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There are a lot of flaws with Paul's thinking here. First, most money is handed down, and then there's the lucky. Those bright sparks who earned their fortune

There are a lot of flaws with Paul's thinking here. First, most money is handed down, and then there's the lucky. Those bright sparks who earned their fortune may be on the covers of magazines, but they represent a paltry portion (1%?) of the total. Second, the wealthy are very good at keep their wealth for their families, those who are like them, those who went to the same school, etc. The worse the disparity in income, the worse the economic mobility and the worse society is as a whole. It creates huge problems that are well documented and easy to see if you simply travel. I understand Paul's point: driving technology creates wealth, and so it should be rewarded. Great. But if you peel off the fads and leave those technologies that really create wealth, you'll find Europe contributes just as well. In Europe, however, you don't trip over the homeless and crazy as you do in San Francisco. I'm an American entrepreneur; I choose to live in Europe.

thetrumanshow 17y ago
>> The worse the disparity in income, the worse the economic mobility and the worse society is as a whole. Maybe. Mining towns come to mind. In general disparity in wealth is good, driving people to compete and innovate. However, as in the mining town example, there could be point at which the disparity in money/power becomes too great. Edit: I intended to be referencing Company Towns (en.wikipedia.org/wiki/Company_town). Mining towns of the past are typically a good for-instance.
- david927 17y ago
  In general disparity in wealth is good On what planet? Show me an example and I'll show you a thousand examples of how it's disastrous.
  - kiba 17y ago
    Perhaps the distribution of wealth right now are more consituted by forces of harm by such as mininum wages law, unionism, corporate subsidy rather than forces of benefit. Good forces may affect the outcome in several ways. 1. More uniform distribution of wealth as freedom to exchange and contract are unencumbered by politics. 2. More extreme variation as productivity are given higher improtance, and thus different level of prosperity among individuals. 3. Uber specialization leading to the rise of higher, real wages for everyone as it become more difficult to just throw poorly educated people at it.
  - amalcon 17y ago
    The typical argument is that wealth is a good motivator. If a person's work improves the total lot of the world by quantity X, and it's distributed pseudorandomly, that's good. If the extra motivation helps them improve the total lot of the world by 2X, they keep 25% of that, and the rest is distributed pseudorandomly, that would seem to be better. There are a lot of assumptions in there that some people don't like to talk about. Fairness of the pseudorandom function and other forms of motivation are obvious ones, but there are many more. It's still a credible argument for why disparity in wealth could possibly be a necessary consequence of something good. It's just not a credible argument that this is necessarily the case.
    - silentbicycle 17y ago
      > The typical argument is that wealth is a good motivator. It can be a good demotivator when the disparity is large and hard work seems unrewarded, though - it can nurture a fatalistic outlook in which the rich are rich because the game is rigged, they "chose the right parents", etc., rather than working hard to get there. The rewards have to seem attainable.
      - amalcon 17y ago
        Yes, that would be another example of an assumption: that the disparity does not grow large enough for this to be common. This one would seem particularly unfounded.
      - run4yourlives 17y ago
        because the game is rigged That's exactly what pg was referring to when he spoke of historical contexts and the controls other than the market in allocating wealth.
    - david927 17y ago
      That's all paper and pencil thinking. I would humbly suggest looking out your window. By your same reasoning, the longer a person is unemployed, the more they would desire becoming employed and the more motivated they would become. The reality is the opposite: they become more and more defeated, they feel more and more hopeless. There have been some very interesting studies done on this by a Stanford professor with children from the projects. (I'll look it up if you're interested.) The feeling of despair and hopelessness sets in very early. I understand the theory you're presenting; however, I have found the opposite to occur in reality.
- astine 17y ago
  The mining town problem is not a matter of wealth disparity but rather a Monopsony on labour. Only one party owns the mines (usually) and that party rules the town. Redistribution is not going to help in this case; though, splitting the mine among several owners might.
pg 17y ago
I think you may be responding to what you think I said, rather than what I actually said. Can you give an example of a sentence or passage in the original that you feel is false?
- tc 17y ago
  Unrelated to the criticisms above... Having not reread this essay for a few years, I'd forgotten what a wonderful piece this was. Your exploration of the common fallacies that lead people astray is particularly clearheaded and well supported. However, you might want to reconsider the way you lumped, in passing, speculators together with thieves -- implying that neither create value. Thieves clearly destroy value, whereas speculators add information to markets. They create value in a very abstract way that is difficult to recognize, but is nonetheless there. A speculator that accurately foresees a shortage of grain in 6 months and therefore buys grain futures provides a service to society (by raising the future price of grain over the spot price, causing people to warehouse grain, which will take grain off the spot market, pushing up the spot price, moderating present demand for grain, and preventing an acute shortage).
