Paul Graham's Blog: Economic Inequality (Part 2)

The first part is here .

Since the 1970s, the level of economic inequality in the United States has greatly increased. In particular, the rich became and become even richer. For some, this is a sign of a split of society within the country.
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I am interested in this subject 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 establish startups. Almost by definition, founders become rich people if a startup is successful. And even if wealth is not the sole goal of the founders of startups, many become such, and only a few do not.

And if external manifestations are changeable, then the deep premises are very, very old. The increase in productivity that we see in Silicon Valley has been happening 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 followed in one lifetime. Such is the nature of the left side of the exponential curve. But it was all 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 have either democracy or wealth concentrated in the hands of a small number of people, but we are not given to receive both." This seems to be true. But if I had to choose between his statements and the exponential curve, which has obeyed 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 the acceleration of changes in productivity always contributes to the growth of economic inequality, then a good idea would be 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 how new it seems to talk about it. The public has so far been concerned solely with the need to reduce the level of economic inequality. We hardly thought about how to live with it.

I hope that we will succeed. Brandeis was a product of the “gilded age”, and much has changed since then. Now it is much harder to hide the offense. And in order to get rich, there is no need to bribe politicians, as oil or railway magnates did (see note [6] at the end of the article). It seems that the huge concentration of wealth that revolves in Silicon Valley does not destroy democracy.

In the US, there are a lot of negative factors, a symptom of which is economic inequality. We need to deal with these factors, and then, perhaps, we will be able to reduce inequality. But one cannot begin with the healing of the 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 for reducing economic inequality mostly want to help the poor, and not harm the rich (see note [8] at the end of the article). In reality, most people simply confuse concepts, and, when they speak about reducing economic inequality, they mean a reduction in the level of poverty. But this is precisely the situation in which it would not hurt to be accurate when describing one’s 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 only be several times richer than you, but it would not affect your problem with water turned off.

Closely related to poverty is the lack of social mobility. I myself witnessed this phenomenon: you do not have to be rich or come from the upper 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 rich house than many start-up founders, he managed to join their ranks. At its core, economic inequality does not block social mobility, but gives a specific combination of certain factors that negatively affect children if they grow up in extreme poverty.

One of the most important principles of Silicon Valley is “you do what you measure.” This means that if you choose some indicator on which you focus your attention, then it will improve, but you need to choose the indicator correctly, because only he can improve, others, even those who are close to the concept, may not. For example, if you are a university director 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 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, we will not solve these initial problems. So let's 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 defeating poverty (see note [9] at the end of the article). And if people get richer by tricking 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 some work. But behind such statistical indicators 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 accidents. If we want to improve the world that statistics are intended to display, we need to understand it and focus our efforts where they will be most useful.

Notes

[1] Stiglitz, Joseph. “The Price of Inequality” (The Price of Inequality). Norton, 2012, c. 32.

[2] Since economic inequality is a matter of sharply deviating values, these values ​​turned out to be where they were not because of the reasons that economists usually don’t think about (preferring factors like wages and productivity), but rather for example, due to the fact that in the war on drugs, some people were on the wrong side of the barricades.

[3] Purposefulness is the most important factor determining success or failure, which is strongly differentiated in startups. But to create one of the most successful startups, single-mindedness is not enough. Although most of the founders are excited at the beginning of the idea of ​​making a fortune, the founders who are driven solely by selfish goals tend to sell successful startups, accepting takeover offers that most successful young companies receive. Those founders who are advancing to the next level usually consider that they have a certain mission and they fulfill it. They are as attached to their companies as a writer or artist is to their work. But at first it is very difficult to determine exactly which of the founders will be that way. This is not just a reflection of their original relationship. Foundation of a company changes people.

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

[5] Economic inequality decreases globally. But this is mainly due to the destruction of kleptocracies, which previously dominated all poor countries. As soon as the political alignment occurs, we will again see a rise in economic inequality. Our country has become a pioneer. The situation that we face in the United States will sooner or later affect other countries.

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

[7] There are problems whose symptom is economic inequality, and there are some 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, because of which economic inequality takes on other forms of inequality, and we have to fight this injustice. For example, the police in the US treats the poor worse than rich people. 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 people who are somehow weak.

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

Others will say the same thing: that I am ignorant or mislead readers, paying attention to people who became rich, creating wealth, and that the problem is not in start-ups, but in corruption in the sector of finance, health, etc. And again , this is exactly what I am trying to convey. The problem is not in economic inequality, but in these specific negative factors.

It is 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 capitalize on this. For example, the extremely high level of imprisonment in the United States is the main cause of poverty. But although commercial prison companies and prison guard unions are lobbying to keep some aspects of punitive policy silent, they are not, however, their primary source.

[10] By the way, loopholes in tax legislation are not the result of any major changes due to the recent increase in economic inequality. The golden age of economic inequality, which fell 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 judgments that economic inequality was really so low then, as we believe. 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 discrepancy between budget revenues in percent of GDP, which have been more or less constant since World War II until today, and tax rates, which have increased significantly.

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