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    Economic Inequality finance paulgraham.com
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    “It is difficult to get a man to understand something, when his salary depends upon his not understanding it.” – Upton Sinclair

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      Agreed. The whole post makes it sound like he’s desperate to justify being greedy and selfish. It sounds like the same argument some greedy politicians use against climate change.

      Exhibit A: “But climate change is actually good for humans, don’t you like warmer weather?”

      Exhibit B: “Inequality isn’t that bad… don’t you like having a lot of startups?”

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      The hunters are just trying to keep their sheep safe from the wolves.

      The irony is that Y combinator IS a rent seeking business. He is a bookie letting banks gamble on peopleware.

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        He is a bookie letting banks gamble.

        What keeps Silicon Valley going is the Passive Capital Conveyor Belt. The passive capitalists (e.g. Wisconsin public school teachers' pension funds) would, all else equal, rather have the money invested and create jobs locally than be put into a Northern California oligarchy and a region of the country that is already congested and expensive. That said, what they want most is returns, and if better returns can be found in California, that’s where the money should be invested. The VCs say to the passive capitalists, “You Can Trust Us To Spot Talent”, and so the passive capitalists invest the money and forget about it.

        The disproportionate infusion of capital into a California oligarchy would be justifiable if this investment strategy worked because, as I said, the passive capitalists (the true investors) care more about returns than where the money is invested. The problem with it is that it doesn’t work. Venture capital returns (to passive partners, although not to VCs who get the side benefit of being able to place friends in executive positions in portfolio companies and be repaid for it later) are pathetic and have been since 1999. The passive capitalists are getting swindled, and Y Combinator came along too late to have invented that game, but it is playing a role.

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          This is spot on and good for pointing out the way Y Combinator is swindling the passive group. I would also point out how they are swindling the founders too. Startups are a huge, huge gamble for founders and their employees and people like Paul set unrealistic expectations so that people play the game. They need people to play the game on both sides, as a bookie does.

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            It’s not just Y Combinator that swindles passive investors. Ultimately, we have a class of professionals whose individual career interests are decoupled from portfolio success. That’s why there’s such an emphasis on get-rich-quick-or-die gambits with the absurd expectations (7% per week, when a steady 40% per year ought to be considered success). There are too many variables, and so investing in quality businesses takes a backseat to “being in on” the once-per-few-years “unicorns” and building social connections. This also explains the inappropriate note-sharing and herd mentality and the cowardly culture of co-funding. To be honest, I’m not sure that I would play it any differently if I were a VC. It’s impossible to prove, in the timeframe you have, whether you’re actually good at the job, so the optimization is for visibility and connection and that leads to the pathological “unicorn” chasing.

            Y Combinator didn’t create this rotten culture and isn’t really responsible for its existence. My problem with YC and especially Paul Graham is that they glorify many of its bad aspects.

            Startups are a huge, huge gamble for founders and their employees

            They’re a worse gamble for employees than for founders. Founders get “arranged outcomes” like acqui-hires and executive positions in big companies if they make nice by their investors. Employees are the ones getting screwed, because almost all of the upside has been sucked out of these opportunities, while they work long hours, live in one of the most expensive parts of the country, and throw down years of hard work for founders and companies that invest in their careers even less than big companies do. The biggest bubble, right now, is in the overvaluation that the young and clueless (who are rarely great programmers, but most of these companies don’t need A-class technical talent– as I’ve discovered, on multiple occasions, painfully) put on startup equity. The public stock markets, on the other hand, have been pretty rational (hence the poor performance of these tech stocks after IPO).

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        I dislike Paul Graham, but not because he’s “increasing economic inequality”. He’s right on this issue: sort-of. The evil is poverty, not “inequality”. If (as Keynes said) a rising tide lifts all boats, and the big boats go up faster (ignore physics) then we should be happy with that, right? I think that most people would agree here.

        The problem is mounting social inequality, and that’s insidious. Most people don’t see it. I wouldn’t want to go back to 1950s America for an enormous number of reasons (screwed-up gender roles, racism, lack of modern technologies and conveniences) but the fact is that for a middle-class, Midwestern American male, there was more opportunity for… if not getting ridiculously rich (which was unheard-of then, as opposed to improbably rare now) respectability. Due to decades of economic growth, I’m extremely wealthy by 1950s standards (much less that of most of the world) but I’m still, in some sense, a subordinate. Founders and employees used to be the same class of people, one set 5 to 10 years further along, and the perk of being a startup employee was that the founders would introduce you to investors and groom you to start your own thing in 5 years (paying it forward) in the hope that you’d help them back. Not any more. Now, there’s a permanent gulf in the startup world. Founders are people who were born in one place and whose parents arranged for VCs to mentor them until they were fundable, and employees are another set of people born in different places.

