Paul Graham Blog: Economic Inequality (Part 2)

The first part is here .

Since the 1970s, the level of economic inequality in the United States has increased dramatically. In particular, the rich became and are becoming even richer. For some, this is a sign of a split society within the country.

I am interested in this topic since I myself am one of the creators of economic inequality. I was one of the founders of a company called Y Combinator, which helps people found startups. In practice, by definition, founders become rich if a startup is successful. And even if wealth is not the only goal of startup founders, many become so, and only a few do not.

And if external manifestations are changeable, then the underlying premises are very, very old. The increase in productivity that we have seen in Silicon Valley has been going on for thousands of years. If you look at the history of stone tools, you will conclude that technology has already developed in the Mesolithic. These changes were too slow to be tracked in one lifetime. This is the nature of the left side of the exponential curve. But it was the same curve.

No one wants to create a society that is incompatible with this curve. The evolution of technology is one of the most powerful forces in history.

Louis Brandeis said: "We can either have democracy or wealth, concentrated in the hands of a small number of people, but we are not allowed to get both." That seems to be true. But if I had to choose between his statements and the exponential curve, which has been obeying the world for thousands of years, then I rely on the latter. Ignoring any trend that has been relevant for thousands of years is highly unsafe. But exponential growth requires special attention.

And if accelerating changes in productivity always contributes to the growth of economic inequality, then it would be a good idea to devote some time to thinking about the future. Is it possible to create a healthy society with huge differences in wealth? What would it look like?

Think about how new it seems to talk about it. The public so far has been solely concerned about the need to reduce the level of economic inequality. We hardly thought about how to live with it.

I hope we succeed. The Brandeis was a product of the "Gilded Age", and since then much has changed. Now it’s much harder to hide offenses. And in order to get rich, you do not need to bribe politicians, as did the oil or railway magnates (see note [6] at the end of the article). It seems that the huge concentration of wealth that spins in Silicon Valley does not destroy democracy.

In the US there are many negative factors, the symptom of which is economic inequality. We need to deal with these factors, and then maybe we can reduce inequality. But one cannot start with the healing of symptoms and hope to correct the root causes (see note [7] at the end of the article).

The most obvious reason is poverty. I am sure that most people who advocate reducing the level of economic inequality mainly want to help the poor and not harm the rich (see note [8] at the end of the article). In reality, most simply confuse the concepts, and when speaking of reducing economic inequality, they mean reducing poverty. But this is precisely the situation in which it does not hurt to be precise when describing your desires. Poverty and economic inequality are not identical. When you turn off the water for non-payment, it does not matter how much Google founder Larry Page is richer than you. It could be only several times richer than you, but this would not affect your problem with the water turned off.

Closely related to poverty is the lack of social mobility. I myself have witnessed this phenomenon: you do not have to be rich or come from the upper layer of the middle class to create a startup and get rich, but few of the founders of startups initially live in deep poverty. But then again, the problem here is not just economic inequality. Despite the fact that Larry Page grew up in a much less wealthy house than many founders of startups, he managed to enter their ranks. At its core, economic inequality does not block social mobility, but provides a specific combination of certain factors that negatively affect children if they grow up in extreme poverty.

One of Silicon Valley's most important principles is that you do what you measure. This means that if you choose some indicator that you focus on, then it will improve, but you need to choose the indicator correctly, because only it will improve, while others, even conceptually close ones, may not do it. For example, if you are a director of a university, and you decide to focus on the percentage of graduates, then the percentage of graduates will increase. But this does not mean at all that the quality of education will also increase - it may also decrease if you simplify the curriculum to increase the percentage of graduates.

Economic inequality is not at all identical with the various problems of which it is a symptom. If our efforts are aimed at combating economic inequality, then we will not solve these initial problems. Therefore, let us turn our attention to the problems themselves.

For example, let's fight poverty, and damage wealth in the process, if necessary. This is likely to be much more effective than fighting wealth in the hope of conquering poverty (see note [9] at the end of the article). And if people get rich by deceiving consumers and lobbying the government to create anti-competitive rules or tax loopholes, then let's stop them. Not because it leads to economic inequality, but because it is theft (see note [10] at the end of the article).

