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I really don't understand the wholesale dislike of inequality when that inequality is due to legitimate value provision and not due to illegal activity, externa

I really don't understand the wholesale dislike of inequality when that inequality is due to legitimate value provision and not due to illegal activity, externalities, cronyism, rent seeking and so on. Would people be happier if Elon Musk made a shittier space company? Inequality would be lower and yet the world would be objectively a worse place. The only legitimate argument I've heard is that it creates a biochemical stress response in people, especially men, who are not as successful, which leads to poor health outcomes. But inequality in social capital also does that in spades but I don't see anyone clamoring to remove and equalize Instagram followers. That tells me that the real underlying motivation is an intrinsic disgust with inequality due to unstated jealousy, rather than an earnest concern for the poor. If it was the latter you would see those motivations revealed in rhetoric that focuses more on prosperity and lifting those specific people up and fixing the real issues underlying poverty and disease and suffering, whereas instead most rhetoric is around the delta between them and the top which only indirectly impacts them through a very fuzzy and unproven mechanism.

lamontcg 5y ago
If Musk had 1/10th of his current wealth, would his space company be shittier?
- fighterpilot 5y ago
  Possibly yes. Do we know how that would impact his motivation, or the motivation of future entrepreneurs who see what happens at the end once people become successful? Why do you think common advice is to avoid too much dilution early on, or to avoid founder fallout with almost half the equity walking out the door. It's because, like it or not, this kind of thing motivates humans. Maybe you are a monk and can work hard for a company as a founder with very little equity, but knowing myself, I would never do that, and I am not so unusual as to believe I am unique in that department. Also I don't see this as a pure question of incentives, but also a question of property rights. He made that wealth via value add. We owe him our gratitude for that and have no right to swipe his property. If he stole that money or made it by spewing toxic pollution, then by all means take away his wealth.
  - lamontcg 5y ago
    > Maybe you are a monk and can work hard for a company as a founder with very little equity I suggested Musk would still be worth $19B. Truly I am a monk if I should want so little.
- erik_seaberg 5y ago
  If he had 1/10 of his wealth in 2002, would he have risked it all founding SpaceX?
WalterBright 5y ago
When I was younger, the political rhetoric was mostly focused on improving the state of the poor. In recent years, it shifted entirely away from that into reducing the difference between rich and poor.
whakim 5y ago
The question is really about what level of inequality is justifiable. For example, the average S&P500 CEO earns almost 300 times the salary of their average employee, compared with 20 times the salary of their average employee in 1965. Are CEOs really 15x more valuable (relative to employees) than they were in 1965? I struggle to believe that's true - which means that inequality is ultimately a political question as much as it is an economic question.
- fighterpilot 5y ago
  That's not surprising to me for a few reasons. The SP500 is a fixed number (500) of companies, which means that as the real economy grows, the average size of the company that happens to be in the top 500 will be larger, which will skew the average up merely because of a side effect of using a fixed threshold instead of a percentile or market cap threshold. Consider an economy of 50,000 companies that grows to an economy of 100,000 companies. Due to the power law distribution of market caps, the top 500 in the latter is going to be much larger than the top 500 in the former. There's also been a general trend towards centralization which drives up the market caps of the top 30 due to the arrival of network effect companies (Facebook) combined with government policy to bail out large companies in '08 and '20/'21. This gives CEO more leverage, meaning their decision making is more impactful due to the size of the org, and legitimizes higher pay. Another factor is the commodification of labor due to globalization of trade. That increases the supply at the low end which increases the disparity between CEO pay and worker pay due to the relative scarcity of CEO talent and oversupply of commodity labor. I think the framing of justifiable or not is the wrong framing. If these CEOs are adding value above and beyond their huge pay packet, then their existence is making your and my lives better off, so their incredible wealth should not concern anyone. Everyone wins. If there are losers due to externalities, that's where the government needs to step in.
  - whakim 5y ago
    I couldn't quickly find data back to 1965, but I did find that the S&P500 market cap as a percentage of GDP has grown by 2.75x since the late 80s, whereas CEOs are paid ~5x more relative to the average worker in that time. Additionally, the trends don't really change if you take the S&P500 out of it - economy-wide CEOs are paid much more relative to ordinary workers than they used to be. Even if the biggest companies are bigger and more complicated than they used to be (I find this hard to believe - is Facebook really bigger and more complicated than Standard Oil, AT&T, IBM, or GE?), the typical company probably isn't. Most economists would also point out the tight correlation between CEO pay and stock market caps, which means that CEOs aren't being paid more because they're doing a particularly good job. > I think the framing of justifiable or not is the wrong framing. If these CEOs are adding value above and beyond their huge pay packet, then their existence is making your and my lives better off, so their incredible wealth should not concern anyone. Everyone wins. If there are losers due to externalities, that's where the government needs to step in. Everyone else who takes home less money as a result, loses. But if you don't believe me, consider a scenario in which CEOs earn thousands or tens of thousands of times the wage of the average worker - does that seem justifiable? What about a scenario in which the CEO earns everything?