        It’s the social inequality that’s killing the U.S. (and Silicon Valley), and Paul Graham and his age discrimination culture (ageism, by over-valuing accomplishments at a time of high parental/environmental influence and diminishing those later in life, is innately classist) are driving that to the worse. Economic inequality is just numbers. It’s a problem, but largely because humans are generally bad at preventing economic inequality from spilling over into political and social inequality, which are directly toxic. Larry Page’s bank account isn’t doing me any harm, and it never will. It’s the connections that his kids will inherit that my kids (if I have kids, which I doubt) won’t, that are going to hurt the world.

        The scary thing, too, is that it’s only getting worse. Many of the older people (50-65) who are successful now went to public high schools and many went to average colleges– it turns out that academic merit at 17 is only a weak predictor of capability at 57– but today, we’re seeing a climate where it takes a fist on the scale from fucking preschool in order to give a kid a chance, justifying tuitions in the $30-50k range for educational experiences that probably aren’t any better than what the best public schools offer, but because of the increased importance of social connections and pedigree in an ossifying, increasingly unoriginal, society.

        My issue with Paul Graham isn’t that he’s increasing economic inequality because it turns out that, absent government intervention, everyone does. All else equal, I’m more likely to buy something from a successful company that makes a product I like than something from a less-successful company making an inferior product, because, when it comes down to this, I care far less about “inequality” than I do about getting a better deal or product. We all increase economic inequality every day, in the decisions we make, except possibly in the voting booth. So we’re all guilty. That’s why we need the sort of social infrastructure that is often decried as “socialism” by the Fox News watchers and the Silicon Valley Randites.

        Rather, the problem with Paul Graham and the Y Combinator concept (“Ivy League of the startup world”) is that it not only increases social inequality, but it somehow makes the mounting social inequality seem okay. The token female founders and founders from Midwestern, middle-class roots are there to legitimize a proto-aristocratic system. “Keep calm and trust the meritocracy.” I don’t. Evan Spiegel is not more qualified to run a company than an average CS graduate, much less some of the people I’ve seen get flushed out of the startup world for being “too old” (meaning, 35 to 40).

        Paul Graham is, quite likely, color-blind when it comes to the increasing social inequality in the Valley and his role in it. To be fair, he’s reduced the inequality between founders and investors. On the other hand, he and his ilk (mostly his ilk, because I doubt that one person alone can force such a change) has replaced the old two-class Silicon Valley (investors on top, founders and employees together at the bottom) with a three-class Valley (investors, then founders, then employees) that’s a lot more toxic, has far worse business ethics (because founders no longer see employees as fellow humans but as something inferior) and that is generally worse for the world.

        Social inequality enables poverty (if you have permanent lower classes that are seen as less than human, society will tolerate their being impoverished) but it also leads to a risk-averse, stratified society that becomes increasingly unoriginal over time. In the long run, this hurts everyone.

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          If you start looking at the numbers and the context, the ‘50s in the US were EXTREMELY abnormal and should never be used as a measure of what would economically or socially be appropriate or rational. It was an exceedingly irrational era.

          • dissent was suppressed. Ergo, society was fine

          • cold war was pounding money into the economy.

          • the ww2 savings were being unloaded into the economy

          • the government was effectively giving cheap housing away to vets.

          • international competition was bombed into the ground, and the US was helping rebuild it. Job-a-ganza.

          • unions were super strong: there was a Grand Bargain sort of thing going on. They didn’t make a fuss, and they got paid well. It wasn’t economically sustainable.

          Ergo: The existence of the blue collar middle class was an artifact of that era.

          Prior to that, no decade approximate approximated peaceful normality until the 1900-1913 timeframe, and I’m sure very few people want to return to that era.

          We have to step into the new world of 2016 not expecting old social and economic norms to work: they are obsolete. We can only unbreak the build by patching, not reverting.

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            There are some unique things about the post-WW2 American economy, but the basic idea of an economy with a reasonably strong social welfare system, strong unions, and a damper on inequality isn’t that unique, definitely not limited to the specific circumstances of the US as the WW2 victor. I don’t think it’s necessarily universal either, but at the very least it’s not a specifically American phenomenon, and doesn’t require those specific circumstances. For example, Germany, the WW2 loser, also built a postwar economy along those lines, the so-called social market economy. And the Scandinavian countries had already reached the kind of business–labor Grand Bargain you mention before World War II: Denmark with the “September Agreement” of 1899, and Sweden in 1938. Which has led to a kind of ratchet of increasingly improved working conditions for 100+ years continuously, not some kind of one-decade anomaly.

            Now, of course, globalization threatens most of these arrangements. But I think that’s a different point than arguing this kind of arrangement is peculiar to post-WW2 America; rather it’s a typical 20th-century developed-country arrangement, dating to the late 19th century in some cases, which is now in trouble due to significant changes in the way the global economy is organized.

