org would be a good place to start. The site is about the difference between poverty and food insecurity. If any place could put to a comprehensive database on outright starvation, that would be it. I'd argue though that in North America, outright starvation isn't as much of a problem as just having difficulty accessing healthy food. The last stats that I read argue that about 15 million kids in the US experience hunger. They may not be starving, but they will have more trouble learning without adequate adequate nutrition.
- 6d0debc071 11y agoYes, because some people's utility functions are strongly inimical to other's likely happiness. It will be feudalism all over again, with vastly higher stakes. If you have a bunch of the super-rich, and everyone else just at some happy medium, then you'll eventually output a mad god-king - in charge of some ridiculous multiple of the power that the majority of the planet can bring to bear - whose favourite sports are gassing countries where people's skin is the wrong colour and fucking the peasants to death on a Thursday.
- eigenvector 11y agoDid you read the article? It addresses that assertion by indicating that research shows only a small fraction of inequality is actually caused by innovation. It turns out Graham's intuitive assumptions about what causes inequality don't agree with the data. The overwhelming majority is caused by rent-seeking behaviours - the "bad" causes of inequality Graham dismisses as small relative to startups. Here's a relevant section: "When the math cleared from their analyses, the economists estimated that 14 percent of the increase in the share of income going to the top 1 percent of Americans between 1975 and 2012 "may be explained by an increase in innovation." The economists say those increases are temporary, they generate economic growth and they're associated with stronger upward mobility. Those are all good things. Point, Graham. If you take that as a proxy for the Silicon Valley effect, though, you're left with a problem: 86 percent of the recent inequality increase can't be explained by innovation. You're also stuck with the fact that startup formation for tech companies has been falling for more than a decade even as inequality has been widening, and not rising, as Graham implies. Total venture capital funding remains well below late-1990s levels, even before you adjust for inflation, according to data from the National Venture Capital Association. In light of all that, it's difficult to conclude that startups are mostly driving the income gap." Furthermore: "Other recent studies also suggest high levels of rent-seeking are driving inequality. Brian Bell and John Van Reenan, a pair of economists in Britain (which resembles the United States in many ways when it comes to inequality), reported in 2014 that increased bonuses for bankers accounted for two-thirds of the growth of top 1 percent incomes in Britain after 1999. There are all sorts of reasons to believe that premium financial sector pay is almost entirely rent-seeking; the British paper would suggest that at least two-thirds of inequality could be linked back to "bad" sources, in other words."
- michaelkeenan 11y agoI didn't remember PG writing anything about startups mostly driving the income gap, and I just searched the essay and didn't find it. Here's what PG wrote about the proportions of each group causing income inequality: "But while there are a lot of people who get rich through rent-seeking of various forms, and a lot who get rich by playing games that though not crooked are zero-sum, there are also a significant number who get rich by creating wealth." It's unclear what the WaPo writer is responding to when he says "it's difficult to conclude that startups are mostly driving the income gap." The writer also has this odd paragraph: "If there is middle ground between Graham and this body of research, it's the idea that policymakers shouldn't go after inequality with blunt instruments, like big tax hikes just for the sake of soaking the rich. Perhaps, instead, they should target rent-seeking, which economists agree is bad for everyone who isn't a rent seeker." This doesn't look like a middle ground; rather, it's what PG suggests: "if there are people getting rich by tricking consumers or lobbying the government for anti-competitive regulations or tax loopholes, then let's stop them. Not because it's causing economic inequality, but because it's stealing." And: "startups aren't the problem, [the problem is] corrupt practices in finance, healthcare, and so on." (But it's a long essay; please let me know if I've missed parts that support a different interpretation.)
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- noobermin 11y agoThe third paragraph: >Paul Graham, a venture capitalist and one of the founders of the startup incubator Y Combinator, would have you believe this rising inequality is a good thing. Or, at very worst, the inevitable consequence of a good thing. Times like this makes me think that different parties write the article titles than those who write the articles.
