Interesting people disagreeing about inequality

Here is a fascinating series of four articles.

 

It starts with Paul Graham’s recent essay Economic Inequality. (Many readers of this blog will know Graham from his many fascinating essays, including Why Nerds Are Unpopular, What You Can’t Say and The Age of the Essay; and from his excellent book Hackers And Painters [Amazon US][Amazon UK].) Graham is broadly in favour of inequality as he sees it largely an honest signal of different ability and willingness to create value for society.

Then comes Ezra Klein’s critique, A top venture capitalist thinks startups are causing inequality. He’s wrong. (Klein is a journalist, best known for work at The Washington Post.)

Then Graham’s response, A Reply to Ezra Klein, in which he claims (you will have to decide whether he’s right) to show that all nine of Klein’s points are either incorrect or irrelevant.

Finally, and I think maybe best of the lot: Tim O’Reilly’s annotated edit/rewrite of the original essay, What Paul Graham Is Missing About Inequality. (O’Reilly is the founder of O’Reilly publishing, maybe the best publisher of technical books in computing, and also a founding investor in PeerJ, my favourite scholarly publisher.)

It will take a while to read all four, but it’s well worth it.

Who is right?

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5 responses to “Interesting people disagreeing about inequality

  1. That is a fascinating collection of essays, which do become more interesting read as a set. I’ll be mulling that over for a while (and hopefully with a comment or two here) but as an initial reaction I’d say:

    I also think that Tim O’Reilly’s is the best, because he takes the broadest view of the questions under consideration and that it just reveals how narrow, and somewhat misguided, the argument between the other three pieces is.

    You have at the very least the following questions that are raised:

    What are the causes of inequality? If startups are a major cause of inequality, what is it about both government policy and social institutions which creates a climate favorable tor founders to make as much money as they do? What are the effects of inequality? In what ways does economic inequality create and/or come out of social inequality (as well as the inequality of talent and desires which Graham talks about).

    That would then lead into the questions of, what are the range of possible responses to the situation, as we’ve described it? Is it possible to reduce inequalities of wealth without significantly reducing the opportunities available to people founding startups? Is it possible to mitigate the effects of inequality while still having great inequality? Is it better for policy to focus on making the experience of life more equitable given unequal earnings (“redistribution”) or to make the range of earnings more equal (“predistribution”)? What are the ways in which current policies and institutions exacerbate (or mitigate) inequality compared to a world in which the goal was to allow startups to create wealth as efficiently as possible? (for example, one could argue that current intellectual property rules have major impacts on how startups function, have plenty of counter-intuitive aspects, and are designed to neither facilitate startups nor equality).

    I think O’Reilly’s essay makes clear that even if one accepts that startups are both good and contribute to inequality there’s still a lot of work to do thinking about those other questions before one could come one could come to the conclusion that the proper response to inequality is to do very little (or even to encourage it).

    So there’s a lot to think about far beyond just trying to figure out who gets the better of the arguments in those pieces (which are themselves interesting).

  2. I wasn’t aware of O’Reilly’s piece, I’ll read it now.

    When I read Graham’s piece I remember thinking it was an excellent half of an essay on inequality, tragically missing the other half.

    What’s great about it is how it makes so clear a point that (in retrospect) should be obvious: that inequality is an essential component of free market economies. And I don’t mean that in the sense that it’s an inevitable side-effect, I mean that’s literally *what makes it work*.

    The problem (ie, the half of the discussion that’s missing entirely) is that there are both different kinds and different degrees of inequality, and if things get too out of balance it can be extremely destructive – as much or more that a well honed free market system can be constructive. At around the same time I read Graham’s article I remember reading an editorial that would make a good “second half”, unfortunately I’ve long forgotten where or who wrote it.

  3. Crash Random

    I am a huge fan of Paul Graham but I thought this essay was below his usual standard. I think he comes off here as provincial and overly worried about persecution of Silicon Valley multi-millionaires.

    Different people are aggrieved about many different kinds of “inequality.” (Inequality between the bottom 20% and top 80%? Or between the bottom 80% and top 20%? 10%, 1%, 0.1%? There are entirely different issues involved depending on which division you’re talking about.)

    I think outside the Bay Area, the resentment is mostly not aimed at startup founders (although it’s possible that inside the Bay Area, it is), so Graham’s essay seems overly paranoid and off the mark for that reason.

    I agree that O’Reilly’s piece is the best of the four.

  4. Still thinking about this, and gathering a variety of links (somewhat broadly), but here are two that I thought were particularly a propos:

    Brad DeLong (economist at UC Berkley) on Distributional Policy in a World Where People Want to Ignore the Value and Contribution of Knowledge- and Network-Based Increasing Returns

    As I have said before, humans are, at a very deep and basic level, gift-exchange animals. We create and reinforce our social bonds by establishing patterns of “owing” other people and by “being owed”. We want to enter into reciprocal gift-exchange relationships. We create and reinforce social bonds by giving each other presents. We like to give. We like to receive. We like neither to feel like cheaters nor to feel cheated. We like, instead, to feel embedded in networks of mutual reciprocal obligation. We don’t like being too much on the downside of the gift exchange: to have received much more than we have given in return makes us feel very small. We don’t like being too much on the upside of the gift exchange either: to give and give and give and never receive makes us feel like suckers.

    We want to be neither cheaters nor saps.

    It is, psychologically, very hard for most of us to feel like we are being takers: that we are consuming more than we are contributing, and are in some way dependent on and recipients of the charity of others. It is also, psychologically, very hard for most of us to feel like we are being saps: that others are laughing at us as they toil not yet consume what we have produced.

    And, from the links in that piece, Ryan Avent (writer for The Economist) on You Might Have Earned It, But Don’t Forget That Your Wealth Came from Society

    [Adam] Smith saw things differently. Trade is not zero-sum, he wrote. Rather, trade increases the size of the market, which allows for greater labour specialization. Specialized labour is more productive than non-specialized labour, so that a world of trade and specialization, in which many people focus on one task and exchange their produce with others in mutually beneficial trades, is one in which everyone is much better off than a world in which individual countries seek to buy as little as possible from competitors. The ‘common wealth’ is maximized when people are left free to follow their self-interest and exchange whenever and with whomever they choose.

    It is a beautiful and important intellectual model of the world. But it is incomplete. Self-interest governs more than our behaviour in labour and product markets. It also governs our attitudes and behaviours towards the societies in which we belong. Societal openness generates broad benefits but localized costs. And so people rationally seek to limit societal openness, out of self-interest.

  5. Crash Random, I do agree that this is not Paul Graham’s best work. He has a tendency to fall into self-justification when he writes about economics. But even in such pieces, he raises important and interesting issues, and brings some significant insights. I think the best thing about Economic Inequality is that it began the discussion.

    NickS, thanks for these links and the extracts (whose formatting I have fixed, BTW). Excellent insights — and of course the Adam Smith perspective on trade and specialisation has never been more important for people to understand.

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