How Paul Graham Gets It Wrong in “Economic Inequality”

You are inventing a complete straw man. That is not what I want nor is it what most other people who are concerned about wealth inequality want.

What we want are policies that do not make it so absurdly easy for those who already have access to capital to continue to accumulate wealth and influence at an exponential rate while those who are not born under such fortunate circumstances live with an ever-increasing disadvantage.

Of course this is inevitable to some degree due to the nature of compound interest. But there are ways to mitigate it. See: progressive taxation. Now it's time to take a look at other things such as the estate tax and taxes on capital gains and dividends. The latter are the most egregious in my estimation. The U.S. currently taxes income earned through labor, time and talent at a higher rate than income earned through investment, thus continuing to privilege those who already have access to capital

Because the state is neither corrupt nor incompetent; this is the big fear of the cyber-selfish libertarians you will find on HN. Tell you what, why don't you start your rant with a list of these rich politicians who will grow even richer. Just a single name please.

No, this is not how communism starts. If you knew anything about the history of your own country (doesn't even matter which country this is) this would be readily apparent. Rich people becoming even richer and using the aparatus of the state to enshrine the power of their family or tribe is usually the outcome of a coup or war. Communism usually starts with a lot of rich people who did not make the last flight out having a short lean against a dusty wall somewhere after their family has spent several generations giving everyone in the country a reason to want to see their spleen paraded around the capital on a stick.

Socialism don't work in the Nordic countries either. In Denmark where I am from we were in the top 5 richest countries only 60 years ago, before we introduced the Welfare State. Back then we actually had lower taxes than in the US.

Since then we have been sliding fast down that list, so we are today around 20th place. We now have an absurd situation where a small minority of ~33% in the private sector has to pay for ~66% of people on welfare or working in the public sector. And we are past the point of no return, we can not make any reforms to cut the public sector or welfare, because the majority is obviously against.

A high earner often pays 80% counting both taxes and levies/duties. It has killed almost all initiative in Denmark. People prefer time off instead of working extra hours, we are one of the countries with the lowest amount of entrepreneurs percent wise, like in France young people and entrepreneurs are fleeing the country in hordes.

I myself moved to Switzerland to start my startup.

In order to keep the people from revolting and gaining permanent global competitive advantage by murdering the factory owners, lenders and their families and stealing their property disregarding any repayment plans - the moderate socialists (who saw that the socialist system would be built organically without violence) and the right wing owner & trader classes made an alliance to fringe the hard-core communists.

Bargains were made and benefits established as all parties knew that every satisfied social democrat was much better than a soviet-devout communist. In Finland, there was a very bloody civil war right in the beginning of independence (where the communists lost), two big gunfights in the WW2 and decades of soviet pressure to turn communist.

The social programs and safety nets were established to ensure the survival of capitalism and private property. The problem being solved with reducing economic inequality was not "poverty" like PG claims, but threat of violent revolutions by people who felt unfairness.

The Soviet Union is gone now and thus the left wing these days has much less bargaining power. These are interesting times.

I don't care how much money someone makes off a search engine company, but taxation should incentivize affordable housing and discourage the creation of wealthier landlords. Rent is not valuable entrepreneurship. Controlling the township's electric or water company is not valuable entrepreneurship. At least the state answers to the citizens it services, and has less of an incentive to be driven by profit. Let's have higher taxes in order to create a social safety net and pool of opportunity for the rest of the people.

Coming from a former communist country, I can explain why. Because the alternative, capitalistic "free market" where companies eventually end up as oligopolies, is actually worse and gives you less control over the resources involved. For example, botched privatization of water utilities here in Czech Republic hiked prices up 100x.

Yes, real democracy is quite a weak control, but at least it's some means of control. You don't get the same level of control over private corporation as you get as a citizen over public utility. And there are many examples of government run enterprises that prove this point, in Nordic countries and in Switzerland.

So state is something I can at least marginally influence by voting or by being involved in local politics (I have for example information laws that give me some insight about what's going on); and yeah, to me, giving state less control over resources by minimizing it is a losing proposition. If I could vote about the companies, then perhaps we could talk (but then they would be more like customer cooperatives than private companies).

