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What Paul Graham Is Missing About Inequality – Tim O'Reilly

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Re: What Paul Graham Is Missing About Inequality – Tim O'Reilly

#21

Post by nickpsecurity »

I think his points on executive compensation vs labor-based compensation plus incentives are spot on. It's this way because they can do it this way for their own gain. They also have influence in Washington to pull it off. Quite simple.

Of course, being a scientist, I prefer to judge something by its results. We can say exactly what our system's design is doing by looking at what results from it and where those results show up. Spoiler: it's a plutonomy or an economy that almost exclusively extracts wealth to concentrate in hands of richest few.

Citigroups internal analysis confirming we're a modern plutocracy & that illusion of upward mobility was critical:

http://politicalgates.blogspot.com/2011/12/citigroup-plutono...

Nice profile of the richest firms controlling the most wealth and their interlocking boards:

http://www.projectcensored.org/financial-core-of-the-transna...

That's 161 directors managing $23.91 trillion in funds. Hard to imagine control of wealth distribution or incentives to take a slice getting more concentrated.

EDIT to add: Also relevant is this recent HN post with empirical evidence supporting rule by elite claim. If law and business structure are for elites, then of course they continue and expand economic inequality that benefits elites at the rest's expense.

https://news.ycombinator.com/item?id=10965943

Re: What Paul Graham Is Missing About Inequality – Tim O'Reilly

#22

Post by vannevar »

Tim writes: But in formerly rich countries, many people who used to be paid well for their work now have to compete for lower-paid jobs, while those who already own meaningful capital take a larger and larger share of the pie.

This is the real “pie fallacy” — the idea that as long as the pie is getting bigger, everyone is better off. It’s true that through technology, trade, and the spread of knowledge, we have made a bigger pie. But that doesn’t mean that some people aren’t getting far more of the benefit, while others are losing out.

This highlights probably the biggest flaw in Graham's original article, and if he does reply to Tim's critique I hope at minimum he addresses this point. The reason that the wealthy are claiming an increasing slice of the growing pie is that we've institutionalized, in the form of law and custom, many, many, "rich-get-richer" rules. Tim enumerates a few of them, but there are many such mechanisms woven into the economy, some of them not so obvious. (For example, recently HN featured a Priceonomics article showing how cigarettes effectively transfer wealth from the poor to the rich: https://news.ycombinator.com/item?id=10941671.)

There are only two ways to combat the rising rate of inequality: 1) modify all those rules and customs to make them wealth-neutral (unlikely), or 2) legislate new counter-rules that move wealth the other way. Any other solution is wishful thinking and not mathematically viable.

Re: What Paul Graham Is Missing About Inequality – Tim O'Reilly

#24

Post by nkurz »

bcheung wrote: post #13

"I agree with him that technology can make us all richer, but I disagree that it necessarily creates greater inequality, even if some startup founders become very rich. It only does that if companies don’t create real value in return for that wealth." Tim provides no justification or evidence for this argument. This makes no sense to me. While there is certainly a difference between making money from rent-seeking vs…

I think you might be misreading his argument. Are you are interpreting it as "Startup founders become very rich only if companies don’t create real value in return for that wealth"? If so, I don't think that's what he intends.

I read it as "Technology only creates greater inequality if companies don't create real value". I'm not sure if that's actually true, but that interpretation seems less contentious and more in line with the rest of the piece.

Re: What Paul Graham Is Missing About Inequality – Tim O'Reilly

#25

Post by bobby_9x »

UK-AL wrote: post #10
bobby_9x wrote: post #5

One of the big reason we have an increase in wealth inequality is globalization. Before 2000, you were only competing with another American at the same wage. Now, you need to compete with workers in India, China, and Mexico. If not in those countries, big companies like Facebook will just bring them over on an H1B visa at a similarly competitive wage. It's the same phenomenon that happened when technology uprooted th…

Globalisation has actually decreased inequality on a global scale.

The poor are moving up, the middle class are moving toward the poor (they will meet at some point), and the rich continue to get richer in the process.

So yes, inequality is technically decreasing between the poor and middle class, but the end result will be the middle class being non-existent.

It might be better for someone from a poor country, but not that good for someone from the US.