- OopsCriticality 11y agoI was under the impression that was exactly the case, sometimes guided by A/B testing.
- dang 11y agoIt's well-known that authors don't get to write the titles of articles like this.
- davidw 11y agoThe actual article seems a bit better than the title, which misconstrues pg's point.
- dang 11y agoAt this point putting pg in the title is a form of linkbait, but if someone can suggest an accurate, neutral title that includes him we can change it back. In the meantime, since the substance of this piece is about what economists say, the title can say that.
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- socalnate1 11y agoThe "short version" of Paul Graham's inequality essay is much better than the original. (http://www.paulgraham.com/sim.html http://www.paulgraham.com/sim.html)
- Zikes 11y agoThis version seems much easier to parse. Nobody would care about the super rich if they felt secure and stable in their own finances. Right now a growing number of people do not, and mostly for reasons that are out of their hands. Fix the causes, not the symptoms. Make health care affordable, raise the minimum wage to a living wage (and for gods sake tie it to inflation or something so we're not debating it all over again the next time it's 20 years out of date), eliminate predatory lending practices, fix education costs, etc.
- Avshalom 11y ago- thats assuming those are causes not symptoms - fewer people would care but that doesn't mean they shouldn't. If as an example I am running a business that you really don't like, maybe I'm infamous for hiring death squads or something, so you put together a boycott. Except if I have eleventygazillion dollars your boycott is completely irrelevant to my bank account. I can buy laws even. With enough inequality the sufficiently rich can become entirely unaccountable.
- davidw 11y ago> Nobody would care about the super rich if they felt secure and stable in their own finances. That's probably not true. People are envious creatures, and relative status matters too. I don't believe that that should guide policy, but it's still something to be cognizant of.
- Zikes 11y agoThat's at the extreme. Sure people will always be jealous of the rich, but there's a big difference between everyday jealousy and getting your house repossessed by the bank that got bailed out with your tax dollars a few years earlier after said bank contributed to the financial recession that caused you to miss your mortgage payment and sink into a spiral of debt and payday loans.
- joelrunyon 11y agoAnyone else's brain about to explode when reading these "responses" to things that PG never actually said. All he said was that inequality isn't the problem per-se. It's the symptom of a bunch of other issues and if you just try to address equality on it's own, you're going to completely miss the underlying causes.
- david927 11y agoI find your assessment of what he said to be generous, but even in that, he's still a multi-millionaire saying, "Sure, let's fight poverty but not in a way that affects that the rich (people like me) are getting richer." If he was half as clever as you're trying to make him, he would have just focused on the "underlying causes" and left the rest alone.
- joelrunyon 11y agoNo - he's asking people to correctly identify the problem first.
- david927 11y agoBut he never correctly identifies the problem; he doesn't spend any time on the problem. He simply shoos us away from inequality, which given his income bracket smacks of conflict-of-interest.
- joelrunyon 11y agoHe can be corrective without having to identify it himself. Just because he explains that something isn't the problem, doesn't mean he's obligated to identify all the root causes himself. He's simply pointing out a flaw in people's logical processes.
- david927 11y agoHe can be corrective without having to identify it himself. Can he? Because the last I looked, he has failed so dramatically in whatever he was trying to do that now that not only has he been vilified, lacerated and destroyed in the press -- but inequality is even more on the radar than it was before.
- marknutter 11y ago> They looked at levels of innovation (as measured by a particular kind of patent production) across individual states over time. They found a significant relationship between increased innovation in a state and the increased income share of the top 1 percent of earners in the state. Are you F'ing kidding me? Patent production? Since when has looking at patent production been an accurate measure of innovation in the Valley? This is a hit piece, pandering to the tired narrative around "income inequality".
- oldmanjay 11y agoEconomists have to use something to make it seem like they themselves are being productive. Which voodoo would you prefer they use to measure the unmeasurable?
- civilian 11y agoI'd prefer they be honest with themselves and use crystal balls.