Of course, you probably think competition is the solution, and I don't buy that. First, it doesn't exist in many places (as you're probably painfully aware), and I believe it actually tends to not exist. But the biggest point against the competition solution in my mind is that it's very "low information density" solution. People cannot come and to try to fix things (unless they make their own company, which is unrealistic to expect); they can only signal unhappiness by leaving. It promotes irresponsibility and fatalism. I think it's a kludge, frankly, compared to a possible system where you could really control citizen-owned companies via voting.

Huh? You are mistaking cause and effect here. People are highly educated because the state pays for our education and give and lend enough money to handle living expenses while we study.

- Capital gains should be taxes at least at same rate as income generated by labor.

- Remove incentives from economically unproductive investments such as real estate. For example, discourage home ownership unless its primary residence.

- Limit political contributions from super rich.

- Discourage high return investment vehicles that typically manipulate markets to achieve their goals by reducing risks through government safety nets.

- Limit what can be charged by insurance providers for a given quality of service. Health insurance oligarchy and their political influence is core barrier in enabling healthcare for all.

- Limit what can be charged by educational institute to students. More financial aids is not the solution, its the problem.

The goal of the governments isn't ensuring wealth equality, but ensuring level playing field. If that is ensured then, IMO, wealth inequality will naturally be limited. Government must ensure equal access to two core areas which is health and education. It must make tax system fair and avoid scenario where secretory pays higher tax rate than their super rich bosses. It needs to prevent inflation of limited resources such as real estate by strongly discouraging economically unproductive investments.

The more government spends, the greater the capacity of the private sector to save (so long as the government doesn't spend beyond the productive capacity of society to create excess inflation or compete with the private sector for resources which would stifle innovation).

1. Similarly to bourgeois in the Russian Empire they believe they can aim the redistributing horde at their enemies while remaining safe themselves.

2. Note how it's always the income inequality and never wealth? If everybody's income had been the same then wealth had much more value. E.g. if everybody's income had been limited to $100k pa then somebody with just $10M in cash would had more money (and hence influence) than anybody who stated at 0 could possibly make in their lifetime and such a wealth would have never been surpassed. If you are seeking rent from your wealth then limiting everybody's income is a pretty good strategy usually expressed as "fuck you, got mine".

Honest question (not directed specifically to you sradu): I've seen this statement pop up now and again, and every time I've seen it, it is referring to Nordic countries. I am beginning to suspect that it's a dog-whistle: am I wrong?

What exactly is being referred to as 'homogenous' and why is it an advantage? What disadvantages are presented by heterogeneity of other countries?

It's because I believe that there are many things that make my life better that I simply could not provide from my own resources but, when my contribution is pooled with everyone else's, become viable and make my life significantly better. Off the top of my head, the transport system, the judicial system and attendant sub-systems, the healthcare system, research investment. Environmental management. Regulation in food production. I'm sure I could come up with many more.

If you didn't understand this, then I'm shocked at your ignorance.

If you did understand this, then why did you ask? Are you taking some kind of ridiculous, hyperbolic extremist view that nobody is advocating, in order to create the illusion of being a child arguing in a playground?

I grew up in a scientific community. People innovated and did research because they were passionate about knowledge and learning. Of course, some of them went on to create startups like Biogen but money was never the biggest motivator. I don't buy the argument that taxing the wealthy slightly more than now stifles innovation.

But this has nothing to do with inequality. It has to do with "too many people below economic level X". If this seems related to inequality it's because you've already bought into the pie fallacy.

Improving opportunities for the poor is important, but so is providing a fairer playing field in both the economy and politics.

And it's insincere to think that universal access doesn't affect the wealthiest at all. In many cases (not all, it's probably not the case of Y combinator kind of people), the wealthiest got where they are by abusing the poor.

The issue is that wealthy people do not have a monopoly on talent, good ideas or intelligence. But they have a monopoly on power and influence. Society therefore suffers when the best ideas do not necessarily compete on an equal basis within the marketplace or the political arena, if they make it there at all.

Now the extent to which money begets power and therefore undermines democracy is a subject open to much debate.

If you look at societies with high wealth concentrations like those with large oil wealth or other resource wealth you find typically very weak political institutions and poor development of democracy. The super rich gulf states e.g. are far behind politically speaking from much poorer countries.