  - Luff 17y ago
    Technically, thieves redistribute value, they don't destroy it. Speculators, on the other hand, can destroy capital by making bad investments. They can also just get lucky by investing in a rising economy.(thereby not contributing any information of value)
    - tc 17y ago
      In the real world, thieves destroy wealth in the process of redistributing. They break windows, they cause people to hire security guards, and their actions make people feel vulnerable and insecure -- all wealth-destroying. The redistribution isn't zero-cost to the thief either. The gas used by the thief to get to his target is destroyed wealth. Thieves also redistribute goods in such ways as to lower their value. Let's say a biotech company pays $20k for a microscope. A thief steals the microscope and pawns it to someone for $20 who just thinks the microscope looks cool. Wealth has been destroyed through the misallocation of resources caused by the improper redistribution. As for speculators destroying wealth by making bad investments: yes, they can, but they lose money when they do so, which is a self-correcting process. The CEO of a company can also destroy wealth by misallocating resources. As for speculators getting lucky: yes, they can do that as well, but random chance tends not to be sustainable (a random strategy will lose on average after transaction fees), causing a self-correction that tends towards mitigating noise. Anyway, if they are lucky and right, they've still added valuable correct information, just as a company that randomly happens onto a successful product still created value. As for speculators getting lucky by investing in a rising market: if the market rise is supported by fundamentals, then the speculators are still adding value by allocating resources towards worthwhile enterprises. What's the difference at that point between speculators and investors? If the rising market isn't supported by fundamental wealth creation (e.g. the central bank is printing money), there will be a correction, and the (long) speculators will lose money. Don't get too tied up on the word information. Market processes allocate scarce resources in such a way as to maximize total wealth and wealth creation (as best as can be done with the information available). Sometimes correct speculation aids that process indirectly by sending price signals. Other times correct speculation adds value by directly allocating resources where they can best be used (investing money in a startup, or in a pool of companies, or in bonds, for example).
run4yourlives 17y ago
Second, the wealthy are very good at keep their wealth for their families, those who are like them, those who went to the same school, etc. The wealthy take care of their friends and families? And this is a problem? Do you know anyone, wealthy or not that doesn't take care of their family? The worse the disparity in income, the worse the economic mobility and the worse society is as a whole. Debatable. Certainly, an even distribution doesn't fare to well either, especially if you have read any bit of history of the 20th century. What you are suggesting however that the poor, without adequate safety nets, can become a burden to society that is a net negative overall. This may be true, but not what PG is talking about. In Europe, however, you don't trip over the homeless and crazy as you do in San Francisco. Um, what? There are as many homeless and poor to "trip over" in Europe as there are in the US. Ever seen Gypsies?. And those "crazy" folk aren't on the street because they are locked away in institutions that the US - for better or worse - long ago decided weren't good for them. Like I said, I'm not arguing about safety nets, because I think the US could use a few more, and I don't think PG was commenting on that subject either.
- david927 17y ago
  The wealthy take care of their friends and families? And this is a problem? It's understandable, sure, but it's also a problem. I understand why the Saudi Royal family wants to keep all the oil money to themselves. I'm saying it's not healthy for Saudi Arabia as a whole. Certainly, an even distribution doesn't fare to well either Of course. I'm arguing that the other extreme is also bad -- that strong Capitalism eventually leans towards Feudalism. The trick is to find a balance: to reward achievers but provide sufficient safety nets. Um, what? There are as many homeless and poor to "trip over" in Europe Have you been to Europe? Really? I lived in SF and Berkeley, and I live in Europe now. It's quite simply, empirically, not comparable. And those "crazy" folk aren't on the street because they are locked away in institutions that the US - for better or worse - long ago decided weren't good for them. No, the US didn't decide that; it's a state issue. In Idaho it's quite good, for example. In California, Reagan, when he was governor, shut down a lot of the asylums and clinics to save money. Now, in California, you have lot of McMansions and lots of people who need serious medical help rummaging in the garbage.
astine 17y ago
In Europe, however, you don't trip over the homeless and crazy as you do in San Francisco. I think that you need to specify where in Europe you are talking about. I've been to Europe and there are some places that are definitely have more than their fair share of homeless and crazies.
- david927 17y ago
  No, that's the point. I defy you to name a place that's half as bad as San Francisco, and SF is just a standard American big city that way.
  - astine 17y ago
    Never been to SF, but I live near DC. Rome was definitely worse than DC on that count.
cpach 17y ago
Some time ago Trevor Blackwell of YC wrote an interesting piece related to the issue of keeping wealth. It's short and worth reading: http://tlb.org/interest.html http://tlb.org/interest.html I don't know what the situation is in SF, but I can attest that there is no shortage of homeless and crazy people in Sweden. I guess that holds true for any European country.