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            Social inequality enables poverty (if you have permanent lower classes that are seen as less than human, society will tolerate their being impoverished)

            I think this is more of a two-direction entanglement. Income inequality, especially at extreme levels, also enables social inequality, because the wealthy begin to believe that the lower classes are worse than them, and in some ways they in practice are because they basically live in a different world that is barely comprehensible to the wealthy. And the wealthy have the means to construct a society around themselves to reflect their belief in their superiority and what they consider the “natural” order of things. There’s a bit of that kind of “natural order of things” style mumbling in this essay, too, which is more of self-serving politicking than an honest scientific investigation into facts of nature.

            Anyway, I’m not sure it’s actually possible to have extreme inequality in control of capital, i.e. control of land/resources/labor/media/business, but not have accompanying social inequality. It doesn’t seem logically impossible, to be sure, but very unlikely.

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              I agree. When economic inequalities become severe and (I would argue, more importantly) incentives for bad behavior become steep enough, you run into “human nature” problems that I am not smart enough to solve. And if I don’t know how to solve them, then Paul Graham definitely doesn’t. At least I will credit myself with being aware of them, unlike the Silicon Valley Randites who want to believe that social and class equalities don’t exist, so they can sleep at night.

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              “Keep calm and trust the meritocracy.”

              I need a t-shirt with that on it. Too bad my screen printing kit is nowhere to be found.

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              Why are we wasting our time with this junk? Graham has no qualifications in economics or politics, nor is either subject on-topic for this site. Can we please leave the VC-fetishizing to Hacker News?

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                One does not need qualifications to make a point. Do you have any criticism of the content, or just the person? At least HN has an explicit rule against ad hominem reasoning.

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                  I’m enjoying watching him get the intellectual take-down that he wouldn’t get on Hacker News because he’d just ban everyone (or, more realistically, have his lackeys do it) who disagrees with him.

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                    I was pleasantly surprised to see that most of the HN comments about this essay were calling him out on it, actually.

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                  So it seems to me that this particular essay, which is more of a political one, is based mainly on the assertions in an accompanying essay, “The Refragmentation”, giving something like the Paul Graham Theory of Business History.

                  Now a fun game to play with that essay: pick out every assertion that can be pinned down as a factual assertion, of the kind that with sufficient research you could verify or disprove, based on say, economic statistics or historical research. Or at least get a pretty good idea that it’s “probably true” or “probably false”, since not every assertion about history can be easily proven 100% either way. But anyway, just picking them out is an interesting exercise. Step two, guess how many of those assertions are actually true? (My bet is, I dunno, 50%.)

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                    So you are saying, there is still a chance he is right about something?

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                      He’s an arrogant, immature goofball who’s surrounded himself with fanbois who are two-fifths of his age, but he’s not stupid.

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                        He also is a True Believer. He really does buy his own schtick. Nice guy, always good to me, but not someone I’d turn to for clear thinking on anything substantive.

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                          Agree. Just being silly.

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                          Hell, even a stopped clock is right twice a day, and even I occasionally make valid points.

                          It’s kinda irksome reading that essay on refragmentation, because it feels like a lot of handwaving and bullshit propoganda mixed in to history in such a way as to stop just short of revisionism. PG utterly fails to, for example, seems to be pathologically unable to grant credit and recognition to the small companies that were pivotal to a lot of the developments of the 20th century.

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                            I finally read that essay. He documents some of the changes that happened in the 20th century: the build-up of large corporations, and their gradual trend toward bureaucratic inefficiency, and the cultural fragmentation that started in the ‘80s and really took form in the '90s. His understanding of the reasons why these changes happened is self-serving and borders on bizarre.

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                        Most of what’s wrong with the world is in this text.

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                            That was excellent, thank you.

                            Once again: the current flap about economic inequality is not about people wanting to become rich, it is about people wanting to get by. Most people are not driven. Everyone wants to at least get by. You will not stop people from being driven to become rich by making it possible for everyone else to get by.

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                            I basically agree with Paul Graham, along the axis that one oughtn’t to fight income inequality per se – we don’t want to punish people for doing a good business.

                            I am skeptical of the idea that technology leads to greater income inequality. It would seem to raise everyone’s productivity.

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                              It would seem to raise everyone’s productivity.

                              Who decides what to do with the profits that come from increased productivity?

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                                I feel like there are a couple of steps missing here – between your point and mine.

                                Say that technology enhanced everyone’s productivity – how would that affect distribution? The same people would decide as before; but the relative amounts might not change (on average).

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                                  how would that affect distribution?

                                  We don’t have to speculate about this, of course. Simple observation of the economy reveals that those at the top take a massively disproportionate share of the benefits from increased productivity.

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                                    This is coming at it from the wrong end – no one is disputing recent economic history. We’re talking about causes.

                                    Were the kings of France or the holders of Roman estates so much closer to the poor of their era than the executives of today? Do we attribute this to technology?

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                                I think so far technology has raised everyone’s productivity. But we’re at a point where it’s about to start replacing humans more and more altogether. And that will absolutely cause an income inequality, the people who own the machines will control the wealth. This CGPGrey video explains the problem a lot better than I ever could. For context I’m thinking on a decades timeline here.