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Did 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

Did 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 ago
I 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.)
- mordocai 11y ago
  I would argue that 14% isn't a significant number and, therefore, PG's point stating "a significant number who get rich by creating wealth" is indeed disproved. The rest of your comment I agree with.
  - marcosdumay 11y ago
    What would you call significant then? Are you arguing that it's ok to apply blunt instruments that will hurt those 14% as much as the rest, since they are not enough to care about?
    - noobermin 11y ago
      Another way to think of this, if you'll forgive my pro-business tone here, say that that 14% who actually create value generate a significant portion of the utility gains (if not income as well) for the rest of us. We could be harming the incomes of the 99% in that case by gutting the 86% and the 14%. The solution is a scalpel, not a pick-axe. That is one of the possible resolutions stated in the article, which is one that I think is worthy.
  - michaelkeenan 11y ago
    Weirdly, the figure from the paper is actually 17%, not 14% (http://www.ucl.ac.uk/~uctp39a/innovation_and_top_income_inequality.pdf http://www.ucl.ac.uk/~uctp39a/innovation_and_top_income_ineq...). I'm not sure where the WaPo writer got 14% from. Also note that the paper warns that 17% is an underestimate: "Our results are likely to understate the true impact of innovation on top income inequality at the national level for at least two reasons. First, if successful, an innovator from a relatively poor state, is likely to move to a richer state, and therefore not contribute to the top 1% share of her own state. Second, an innovating firm may have some of its owners and top employees located in a state different from that of inventors, in which case the effect of innovativeness on top income inequality will not be fully internalized by the state where the patent is registered. Nevertheless, overall we find a sizeable effect of innovativeness on top income inequality."
- 11y ago
guscost 11y ago
> 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." Normally I don't bother to comment when news writers leave out links to their sources, but the study in question[0] provides an estimate of 17%, not 14%. > If you take that as a proxy for the Silicon Valley effect, though, you're left with a problem: 86 percent of the recent inequality increase can't be explained by innovation. This conclusion is a good example of excessive journalistic license, as it is unfounded and almost certainly false. First of all, the 86% or 83% or whatever remainder is not mentioned in the study at all. Second, the 17% represents the percent of income gap widening their model predicts based on one measure of innovation, as is plainly stated. For anyone interested in a much better summary, the study includes some tables (I think the 14%/17% result is on page 44). [0]http://scholar.harvard.edu/aghion/publications/innovation-and-top-income-inequality http://scholar.harvard.edu/aghion/publications/innovation-an...

michaelkeenan 11y ago

I 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.)

mordocai 11y ago
I would argue that 14% isn't a significant number and, therefore, PG's point stating "a significant number who get rich by creating wealth" is indeed disproved. The rest of your comment I agree with.
- marcosdumay 11y ago
  What would you call significant then? Are you arguing that it's ok to apply blunt instruments that will hurt those 14% as much as the rest, since they are not enough to care about?
  - noobermin 11y ago
    Another way to think of this, if you'll forgive my pro-business tone here, say that that 14% who actually create value generate a significant portion of the utility gains (if not income as well) for the rest of us. We could be harming the incomes of the 99% in that case by gutting the 86% and the 14%. The solution is a scalpel, not a pick-axe. That is one of the possible resolutions stated in the article, which is one that I think is worthy.
- michaelkeenan 11y ago
  Weirdly, the figure from the paper is actually 17%, not 14% (http://www.ucl.ac.uk/~uctp39a/innovation_and_top_income_inequality.pdf http://www.ucl.ac.uk/~uctp39a/innovation_and_top_income_ineq...). I'm not sure where the WaPo writer got 14% from. Also note that the paper warns that 17% is an underestimate: "Our results are likely to understate the true impact of innovation on top income inequality at the national level for at least two reasons. First, if successful, an innovator from a relatively poor state, is likely to move to a richer state, and therefore not contribute to the top 1% share of her own state. Second, an innovating firm may have some of its owners and top employees located in a state different from that of inventors, in which case the effect of innovativeness on top income inequality will not be fully internalized by the state where the patent is registered. Nevertheless, overall we find a sizeable effect of innovativeness on top income inequality."
11y ago

guscost 11y ago

> 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." Normally I don't bother to comment when news writers leave out links to their sources, but the study in question[0] provides an estimate of 17%, not 14%. > If you take that as a proxy for the Silicon Valley effect, though, you're left with a problem: 86 percent of the recent inequality increase can't be explained by innovation. This conclusion is a good example of excessive journalistic license, as it is unfounded and almost certainly false. First of all, the 86% or 83% or whatever remainder is not mentioned in the study at all. Second, the 17% represents the percent of income gap widening their model predicts based on one measure of innovation, as is plainly stated. For anyone interested in a much better summary, the study includes some tables (I think the 14%/17% result is on page 44). [0]http://scholar.harvard.edu/aghion/publications/innovation-and-top-income-inequality http://scholar.harvard.edu/aghion/publications/innovation-an...