thetrumanshow 17y ago

>> The worse the disparity in income, the worse the economic mobility and the worse society is as a whole. Maybe. Mining towns come to mind. In general disparity in wealth is good, driving people to compete and innovate. However, as in the mining town example, there could be point at which the disparity in money/power becomes too great. Edit: I intended to be referencing Company Towns (en.wikipedia.org/wiki/Company_town). Mining towns of the past are typically a good for-instance.

david927 17y ago
In general disparity in wealth is good On what planet? Show me an example and I'll show you a thousand examples of how it's disastrous.
- kiba 17y ago
  Perhaps the distribution of wealth right now are more consituted by forces of harm by such as mininum wages law, unionism, corporate subsidy rather than forces of benefit. Good forces may affect the outcome in several ways. 1. More uniform distribution of wealth as freedom to exchange and contract are unencumbered by politics. 2. More extreme variation as productivity are given higher improtance, and thus different level of prosperity among individuals. 3. Uber specialization leading to the rise of higher, real wages for everyone as it become more difficult to just throw poorly educated people at it.
- amalcon 17y ago
  The typical argument is that wealth is a good motivator. If a person's work improves the total lot of the world by quantity X, and it's distributed pseudorandomly, that's good. If the extra motivation helps them improve the total lot of the world by 2X, they keep 25% of that, and the rest is distributed pseudorandomly, that would seem to be better. There are a lot of assumptions in there that some people don't like to talk about. Fairness of the pseudorandom function and other forms of motivation are obvious ones, but there are many more. It's still a credible argument for why disparity in wealth could possibly be a necessary consequence of something good. It's just not a credible argument that this is necessarily the case.
  - silentbicycle 17y ago
    > The typical argument is that wealth is a good motivator. It can be a good demotivator when the disparity is large and hard work seems unrewarded, though - it can nurture a fatalistic outlook in which the rich are rich because the game is rigged, they "chose the right parents", etc., rather than working hard to get there. The rewards have to seem attainable.
    - amalcon 17y ago
      Yes, that would be another example of an assumption: that the disparity does not grow large enough for this to be common. This one would seem particularly unfounded.
    - run4yourlives 17y ago
      because the game is rigged That's exactly what pg was referring to when he spoke of historical contexts and the controls other than the market in allocating wealth.
  - david927 17y ago
    That's all paper and pencil thinking. I would humbly suggest looking out your window. By your same reasoning, the longer a person is unemployed, the more they would desire becoming employed and the more motivated they would become. The reality is the opposite: they become more and more defeated, they feel more and more hopeless. There have been some very interesting studies done on this by a Stanford professor with children from the projects. (I'll look it up if you're interested.) The feeling of despair and hopelessness sets in very early. I understand the theory you're presenting; however, I have found the opposite to occur in reality.
astine 17y ago
The mining town problem is not a matter of wealth disparity but rather a Monopsony on labour. Only one party owns the mines (usually) and that party rules the town. Redistribution is not going to help in this case; though, splitting the mine among several owners might.

pg 17y ago

I think you may be responding to what you think I said, rather than what I actually said. Can you give an example of a sentence or passage in the original that you feel is false?