In terms of ethical theories: from a utilitarian perspective, inequality causes unhappiness, and even a partially destructive redistribution of wealth would probably be better for the greatest happiness of the greatest number. Other approaches (e.g. virtue ethics) I'm less familiar with.

True, but that goes for welfare as well. Someone who is freezing cold does not get colder when someone with 100 blankets gets 100 more.

That is a large part of the concern and it is happening because of inequality. Funding for public education gets cut > rich people move towards private education > more education funding gets cut, partially swayed by rich people who have no vested interest in public education > public education gets shittier and shittier > private education becomes leagues ahead of public education > only rich can afford great education > only rich can afford nice jobs.

Things like this happen slowly over decades in all sorts of areas. That is how the middle class in the US has been hallowed out. It's not about the rich becoming richer, it's about the lower and middle classes becoming poorer. And in many cases, though not all, the poor becoming poorer is directly tied to the rich becoming richer.

No, that's the inverse causation of PG's stance. PG said "There are lots of things wrong with the US that have economic inequality as a symptom."

If we all agreed that economic inequality is the cause then nobody would be complaining about framing the conversation around economic inequality.

Here's what that phrase originally meant: European-style nobility is a mistake. It's not that you are better than me, not because of IQ, emotional capacity, physical strength, or anything of that nature. Instead, the idea was that you were better than me because your great-great-great-grandfather helped the king put his trousers on every morning, and got rewarded with a hereditary title, and you inherited it, and therefore you are my "better" because you have a title and I don't. And the older the title, the better it was, even though that means the less it had anything to do with you!

So when the Declaration of Independence says "all men are created equal", it's not talking about IQ or physical strength. It's not even talking about different economic outcomes. It's talking about social/political standing conferred by birth.

I'm not saying that you are wrong in your conclusions...

Bing it.

Beyond that, your policy comes off as just the most base form of theft. Generational wealth is important, it's core to our survival instincts to look after our offspring when we die -- beyond just their basic needs, we want them to thrive. We want our grandchildren to thrive as well.

Also, generally speaking, I trust the children and grandchildren to spend money in more interesting / authentic ways than our government, who has, for example, the yearly defense budget we carry. And the yearly prison budget we maintain.

What if a child whose rich parents died would have started the largest cancer research center in the US with his billion dollars, but instead that money is seized by your "tax plan" and simply goes toward the defense industry coffers? Is that a net gain? Taking from the rich and giving to Halliburton and Blackwater?

Many high profile CEO's are worth tens / hundreds of millions but take $1 salaries.

For example, you would not have a SpaceX or a Tesla. You would not have Y Combinator as it exists today. You would not even have the video game that I am about to release next month.

Yes, there are a lot of jerks who amass capital and do nothing with it or who do irresponsible things. But you also have people who use it to work very hard to make positive change in the world, and even if those people are in the minority, their impact is very large.

1. "wage" is ambiguous to the point of useless given: executive compensation isn't solely in the form of salaries, a complex tax code, and wealth begets wealth (it's relatively easy to maintain wealth once you're able to reap more from safe investments than it takes you to live).

2. even if #1 could be solved with some complex formula, it's very easy to argue a maximum imposes a hard limit on how much work a person is willing to do. Elon Musk could surely easily hit the limit without all of his current ventures. What would be the incentive for him to continue to innovate once he's reached the limit?

3. estates are the extreme problem for 1 & 2: if they're counted against maximum wages than recipients of large estates likely have no incentive to ever work. If they're not counted then maximum wages are severely limited in its ability to affect change.

Perhaps a complex enough formula exists to make maximum wages work, but given how easily gamed our complex tax code is in the US, I can't imagine it's feasible.

Almost nobody who is poor wants to limit how much money someone can make; it's an irrelevant detail...most poor folks just want an opportunity to escape being poor, themselves. Capping wages does nothing to solve that problem.

pg, despite being a very bright and extremely sincere and decent person, is living in a world quite far removed from most American's reality and gets a lot of things wrong (sometimes hilariously so), based on that disconnect. But, a maximum wage is a ridiculous rebuttal, IMHO.