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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

#31

Post by danans »

vannevar wrote: post #22

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…

We've also somewhat institutionalized the belief that all innovation would cease if those laws were even slightly more re-balanced in favor of more redistribution downward.

PG's essay seemed to hint at that kind of thinking, but I couldn't tell if he was advocating against higher taxes on the very wealthy, or whether he was more vaguely saying "don't mess with the startup machine's incentive system" without being specific as to what that means.

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

#32

Post by bcheung »

thelock85 wrote: post #17
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…

>> We should ask ourselves, how can this leverage be democratized? Isn't that a bit tautological? Economic outcomes in the U.S. have depended on one or more groups lacking technology, education and access to capital at all times since the nation's founding. I don't disagree with your question/suggestion but in the unicorn scenario where those with powerful technical and economic assets de-leverage themselves or accep…

I don't mean democratized in the sense of it being equally distributed, I mean more available for those who can make proper use of it -- not restricted to the elite class.

Technology, education, and capital have been increasingly democratized over time and I think this trend will continue. Technology is the primary reason for this because 1) costs become so much lower that it can be provided for virtually free, 2) new business models can be created that were not possible before.

Now with an Internet connection anyone can create a business.

With things like Coursera, Udacity, Khan Academy, etc education has been more accessible and free.

There are also more options for financing, both from traditional banks being more liberal in their lending as well as new routes like Kickstarter style crowd funding and peer-to-peer lending.

That being said, the distribution for people who will be motivated to educate themselves, work hard, build a business, will stay the same because human nature doesn't change as fast as technology. If various kinds of human attributes / behaviors / motivation fall on a Gaussian distribution, then any kind of leverage will make it sharper (more inequality).

So what I think is going to happen is that inequality will get worse but it will be more fair because it won't be the case that that leverage wasn't available to them, it will increasingly be the case that they just didn't take advantage of it despite having access to it.

That being said, it's a generalization and a trend but the opposite has some weight as well. Yes, capital will pool and that creates concentrations of power. But at the same time, disruptive technologies like Internet based education, P2P lending, etc make those concentrations of wealth irrelevant.

In the long run, technology disrupts and democratizes everything. Google for the 6 D's for a longer explanation

http://bobmorris.biz/the-six-ds-of-exponential-development

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

#33

Post by danans »

UK-AL wrote: post #30
danans wrote: post #28

Earlier quoted context omitted.

> 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.

Sure, but things can appear to provide lots of apparent value for customers and employees (i.e. the borrowers and loan-bundlers in the pre-2007 real estate bubble), until as you say, they collapse.

Also, just because a small group of people (customers, employees) may derive value from a particular startup company doesn't mean that that particular company, or the overall the ecosystem of startup companies, is creating more value than it consumes. The effect on inequality of the overall ecosystem is what's being debated here, and I'm not sure that anyone has a clear, data-backed understanding of which way it skews.

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

#34

Post by thelock85 »

bcheung wrote: post #32
thelock85 wrote: post #17

Earlier quoted context omitted.

>> We should ask ourselves, how can this leverage be democratized? Isn't that a bit tautological? Economic outcomes in the U.S. have depended on one or more groups lacking technology, education and access to capital at all times since the nation's founding. I don't disagree with your question/suggestion but in the unicorn scenario where those with powerful technical and economic assets de-leverage themselves or accep…

I don't mean democratized in the sense of it being equally distributed, I mean more available for those who can make proper use of it -- not restricted to the elite class. Technology, education, and capital have been increasingly democratized over time and I think this trend will continue. Technology is the primary reason for this because 1) costs become so much lower that it can be provided for virtually free, 2) ne…

Eh. I'm more of the opinion that technology amplifies the existing characteristics of social, political and economic structures (http://geekheresy.org/tag/law-of-amplification/) with the possibility of disrupting and democratizing. But I know I'm on an island in that regard. I understand your point.

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

#35

Post by bcheung »

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…

That would make more sense. Yes, that is definitely a problem.

I think he is ignoring / discounting leverage as a component to wealth creation though.

Even in a world where it is impossible to make wealth without providing value, inequality will still grow in proportion to available leverage. And technology (leverage) grows at an exponential rate.

If we are concerned with inequality, then part of the equation is how do you make that leverage available to those without large pools of wealth or privilege.

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

#36

Post by bcheung »

nkurz wrote: post #24
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…

That would make more sense. That's probably what he meant.

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

#37

Post by danans »

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…

Something that I haven't seen discussed much is the possibility that when a startup (i.e. Whatsapp) achieves billion-ish scale adoption in a space that overlaps with an incumbent (Facebook), it has already destroyed some value (monetizable user attention-time) in the incumbent, so the incumbent has to obtain the upstart (pun-intended) in order to regain that lost value, and simultaneously grow into the areas that they don't overlap.

In that case, any premium paid that isn't reclaimed by future value created as a result of the acquisition is destroyed wealth. Unfortunately, without a crystal ball, it's hard to say what that premium is, if it exists at all.

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

#38

Post by bcheung »

thelock85 wrote: post #34
bcheung wrote: post #32

Earlier quoted context omitted.

I don't mean democratized in the sense of it being equally distributed, I mean more available for those who can make proper use of it -- not restricted to the elite class. Technology, education, and capital have been increasingly democratized over time and I think this trend will continue. Technology is the primary reason for this because 1) costs become so much lower that it can be provided for virtually free, 2) ne…

Eh. I'm more of the opinion that technology amplifies the existing characteristics of social, political and economic structures ( http://geekheresy.org/tag/law-of-amplification/ ) with the possibility of disrupting and democratizing. But I know I'm on an island in that regard. I understand your point.

It's not an either or.

Debt is a bad amplifier if not used correctly. Racking up huge student loans to get a degree that is not in demand will lead to poverty. The same with excessive credit card debt. Leverage works both ways.

Certain people will always have destructive qualities. The percentage of people digging their own graves hasn't changed much. It's just that instead of a shovel, they now have a bulldozer.

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

#39

Post by sparky_z »

delish wrote: post #3
hackuser wrote: post #2

It would be much more interesting to hear economists, who have expertise in this domain, discuss this issue and hear people who happen to be in our industry talk about what they know (IT).

I agree. Paul Graham's essays on income inequality expressed my views on income inequality more clearly than even I was thinking them. I appreciate this, but now I need to hear a critique by someone who understands the issue how I understand it and disagrees with me. I've been looking, but I've found ad hominem attacks.

Does O'Reilly's critique not qualify?

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

#40

Post by rubberstamp »

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…

What I got from reading article is that "Technology creates greater inequality only if companies don't create proportionate value in return for the wealth founders/executives take away"

But if companies are actually creating value at least as much as the founders/executives take away, it isn't creating inequality.

The author has given examples later in the article. The good case being google's founders taking away only what is proportionate to the value their company has created. And the bad case being a CEO given $120 million in stock option pay when the company profit was just $150 million.

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