Re: What Paul Graham Is Missing About Inequality – Tim O'Reilly

#26

Post by eewffwe »

UK-AL wrote: post #12
Apocryphon wrote: post #9

Very curious to see what people think about O'Reilly's supposition that many, if not most, startups are just another financial instrument that don't actually create wealth: "When a startup doesn’t have an underlying business model that will eventually produce real revenues and profits, and the only way for its founders to get rich is to sell to another company or to investors, you have to ask yourself whether that st…

If someone buys a start-up, obviously it has value to them.

The 'value' can be as simple as a payout. If I could go back, I'd love to invest in Snapchat. I don't think Snapchat will ever have a strong revenue stream but that doesn't matter to me - what matters to me is the buyout.

Hell, I invest in options often. There's no real value to me... only a potential investment payout.

I think it's the same with most investors of technology.

Re: What Paul Graham Is Missing About Inequality – Tim O'Reilly

#27

Post by UK-AL »

eewffwe wrote: post #26
UK-AL wrote: post #12

Earlier quoted context omitted.

If someone buys a start-up, obviously it has value to them.

The 'value' can be as simple as a payout. If I could go back, I'd love to invest in Snapchat. I don't think Snapchat will ever have a strong revenue stream but that doesn't matter to me - what matters to me is the buyout. Hell, I invest in options often. There's no real value to me... only a potential investment payout. I think it's the same with most investors of technology.

The value comes from the people buying the company then.

Maybe snapchat is going to be a crucial marketing channel for them, which makes it worth it to purchase them. They transfer some of this value, to the original investors of the company who got it off the ground.

There is value, or perceived value at some point in the chain.

Re: What Paul Graham Is Missing About Inequality – Tim O'Reilly

#28

Post by danans »

bcheung wrote: post #13

"I agree with him that technology can make us all richer, but I disagree that it necessarily creates greater inequality, even if some startup founders become very rich. It only does that if companies don’t create real value in return for that wealth." Tim provides no justification or evidence for this argument. This makes no sense to me. While there is certainly a difference between making money from rent-seeking vs…

> the statement that lots of wealth can only come from not creating real value seems absurd to me.

I don't think that's what he said. He said that inequality increases when wealth is created for the company's owners/investors while NOT creating value (or even reducing value) for everyone else (customers, the public, employees).

There are lots of examples of huge wealth being created at the expense of others without also creating value - for example: bad mortgages being bundled, obfuscated, and upsold. Tim actually proposes that bad startups are somewhat analogous to these sorts of financial instruments - i.e. there's a sucker at the end holding the bag.

Re: What Paul Graham Is Missing About Inequality – Tim O'Reilly

#29

Post by UK-AL »

bobby_9x wrote: post #25
UK-AL wrote: post #10

Earlier quoted context omitted.

Globalisation has actually decreased inequality on a global scale.

The poor are moving up, the middle class are moving toward the poor (they will meet at some point), and the rich continue to get richer in the process. So yes, inequality is technically decreasing between the poor and middle class, but the end result will be the middle class being non-existent. It might be better for someone from a poor country, but not that good for someone from the US.

I don't believe that it is the divine right of the middle class of one country to live better lives than other people, simply because of location.

Besides, globalisation will overall increase the total wealth of the poor + middleclass combined.

Re: What Paul Graham Is Missing About Inequality – Tim O'Reilly

#30

Post by UK-AL »

danans wrote: post #28
bcheung wrote: post #13

"I agree with him that technology can make us all richer, but I disagree that it necessarily creates greater inequality, even if some startup founders become very rich. It only does that if companies don’t create real value in return for that wealth." Tim provides no justification or evidence for this argument. This makes no sense to me. While there is certainly a difference between making money from rent-seeking vs…

> the statement that lots of wealth can only come from not creating real value seems absurd to me. I don't think that's what he said. He said that inequality increases when wealth is created for the company's owners/investors while NOT creating value (or even reducing value) for everyone else (customers, the public, employees). There are lots of examples of huge wealth being created at the expense of others without a…

Things that don't create value eventually collapse.

I don't think customers/employees would work with company if they weren't getting at least some value out of it.

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