- gnarbarian 11y agoEconomists are like meteorologists, they can always explain why they were wrong yesterday. I pity them really. They desperately want to make a solid argument derived from data, but the data they used and the way the split it between innovation derived growth and rent seeking derived growth is spectacularly wrong.
- jnbiche 11y agoHow many SV companies don't file for defensive patents? It's only been in the past year or two that a few bold companies have taken vows to not file software patents, regardless of the consequences (I stand I admire). I can tell you that if you have a type of technology that is patent eligible, and you refuse to file for patents, finding investors is difficult. And indeed, among those companies that have sworn off patents, the ones that I've noticed have all been bootstrapped.
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- jtlien1 11y agoThe inequality is more apparent than real. I enjoy watching videos of Dallas from the 1980s. They were the richest oil men in Texas. But look real close... They are using dial telephones. They could have had expensive radio phones in their cars, but who would they talk to? The couldn't even order a pizza. The entrepreneurial culture that led to cell phone being universal wasn't there yet. It is the NETWORKS that make us all rich compared to where we were decades ago.
- judah 11y ago>> "Research suggests Graham is both overestimating the importance of startups to inequality and underestimating the damage high inequality can inflict. Researchers from the University..." I choose to draw my views not from politically-charged academics and their statistics, which can be made to prove most anything. Instead, I align my views with those who have actual experience in creating wealth and building the economy. PG knows his stuff. His realistic view of inequality fits neither the political agenda of academia nor the agenda of this article's author. For this reason, the author demonizes PG as a "big-shot venture capitalist."
- PythonicAlpha 11y agoTo denunciate researchers as having a "political agenda", because their opinion does not fit into the own political agenda, does not sound very honest to me.
- judah 11y agoThey are pushing a political agenda -- leftist views on inequality -- and are doing so in line with the vast majority of academics in Europe and the United States[0]. [0]: http://heterodoxacademy.org/problems/ http://heterodoxacademy.org/problems/
- PythonicAlpha 11y agoWhen all the academics say the same, than maybe some should start listening. But it is of course easier to denunciate other opinions. <Irony>Also many academics in Europe say, that climate change is happening -- shame on Europe! What academics from Europe say, must be wrong! And of course "leftist views" are also wrong all the time. Don't listen to those that are called leftist or similar in Fox News or other trustworthy channels. </Irony>
- judah 11y agoSometimes, ideas become accepted because there is so much evidence in support of them that it would be perverse to believe otherwise (e.g., the Earth is round). Other times, however, ideas become widely accepted, even entrenched, without any real evidence. Such entrenched beliefs often arise because they support particular political or moral agendas; if the beliefs are falsified, the moral agenda will be threatened. The academic views on inequality fall firmly in the latter category.
- graeham 11y agoAnyone else find irony that this is published in the Washington Post, which is owned by Jeff Bezos (founder/ CEO of Amazon)?
- danmaz74 11y agoI'm no big fan of Laffer curve - and especially the stupid way it was used to justify the position that lower taxes are the right answer to every problem - but using a similar approach with inequality could help. With total inequality, everybody starves and dies except the few mega-rich, and not even the mega-rich would be happy as nobody would be able to produce the luxury things they enjoy spending their riches on. With total equality, productivity and innovation plummet, because most of those who are able and willing to work more and/or better resent the freeloaders that enjoy what the actual producers produce without putting in the effort, and become demotivated. So, obviously, some inequality is good for society, but too much inequality is bad. Western societies have been moving towards higher and higher inequality in the last 30 years - incidentally, also thanks to the Laffer curve. At some point, too much inequality is bad not just for "social justice", but also for business. Have we already passed that point? If so, shouldn't we do something to stop the trend? And what? What PG is maybe missing is that startups aren't the main engine for creating inequality, but excessive inequality is going to create problems, and we can't just ignore those problems because a policy to limit those problems could also limit the number of unicorns created in SV.
