PG is an otherwise smart guy, but I think he's (deliberately or not) seeing this issue through a startup lens. Seems clear to me that the over-abundance of income inequality is the USA is a direct result of taxation policies favouring the rich, starting with Reagan's trickle-down, and continuing to this day. And this is just unsubstantiated bullshit.You can't end economic inequality without preventing people from getting rich
More precisely, it's a straw man. It's technically true: if all incomes were equal, no one would be rich. If anyone were actually arguing that. Moreover, it makes a great launching point for a false dichotomy.You can't end economic inequality without preventing people from getting rich
And this is just unsubstantiated bullshit.
This sounds like the "pie" explanation: "that the rich get rich by taking money from the poor." There are at least five million millionaires in the U.S. There are at least five hundred billionaires in the U.S. Do you believe that this quantity of wealth was somehow extracted from "the poor"?
I suspect that a large portion of the wealthy's new money is magicked out of thin air by bank loans; however, if the very wealthy are paying less of the tax take now than they were before, then obviously the less wealthy are taking up the slack. The govt isn't spending less accordingly. :-)
False dichotomy - no reason that both things can't be true. Have you ever looked at income tax rates, historically? Tax rates on the very wealthy's upper income bracket have fallen hugely since the 1960's. That is money effectively extracted from the poor and given to the rich. It's not the only way the rich have gotten richer, but it IS a huge factor in the poor getting poorer. [edit] There is also the expansion of sales taxes as a revenue stream - these taxes hit the poor much harder than they hit the rich, simply because the poor spend a larger percentage of their income.
I agree, and I think Graham does too: The trillions of dollars in wealth now held by the wealthy was created by someone sometime in the past. The familiar examples of wealth are those who created value for many people, like Bill Gates' software, the Waltons' affordable products, or Lady Gaga's music. No doubt tax law plays a part, but even a 90% marginal tax would not reduce them to everyday levels of affluence. Yes, b_b and I discussed it. no reason that both things can't be true
In the real world you can create wealth as well as taking it from others.
Have you ever looked at income tax rates, historically?
Personally, I think increasing taxation is attacking the symptom, not the disease. I think the disease can be better tackled by directly strengthening the position of the poor, for example by strengthening unions. I absolutely think the wealthy should be taxed appropriately, and they're not now. But, say a wealthy person make a billion a year today. Tax them at 90%, and what do they do? They re-work the system to make a trillion a year, and purchase laws to get that tax money spent on contracts with their companies. Like metastatic cancer. Empowering unions and labour strengthens the lower class. Building infrastructure strengthens the lower class. Reducing the ability to purchase laws—lobbying, election funding, et cetera—strengthens the lower class. Taxation sounds good in campaign promises, but I'm not convinced it has meaningful, long-term impact on the lower class and standard-of-living.even a 90% marginal tax would not reduce them to everyday levels of affluence.
A nice trip down hubski memory lane. If there's anything I'm supportive of the GOP candidates for president on, it's that most of them would like to eliminate the payroll tax. I'm not smart enough to know what a good marginal rate structure is, but I'm damn sure that the payroll tax is pernicious. I'm continually amazed that there isn't bipartisan support for abolishing it. I suppose that's probably because no one can agree on how to replace the revenue, which would be imperative, considering the numbers involved.
I see your point - PG did say "end inequality", not "reduce inequality".
I think he was just making the point that people don't work for fun, they work to get ahead. And some people are better at doing so than others. If we do not make it impossible to get ahead (i.e. end inequality) those people will get as far ahead as they can, and the dictionary definition of "rich" will apply to them. Variation in productivity is far from the only source of economic inequality, but it is the irreducible core of it
Seth Bannon has a good post rebutting Graham's. He cites a number of studies, as well as a great analysis by Bill Gates.In the essay, his overarching point seems to be that an ever-increasing level of economic inequality is a necessary function of living in a healthy society where wealth is created for the benefit of all and innovation flourishes. Further, he argues that attempts to limit such inequality would mean “ending startups.” Neither argument stands up to scrutiny.