lamontcg 5y ago

If Musk had 1/10th of his current wealth, would his space company be shittier?

fighterpilot 5y ago
Possibly yes. Do we know how that would impact his motivation, or the motivation of future entrepreneurs who see what happens at the end once people become successful? Why do you think common advice is to avoid too much dilution early on, or to avoid founder fallout with almost half the equity walking out the door. It's because, like it or not, this kind of thing motivates humans. Maybe you are a monk and can work hard for a company as a founder with very little equity, but knowing myself, I would never do that, and I am not so unusual as to believe I am unique in that department. Also I don't see this as a pure question of incentives, but also a question of property rights. He made that wealth via value add. We owe him our gratitude for that and have no right to swipe his property. If he stole that money or made it by spewing toxic pollution, then by all means take away his wealth.
- lamontcg 5y ago
  > Maybe you are a monk and can work hard for a company as a founder with very little equity I suggested Musk would still be worth $19B. Truly I am a monk if I should want so little.
erik_seaberg 5y ago
If he had 1/10 of his wealth in 2002, would he have risked it all founding SpaceX?

WalterBright 5y ago

When I was younger, the political rhetoric was mostly focused on improving the state of the poor. In recent years, it shifted entirely away from that into reducing the difference between rich and poor.

whakim 5y ago

The question is really about what level of inequality is justifiable. For example, the average S&P500 CEO earns almost 300 times the salary of their average employee, compared with 20 times the salary of their average employee in 1965. Are CEOs really 15x more valuable (relative to employees) than they were in 1965? I struggle to believe that's true - which means that inequality is ultimately a political question as much as it is an economic question.

fighterpilot 5y ago
That's not surprising to me for a few reasons. The SP500 is a fixed number (500) of companies, which means that as the real economy grows, the average size of the company that happens to be in the top 500 will be larger, which will skew the average up merely because of a side effect of using a fixed threshold instead of a percentile or market cap threshold. Consider an economy of 50,000 companies that grows to an economy of 100,000 companies. Due to the power law distribution of market caps, the top 500 in the latter is going to be much larger than the top 500 in the former. There's also been a general trend towards centralization which drives up the market caps of the top 30 due to the arrival of network effect companies (Facebook) combined with government policy to bail out large companies in '08 and '20/'21. This gives CEO more leverage, meaning their decision making is more impactful due to the size of the org, and legitimizes higher pay. Another factor is the commodification of labor due to globalization of trade. That increases the supply at the low end which increases the disparity between CEO pay and worker pay due to the relative scarcity of CEO talent and oversupply of commodity labor. I think the framing of justifiable or not is the wrong framing. If these CEOs are adding value above and beyond their huge pay packet, then their existence is making your and my lives better off, so their incredible wealth should not concern anyone. Everyone wins. If there are losers due to externalities, that's where the government needs to step in.
- whakim 5y ago
  I couldn't quickly find data back to 1965, but I did find that the S&P500 market cap as a percentage of GDP has grown by 2.75x since the late 80s, whereas CEOs are paid ~5x more relative to the average worker in that time. Additionally, the trends don't really change if you take the S&P500 out of it - economy-wide CEOs are paid much more relative to ordinary workers than they used to be. Even if the biggest companies are bigger and more complicated than they used to be (I find this hard to believe - is Facebook really bigger and more complicated than Standard Oil, AT&T, IBM, or GE?), the typical company probably isn't. Most economists would also point out the tight correlation between CEO pay and stock market caps, which means that CEOs aren't being paid more because they're doing a particularly good job. > I think the framing of justifiable or not is the wrong framing. If these CEOs are adding value above and beyond their huge pay packet, then their existence is making your and my lives better off, so their incredible wealth should not concern anyone. Everyone wins. If there are losers due to externalities, that's where the government needs to step in. Everyone else who takes home less money as a result, loses. But if you don't believe me, consider a scenario in which CEOs earn thousands or tens of thousands of times the wage of the average worker - does that seem justifiable? What about a scenario in which the CEO earns everything?