tc 17y ago
Unrelated to the criticisms above... Having not reread this essay for a few years, I'd forgotten what a wonderful piece this was. Your exploration of the common fallacies that lead people astray is particularly clearheaded and well supported. However, you might want to reconsider the way you lumped, in passing, speculators together with thieves -- implying that neither create value. Thieves clearly destroy value, whereas speculators add information to markets. They create value in a very abstract way that is difficult to recognize, but is nonetheless there. A speculator that accurately foresees a shortage of grain in 6 months and therefore buys grain futures provides a service to society (by raising the future price of grain over the spot price, causing people to warehouse grain, which will take grain off the spot market, pushing up the spot price, moderating present demand for grain, and preventing an acute shortage).
- Luff 17y ago
  Technically, thieves redistribute value, they don't destroy it. Speculators, on the other hand, can destroy capital by making bad investments. They can also just get lucky by investing in a rising economy.(thereby not contributing any information of value)
  - tc 17y ago
    In the real world, thieves destroy wealth in the process of redistributing. They break windows, they cause people to hire security guards, and their actions make people feel vulnerable and insecure -- all wealth-destroying. The redistribution isn't zero-cost to the thief either. The gas used by the thief to get to his target is destroyed wealth. Thieves also redistribute goods in such ways as to lower their value. Let's say a biotech company pays $20k for a microscope. A thief steals the microscope and pawns it to someone for $20 who just thinks the microscope looks cool. Wealth has been destroyed through the misallocation of resources caused by the improper redistribution. As for speculators destroying wealth by making bad investments: yes, they can, but they lose money when they do so, which is a self-correcting process. The CEO of a company can also destroy wealth by misallocating resources. As for speculators getting lucky: yes, they can do that as well, but random chance tends not to be sustainable (a random strategy will lose on average after transaction fees), causing a self-correction that tends towards mitigating noise. Anyway, if they are lucky and right, they've still added valuable correct information, just as a company that randomly happens onto a successful product still created value. As for speculators getting lucky by investing in a rising market: if the market rise is supported by fundamentals, then the speculators are still adding value by allocating resources towards worthwhile enterprises. What's the difference at that point between speculators and investors? If the rising market isn't supported by fundamental wealth creation (e.g. the central bank is printing money), there will be a correction, and the (long) speculators will lose money. Don't get too tied up on the word information. Market processes allocate scarce resources in such a way as to maximize total wealth and wealth creation (as best as can be done with the information available). Sometimes correct speculation aids that process indirectly by sending price signals. Other times correct speculation adds value by directly allocating resources where they can best be used (investing money in a startup, or in a pool of companies, or in bonds, for example).

run4yourlives 17y ago

Second, the wealthy are very good at keep their wealth for their families, those who are like them, those who went to the same school, etc. The wealthy take care of their friends and families? And this is a problem? Do you know anyone, wealthy or not that doesn't take care of their family? The worse the disparity in income, the worse the economic mobility and the worse society is as a whole. Debatable. Certainly, an even distribution doesn't fare to well either, especially if you have read any bit of history of the 20th century. What you are suggesting however that the poor, without adequate safety nets, can become a burden to society that is a net negative overall. This may be true, but not what PG is talking about. In Europe, however, you don't trip over the homeless and crazy as you do in San Francisco. Um, what? There are as many homeless and poor to "trip over" in Europe as there are in the US. Ever seen Gypsies?. And those "crazy" folk aren't on the street because they are locked away in institutions that the US - for better or worse - long ago decided weren't good for them. Like I said, I'm not arguing about safety nets, because I think the US could use a few more, and I don't think PG was commenting on that subject either.

david927 17y ago
The wealthy take care of their friends and families? And this is a problem? It's understandable, sure, but it's also a problem. I understand why the Saudi Royal family wants to keep all the oil money to themselves. I'm saying it's not healthy for Saudi Arabia as a whole. Certainly, an even distribution doesn't fare to well either Of course. I'm arguing that the other extreme is also bad -- that strong Capitalism eventually leans towards Feudalism. The trick is to find a balance: to reward achievers but provide sufficient safety nets. Um, what? There are as many homeless and poor to "trip over" in Europe Have you been to Europe? Really? I lived in SF and Berkeley, and I live in Europe now. It's quite simply, empirically, not comparable. And those "crazy" folk aren't on the street because they are locked away in institutions that the US - for better or worse - long ago decided weren't good for them. No, the US didn't decide that; it's a state issue. In Idaho it's quite good, for example. In California, Reagan, when he was governor, shut down a lot of the asylums and clinics to save money. Now, in California, you have lot of McMansions and lots of people who need serious medical help rummaging in the garbage.

astine 17y ago

In Europe, however, you don't trip over the homeless and crazy as you do in San Francisco. I think that you need to specify where in Europe you are talking about. I've been to Europe and there are some places that are definitely have more than their fair share of homeless and crazies.

david927 17y ago
No, that's the point. I defy you to name a place that's half as bad as San Francisco, and SF is just a standard American big city that way.
- astine 17y ago
  Never been to SF, but I live near DC. Rome was definitely worse than DC on that count.

cpach 17y ago

Some time ago Trevor Blackwell of YC wrote an interesting piece related to the issue of keeping wealth. It's short and worth reading: http://tlb.org/interest.html http://tlb.org/interest.html I don't know what the situation is in SF, but I can attest that there is no shortage of homeless and crazy people in Sweden. I guess that holds true for any European country.