- dnautics 11y agoWhy do you think that inequality is driven by the Laffer curve? (I'm not a fan of laffer curve arguments either) Prior to 1920 there was basically zero income tax, and it's hard to argue that in the preceding era, especially 1850-1920, inequality was on the rise. Hell, one segment of the population OWNED another segment of the population. If you ask me, inequality is generated by the regressive theft of wealth from the poorest segment of the population by a state-run policy of increasing the cost of living. This artificial increase also drives the middle class into various forms of asset-based investment which effectively socialize corporate risk, while disproportionate amount of the gains go to the "capitalist" classes.
- danmaz74 11y agoJust to clarify: I don't think that "inequality is driven by the Laffer curve". But I do think that lower and lower taxation on the rich since Reaganomics has greatly contributed to the growth of inequality; thus the (joking) reference to Laffer. Also to clarify, I'm against punishing marginal rates like there were at some point also in the USA, but also find crazy that Buffet's secretary pays a higher rate than Buffet's.
- coffeemug 11y ago> Taken together, they make the case that Graham -- and others who wave off inequality as inconsequential -- has misread what's happened in the American economy. It's like everyone who read PG's essay (even respectable journalists!) lack basic reading comprehension skills. Paul never waved off inequality -- he merely pointed out that measuring inequality is measuring the wrong thing, and that we need to have a slightly more nuanced view of the world. I haven't seen a single rebuttal yet that actually responds to the arguments in the essay, instead of a straw man argument PG never made.
- Avshalom 11y agoStating that measuring inequality is measuring the wrong thing isn't the same thing as being right.
- sskates 11y agoI think what was missed was that a lot of people feel inequality is inherently bad, independent of the cause. I think both sides are mostly talking past each other on this one. It's possible for the fact that an entrepreneur getting rich by founding a startup to be a good thing because of the wealth they create while the fact that it increases inequality to be bad. I think most people agree that entrepreneurs getting rich is on the whole net good. That doesn't make inequality inherently good though.
- shasta 11y agoI think the main point I disagreed with are the examples he gives of "good inequality", like Facebook and Google. Yes, these companies are producing value. That's how you make your first ten million. But to make billions, you position yourself as a gatekeeper to something and take a cut of everything passing through the gate. This is no longer analogous to a carpenter making chairs.
- jnbiche 11y agoLet's forget the original essay for a moment. Can you help me understand your comment? Why would we want to wave off measuring inequality, but not wave off inequality itself?
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- beat 11y agoThere is an air of defensiveness to pg's original essay. It's saying "Hey, we are producing extreme inequality, but we're doing it by actually making valuable stuff, so don't blame us!" And his solutions, which are generally ignored by the critics, make sense. But, as this article points out, he missed a core assumption - in his defensiveness about the productive inequality of Silicon Valley, he missed that the vast majority of the growth in inequality comes from nasty rent-seeking behavior. He acknowledged that such behavior is dishonest and kind of criminal, but he failed to acknowledge its scope. So the WP article has a fair criticism here. Unfortunately, the WP article also couches its fair criticism in the usual point-missing, inflammatory finger-pointing crap that most critiques of his essay have done. It could have risen above on the strength of its facts, but it chose the mud. Sigh.
- beat 11y agoAddendum: Sticking to pg's solutions, we could address the rent-seeking via regulation, without harming either founders or VCs. It's not that hard to tell the difference between a a liquidation event and a bonus.
- peterashford 11y agoPG deserves the mud. He doesn't shy away from telling everyone else that they're stupid and inferior for not using LISP (tell me that 'blub programmer' isn't a pejorative). If he's going to publish ill thought out, offensive crap, he should be prepared to read responses that share similar traits.
- noobermin 11y agoThe article has some good points, but it has some weak arguments, specifically its "evidence" for correlation between executive pay and union membership as evidence that workers are paid less, that's somewhat of a jump. Also, there's this > Total venture capital funding remains well below late-1990s levels, even before you adjust for inflation You mean the dot-com bubble???? Not the best thing to compare to... Regardless of these, the article makes a good point, specifically with the 86% of income gains that are "not explained" by entrepreneurship...may be the goal shouldn't be attacking income inequality specifically as much as it should be rent-seeking.
