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Silicon Valley is a great example of growing inequality. Most of the rewards go disproportionally to a select few at the top. That's a good thing: http://www.p

Silicon Valley is a great example of growing inequality. Most of the rewards go disproportionally to a select few at the top. That's a good thing: http://www.paulgraham.com/inequality.html http://www.paulgraham.com/inequality.html "Decreasing economic inequality means taking money from the rich. Since risk and reward are equivalent, decreasing potential rewards automatically decreases people's appetite for risk. Startups are intrinsically risky. Without the prospect of rewards proportionate to the risk, founders will not invest their time in a startup. Founders are irreplaceable. So eliminating economic inequality means eliminating startups."

feral 10y ago
>That's a good thing: No; that essay might argue that inequality is a necessary side-effect or condition of startups, but that is not the same as arguing it is a "good thing". For comparison: pollution might be a necessary result of the industrial revolution, and perhaps a cost we pay gladly; but that doesn't mean pollution is good. If we could get industry without pollution, we would.
maxxxxx 10y ago
That's probably of Graham's worst essays. Nobody is talking about removing all rewards. The question is how much reward is needed. Did CEOs do a worse job when they made 20 times the average worker income or would Zuckerberg do anything differently if he had made $500 million instead of 20 billion? What was his risk? Wasting a few years of his life? Plenty of small business owners go under after years of work and have nothing left. Silicon Valley founders don't take an extraordinary risk.
- FrancoDiaz 10y ago
  the question is how much reward is needed Who decides that?
  - eevilspock 10y ago
    Society. It was society that decided to have the current reward system. It is society that can change its mind.
    - bmm01 10y ago
      That's a somewhat naive view. It presupposes that the current system is just, because (1) all members of society had an equal hand in shaping the current system, (2) that it was designed to serve the interests of society as a whole (rather than those who benefit most from it), and (3) that it would be easy to change the system if a consensus emerged among a majority (or even a vast majority) of society that such change was desirable. I disagree with all three presuppositions.
      - eevilspock 10y ago
        I made none of your 3 presuppositions. Society is society whether or not it is democratic, fair or wise. But usually it changes its mind as it becomes more democratic, fair and wise.
    - Analemma_ 10y ago
      This is... very wrong, at least if you're talking about CEO pay. Who decides CEO pay? The Board. Who is the Board? Well, it's usually guys who are CEOs at other companies. Boards have every incentive to make this pay as high as they can get away with, so they will get the same quid pro quo, and "society" has nothing to do with it.
      - eevilspock 10y ago
        You're interpreting my comment too narrowly. I agree that the concentration of power is a big problem, in fact, the biggest. But most everyone is complicit, both through their actions and inactions. Nearly everyone is putting self-interest first and foremost, including most liberals/progressives. We are complicit when we vote for people like the Clintons into power to represent progressive values. We are complicit when we take higher paying jobs at companies that put profit over people and society (and thus act behave just like those CEOs). We are complicit when we try to handsomely reward ourselves via SV get-rich-quick schemes building products that no one is willing to pay for except the advertisers who bombard us with self-serving messages in turn turning the web into click-bait, fake-news viral hell. Also see my other reply.
  - ryandrake 10y ago
    Congress? Someone should. Society has decided that a greater good is promoted when someone decides on a minimum wage. Why can't someone decide on a maximum wage?
RangerScience 10y ago
Monetary rewards are far from the only rewards. Ability to effect change is a broader version of that reward: Elon Musk doesn't have as much money as Zuckerburg, but there's an argument to made that he's wealthier, since he's able to enact more/different change in the world. (Of course, Facebook has had such a ridiculously large effect on the world that argument is probably hard to win, but it illustrates what I'm trying to say)
- sillysaurus3 10y ago
  The way Elon was able to get into a position to affect the world was by acquiring a pile of money. It was a necessary first step. If you imagine a scenario where society enforces a cap on how rich someone is allowed to get, it's possible that Musk might not have passed the threshold of money needed to get into his current position. More broadly, when a society won't let people become as rich as the market will let them, founders will tend to move elsewhere.
  - eevilspock 10y ago
    You mean like Galt's Gulch? That would be great. We'll be better off without people who only doing things for personal gain, to amass the greatest share of the world's wealth and power that they can.
  - megalodon 10y ago
    It's also possible that the threshold for innovation would be lower because of the cap.
markkanof 10y ago
Inequality as a driver of innovation is maybe arguable based on the idea of risk/reward. But what about, for example the CEO of any large bank or established corporation. Those people aren't taking any significant risk, but their compensation packages would indicate otherwise. The organization that concentrates wealth towards the top is already in place. They profit from the success of that organization, but in most cases the worst case for them if things go wrong is losing their job. Not losing their life savings, not ending up living on the street, etc. So since the risk is so low, there shouldn't be a need to incentivize people to such an extreme to do that work.
shawn-furyan 10y ago
This actual analysis from The Federal Reserve Bank of San Francisco, which uses long running public (easily accessible) data from the Census Bureau, the BDS report[1], suggests that income inequality hurts startup creation rather than helping it. Note: The specific relationship that they find is that startup creation is associated with home prices. This makes sense in the US, as home prices are a good proxy for middle class wealth. Here's a quick not fully vetted interpretation of this finding: When the middle class is relatively rich, they start businesses. When it is relatively poor, they don't. The aspirational income inequality that Graham posits doesn't immediately jump out when looking at year by year new startup numbers on a graph. I'm currently analyzing these numbers, but it's pretty clear that they don't support Graham's assumptions. Note 2: The FRBoSF analysis isn't perfect for answering this question, but at least it's a good start, unlike the pure logic approach (despite the easy availability of good longitudinal Census data on the subject) that Graham published. Note 3: The Graham essay is an essay on income inequality that came out before the atomic bomb that Picketty dropped on the subject. It really shouldn't be dragged out now because the research landscape on the field has been completely changed since it was written. Final Note: I know that every time the word startup is used on HN, it spurs a 'No True Scotsman' debate about what qualities invalidate a new business from the label startup. Not remotely important. The FRBoSF article notes that new businesses have faster job growth than older businesses and that's the larger subject in question. Trying to throw companies out only serves to move the conversation from fact based to conjecture based by throwing out a perfectly good source of facts relevant to the matter. [1] http://www.census.gov/ces/dataproducts/bds/ http://www.census.gov/ces/dataproducts/bds/
- sillysaurus3 10y ago
  The specific relationship that they find is that startup creation is associated with home prices. This makes sense in the US, as home prices are a good proxy for middle class wealth. Here's a quick not fully vetted interpretation of this finding: When the middle class is relatively rich, they start businesses. When it is relatively poor, they don't. The aspirational income inequality that Graham posits doesn't immediately jump out when looking at year by year new startup numbers on a graph. I'm currently analyzing these numbers, but it's pretty clear that they don't support Graham's assumptions. He addresses this line of logic in a separate essay: http://paulgraham.com/wealth.html http://paulgraham.com/wealth.html "A surprising number of people retain from childhood the idea that there is a fixed amount of wealth in the world. There is, in any normal family, a fixed amount of money at any moment. But that's not the same thing. When wealth is talked about in this context, it is often described as a pie. "You can't make the pie larger," say politicians. When you're talking about the amount of money in one family's bank account, or the amount available to a government from one year's tax revenue, this is true. If one person gets more, someone else has to get less. I can remember believing, as a child, that if a few rich people had all the money, it left less for everyone else. Many people seem to continue to believe something like this well into adulthood. This fallacy is usually there in the background when you hear someone talking about how x percent of the population have y percent of the wealth. If you plan to start a startup, then whether you realize it or not, you're planning to disprove the Pie Fallacy."