SB argues that PG overstates the case, saying that to eliminate inequality you have to eliminate innovation. SB says that PG is correct, but no one says inequality should be eliminated, only reduced. That seems reasonable. So, "the conversation is about what level of economic inequality is desirable in a society, and how to limit inequality — not about how to end it entirely." So we are talking about what is "desirable in a society." PG makes it absolutely clear in the simple version of the essay: "economic inequality per se is not bad." Economic inequality does not cause poverty. But increasing poverty tends to increase inequality. I believe that the institutions which best promote wealth creation lead to both inequality and reduction in poverty. The rich get richer and the poor get richer. PG may support these policies, but not necessarily because they reduce inequality. These may reduce poverty, which almost everyone advances as a desirable goal. Reducing poverty will tend to reduce inequality as a side effect, unless the rich are getting richer faster than the poor are getting richer. If everyone is getting richer, I am not going to quibble about differences in rates. I didn't look at it, because countries with higher economic growth tend to be poorer, immature, developing economies. A weight lifter wanting to gain strength does not emulate an infant, which doubles in strength every few months. This "report" is actually a book. Sorry, this is my lunch hour. The summary says "lower income households have been left behind," a typical statement suggesting that things are getting worse for the poor, when the reverse is generally true. When you have "many studies" to choose from, you should choose the best one and it should be good. This one, the article anyway, is a classic example of conflating correlation and causation: "the researchers found that people in unequal communities were more likely to die before the age of 75 than people in more equal communities, even if the average incomes were the same." There is no justification to conclude that the inequality causes poor health. Say we consider two communities, A and B. Community A is pretty homogeneous, with most incomes close to the average. Unsurprisingly, people there have average health. Community B is highly unequal: a few very high earners live there. If the average income is the same as Community A, there must be very many low earners in Community B. Obviously, with this large quantity of poor people the average health status is inferior. In both communities, an individual with average income will have the same health status. The problem is poverty, not inequality. When a rich family moves into town, people don't get sicker. The Gates review looks good.I’m sure PG himself supports some policies that reduce inequality (progressive system of taxation, social security, medicare).
Further, there are an abundance of studies that show that reducing economic inequality (even through redistributive means) actually boosts overall prosperity. This study by the IMF shows that countries with lower levels of economic inequality show higher levels of economic growth over the long term,
while this report by the OECD found that “income inequality has a sizable and statistically significant negative impact on growth.”
Many studies have shown that income inequality is bad, even controlling for other factors — too many to include in a short blog post. For example this one, which shows economic inequality is bad for health.
Contrary to Piketty’s rentier hypothesis, I don’t see anyone on the list whose ancestors bought a great parcel of land in 1780 and have been accumulating family wealth by collecting rents ever since.
Another criticism of this PG essay : http://qz.com/586563/paul-graham-just-accidentally-explained-everything-wrong-with-silicon-valleys-world-view/
I can't finish it. If you could point to the paragraphs you think make the strongest points, I could respond to those. Wealthy venture capitalists "legitimize startups" by funding them, then "use their ridiculous money and connections to 'advise' and 'mentor' those deemed worthy of capital" to guarantee that the startup generates returns. Where did I see the rebuttal to this model? Oh yeah, a hundred words earlier in the same article, where the author pointed out that "the vast majority of startups fail." The absurd and unfounded claims that Graham believes "our entire economy should run on startups," that "This ability to start a company, he assumes, is equally accessible to everyone." The non sequitur comparison of a stupid app that attracts millions in investment to a teacher that can't pay off loans. The stupid app attracts funding because of the reasonable expectation that people will pay for stupid apps. Why not blame those customers for buying stupid apps instead of paying off other peoples' loans? Because that would be silly. Because we all spend money on our personal desires that could be spent on charity. The familiar, piteous scenario in which the person capable of creating Candy Crush Saga gets rich and the nurse, saving lives, scrapes by. Guess what: it's really hard to create a game that millions of people will pay for. People with that skill are very rare, therefore they can charge a lot. People who can train to become good nurses are not so rare, therefore they can't charge so much. No, it's not great for the nurses, and they should switch to making blockbuster video games if they want to get rich. But is it a travesty of justice that there's only one person in the world who can make Candy Crush Saga, and dozens of capable, relatively affordable nurses in every city?