All you have is statistics. And it seems that it is she who needs improvements. But behind statistical indicators such as economic inequality, there are always various factors — both good and bad. Some of them are historical trends that have a huge impact, while others are mere coincidences. If we want to improve the world that statistics is intended to display, we must understand it and focus our efforts where they will be most useful.

Notes

[1] Stiglitz, Joseph. The Price of Inequality. Norton, 2012, p. 32.

[2] Since economic inequality is a matter of sharply diverging values, and these values ​​turned out to be where they were not due to reasons that economists usually don’t think about (giving preference to factors such as wages and productivity), but rather, say, because in the war on drugs, some people ended up on the wrong side of the barricades.

[3] Commitment is the most important determinant of success or failure, which is very differentiated in startups. But one goal is not enough to create one of the most highly successful startups. Although most founders in the beginning are excited about the idea of ​​making a fortune, founders who are driven exclusively by selfish goals tend to sell successful startups, accepting the takeover offers that most successful young companies get. Those founders who advance to the next level usually believe that they have a specific mission, and they fulfill it. They are as attached to their companies as a writer or artist to their work. But at first it’s very difficult to determine which of the founders will be just that. This is not just a reflection of their original attitude.

[4] After reading a draft of this article, Richard Florida told me that he once had a chance to talk with a group of Europeans who said they would like Europe to become more entrepreneurial and look like Silicon Valley. He said that by definition, this would lead to greater inequality. Europeans thought he was crazy - they simply could not accept it.

[5] Economic inequality is decreasing globally. But this is mainly due to the destruction of the kleptocracies that used to dominate all poor countries. As soon as political alignment occurs, we will again see an increase in economic inequality. Our country has become a pioneer. The situation that we are facing in the United States will sooner or later affect other countries.

[6] Some people are still getting richer by bribing politicians. But I want to focus on the fact that this is no longer a prerequisite for obtaining wealth.

[7] There are problems whose symptom is economic inequality, and there are those for which it is the cause. But for most, if not all such problems, economic inequality is not the main reason. As a rule, there is an injustice due to which economic inequality takes other forms of inequality, and we must fight this injustice. For example, the police in the United States are worse off for the poor than they are for the rich. But the solution is not to make people richer. You just need to make the police treat people the same way. Otherwise, they will continue to mistreat those people who are somehow weak.

[8] Some readers will certainly say that I am ignorant or even deliberately mislead people by focusing on the richer side of economic inequality, and that in fact economic inequality is connected precisely with poverty. But this is exactly what I’m talking about, no matter how confusing my reasoning may seem. The real problem is poverty, not economic inequality. And if you identify them, then you are aiming at the wrong target.

Others will say the same thing: that I am ignorant or mislead readers, paying attention to people who are rich, creating wealth, and that the problem is not in startups, but in corruption in the financial sector, healthcare, etc. And again , this is exactly what I'm trying to convey. The problem is not economic inequality, but these specific negative factors.

It's rather strange to write an article in which you try to explain that some phenomenon is not a problem, but you have to do it in the hope of dispelling the errors of a huge number of people.

[9] Especially considering that many of the causes of poverty are only partially caused by people who are trying to make money on it. For example, the extremely high level of imprisonment in the USA is the main cause of poverty. But although commercial prison companies and prison guard unions are lobbying for some aspects of punitive policies to be hushed up, nevertheless, they are not their primary source.

[10] By the way, loopholes in tax laws are not the result of any major changes due to the recent increase in economic inequality. The golden age of economic inequality that occurred in the middle of the 20th century was also the golden age of tax evasion. Indeed, it was so widespread and so effective that I was skeptical about the belief that economic inequality was indeed as low then as we think. In those periods when people try to hide their wealth from the government, they tend to hide it from statistics. One of the signs of the potential significance of this problem is the mismatch between budget revenues as a percentage of GDP, which were more or less constant from the time of World War II to the present day, and tax rates,

Thanks for reading the draft of this article by Sam Altman, Tiffani Ashley Bell, Patrick Collison, Ron Conway, Richard Florida, Ben Horowitz, Jessica Livingston, Robert Morris, Tim O'Reilly, Max Roser and Alexia Tsotsis.