feral 10y ago

>That's a good thing: No; that essay might argue that inequality is a necessary side-effect or condition of startups, but that is not the same as arguing it is a "good thing". For comparison: pollution might be a necessary result of the industrial revolution, and perhaps a cost we pay gladly; but that doesn't mean pollution is good. If we could get industry without pollution, we would.

maxxxxx 10y ago

That's probably of Graham's worst essays. Nobody is talking about removing all rewards. The question is how much reward is needed. Did CEOs do a worse job when they made 20 times the average worker income or would Zuckerberg do anything differently if he had made $500 million instead of 20 billion? What was his risk? Wasting a few years of his life? Plenty of small business owners go under after years of work and have nothing left. Silicon Valley founders don't take an extraordinary risk.

FrancoDiaz 10y ago
the question is how much reward is needed Who decides that?
- eevilspock 10y ago
  Society. It was society that decided to have the current reward system. It is society that can change its mind.
  - bmm01 10y ago
    That's a somewhat naive view. It presupposes that the current system is just, because (1) all members of society had an equal hand in shaping the current system, (2) that it was designed to serve the interests of society as a whole (rather than those who benefit most from it), and (3) that it would be easy to change the system if a consensus emerged among a majority (or even a vast majority) of society that such change was desirable. I disagree with all three presuppositions.
    - eevilspock 10y ago
      I made none of your 3 presuppositions. Society is society whether or not it is democratic, fair or wise. But usually it changes its mind as it becomes more democratic, fair and wise.
  - Analemma_ 10y ago
    This is... very wrong, at least if you're talking about CEO pay. Who decides CEO pay? The Board. Who is the Board? Well, it's usually guys who are CEOs at other companies. Boards have every incentive to make this pay as high as they can get away with, so they will get the same quid pro quo, and "society" has nothing to do with it.
    - eevilspock 10y ago
      You're interpreting my comment too narrowly. I agree that the concentration of power is a big problem, in fact, the biggest. But most everyone is complicit, both through their actions and inactions. Nearly everyone is putting self-interest first and foremost, including most liberals/progressives. We are complicit when we vote for people like the Clintons into power to represent progressive values. We are complicit when we take higher paying jobs at companies that put profit over people and society (and thus act behave just like those CEOs). We are complicit when we try to handsomely reward ourselves via SV get-rich-quick schemes building products that no one is willing to pay for except the advertisers who bombard us with self-serving messages in turn turning the web into click-bait, fake-news viral hell. Also see my other reply.
- ryandrake 10y ago
  Congress? Someone should. Society has decided that a greater good is promoted when someone decides on a minimum wage. Why can't someone decide on a maximum wage?