- staunch 11y agoFrom the original essay: > Closely related to poverty is lack of social mobility. I've seen this myself: you don't have to grow up rich or even upper middle class to get rich as a startup founder, but few successful founders grew up desperately poor. But again, the problem here is not simply economic inequality. There is an enormous difference in wealth between the household Larry Page grew up in and that of a successful startup founder, but that didn't prevent him from joining their ranks. It's not economic inequality per se that's blocking social mobility, but some specific combination of things that go wrong when kids grow up sufficiently poor. Someone paid a small fortune to buy Larry Page the same elite credentials that billionaires buy for their children, and it was the critical component in his success. Others spent fortunes buying the same elite credentials for Bill Gates, Paul Graham, Mark Zuckerberg, Drew Houston, Sam Altman, Peter Thiel, and most other "successful" Silicon Valley founders/investors. All of these people are smart but that's not why they're rich. They're rich because they had elite credentials which gave them access to resources and opportunities that 99% of people do not receive. The pie for elite credentials is (intentionally) fixed. Less than 1% of the population gets them, very few poor people do, and yet these people control most of the wealth and power throughout the U.S. They dominate Silicon Valley as if they were in an official alliance. People on the top of the pile don't complain about getting stepped on, or even see what all the fuss is about.
- apsec112 11y ago"Someone paid a small fortune to buy Larry Page the same elite credentials that billionaires buy for their children, and it was the critical component in his success." Larry Page went to a public high school (East Lansing High School) and a public university (University of Michigan). "Others spent fortunes buying the same elite credentials for Bill Gates, Paul Graham, Mark Zuckerberg, Drew Houston, Sam Altman, Peter Thiel, and most other "successful" Silicon Valley founders/investors." Three and a half out of the six people you named went to public high schools. What Paul Graham said about this question: "Closely related to poverty is lack of social mobility. I've seen this myself: you don't have to grow up rich or even upper middle class to get rich as a startup founder, but few successful founders grew up desperately poor. But again, the problem here is not simply economic inequality. There is an enormous difference in wealth between the household Larry Page grew up in and that of a successful startup founder, but that didn't prevent him from joining their ranks. It's not economic inequality per se that's blocking social mobility, but some specific combination of things that go wrong when kids grow up sufficiently poor." (http://www.paulgraham.com/ineq.html http://www.paulgraham.com/ineq.html)
- guelo 11y agoA lot of commenters here are missing the point that inequality is bad because the 1% can't spend all that money which causes a drop in aggregate demand and slows down the economy.
- leeleelee 11y agoI'm inclined to think that very, very few people (including myself) really know: (a) What exactly is income inequality? Can you define it with some type of formula or methodology? Are we using the gini coefficient, atkinson index, decile ratios, etc? Article authors mostly use vague references to "income inequality" and "the top 1%" and "the rich get rich and the poor get poorer" etc without really knowing what they are talking about. (b) Once we've defined what exactly we're talking about, now let's talk about it's effects...positive or negative. Is this bad because money is pooled up and not being spent on consumer goods? Is it bad just because people think it's unfair? How is all of this extra income at "the top" being used? Invested into stock markets, into private startups, sitting in a bank account, buying yachts, etc? Where is all this extra income flowing to? (c) Next, how do we measure the effect of inequality (b)? (d) If we fix inequality, does it automatically fix the negative effects from (b) above? Or is it possible that inequality is only correlated with the supposed effects from (b) and there does not exist a causal relationship like we thought? I am continually frustrated when I see articles getting passed around social media and getting in the heads of "regular people" when the article author doesn't really know what they're talking about, the person reading the article doesn't understand what they're reading, and the end result is emotionally charged people angry at the world for some [maybe real or maybe not] reason that they probably can't even articulate.
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