RangerScience 10y ago

Monetary rewards are far from the only rewards. Ability to effect change is a broader version of that reward: Elon Musk doesn't have as much money as Zuckerburg, but there's an argument to made that he's wealthier, since he's able to enact more/different change in the world. (Of course, Facebook has had such a ridiculously large effect on the world that argument is probably hard to win, but it illustrates what I'm trying to say)

sillysaurus3 10y ago
The way Elon was able to get into a position to affect the world was by acquiring a pile of money. It was a necessary first step. If you imagine a scenario where society enforces a cap on how rich someone is allowed to get, it's possible that Musk might not have passed the threshold of money needed to get into his current position. More broadly, when a society won't let people become as rich as the market will let them, founders will tend to move elsewhere.
- eevilspock 10y ago
  You mean like Galt's Gulch? That would be great. We'll be better off without people who only doing things for personal gain, to amass the greatest share of the world's wealth and power that they can.
- megalodon 10y ago
  It's also possible that the threshold for innovation would be lower because of the cap.

markkanof 10y ago

Inequality as a driver of innovation is maybe arguable based on the idea of risk/reward. But what about, for example the CEO of any large bank or established corporation. Those people aren't taking any significant risk, but their compensation packages would indicate otherwise. The organization that concentrates wealth towards the top is already in place. They profit from the success of that organization, but in most cases the worst case for them if things go wrong is losing their job. Not losing their life savings, not ending up living on the street, etc. So since the risk is so low, there shouldn't be a need to incentivize people to such an extreme to do that work.

shawn-furyan 10y ago

This actual analysis from The Federal Reserve Bank of San Francisco, which uses long running public (easily accessible) data from the Census Bureau, the BDS report[1], suggests that income inequality hurts startup creation rather than helping it. Note: The specific relationship that they find is that startup creation is associated with home prices. This makes sense in the US, as home prices are a good proxy for middle class wealth. Here's a quick not fully vetted interpretation of this finding: When the middle class is relatively rich, they start businesses. When it is relatively poor, they don't. The aspirational income inequality that Graham posits doesn't immediately jump out when looking at year by year new startup numbers on a graph. I'm currently analyzing these numbers, but it's pretty clear that they don't support Graham's assumptions. Note 2: The FRBoSF analysis isn't perfect for answering this question, but at least it's a good start, unlike the pure logic approach (despite the easy availability of good longitudinal Census data on the subject) that Graham published. Note 3: The Graham essay is an essay on income inequality that came out before the atomic bomb that Picketty dropped on the subject. It really shouldn't be dragged out now because the research landscape on the field has been completely changed since it was written. Final Note: I know that every time the word startup is used on HN, it spurs a 'No True Scotsman' debate about what qualities invalidate a new business from the label startup. Not remotely important. The FRBoSF article notes that new businesses have faster job growth than older businesses and that's the larger subject in question. Trying to throw companies out only serves to move the conversation from fact based to conjecture based by throwing out a perfectly good source of facts relevant to the matter. [1] http://www.census.gov/ces/dataproducts/bds/ http://www.census.gov/ces/dataproducts/bds/

sillysaurus3 10y ago
The specific relationship that they find is that startup creation is associated with home prices. This makes sense in the US, as home prices are a good proxy for middle class wealth. Here's a quick not fully vetted interpretation of this finding: When the middle class is relatively rich, they start businesses. When it is relatively poor, they don't. The aspirational income inequality that Graham posits doesn't immediately jump out when looking at year by year new startup numbers on a graph. I'm currently analyzing these numbers, but it's pretty clear that they don't support Graham's assumptions. He addresses this line of logic in a separate essay: http://paulgraham.com/wealth.html http://paulgraham.com/wealth.html "A surprising number of people retain from childhood the idea that there is a fixed amount of wealth in the world. There is, in any normal family, a fixed amount of money at any moment. But that's not the same thing. When wealth is talked about in this context, it is often described as a pie. "You can't make the pie larger," say politicians. When you're talking about the amount of money in one family's bank account, or the amount available to a government from one year's tax revenue, this is true. If one person gets more, someone else has to get less. I can remember believing, as a child, that if a few rich people had all the money, it left less for everyone else. Many people seem to continue to believe something like this well into adulthood. This fallacy is usually there in the background when you hear someone talking about how x percent of the population have y percent of the wealth. If you plan to start a startup, then whether you realize it or not, you're planning to disprove the Pie Fallacy."