Response to Paul Graham Mind the Gap.

http://paulgraham.com/gap.html

1. Graham correctly notes that producing useful things can be a source of wealth, and also incorrectly takes it to be be the only source of wealth. Large sums of money can be acquired by inheritance, unproductive activities like playing stock markets, and luck. (It is ironic that he uses Bill Gates as an example. According to legend, Gates got his big break because Gary Kildare went hanggliding)

2. Everyone is familiar with the idea that there is a relationship between productivity and deserved income, because everyone has been told that if they want a rise, they must work harder. And that’s a large part of the reason people object to 100x income gaps: no amount of sweat could justify it. Markets don’t respond to productivity in the sense of effort: top actors don’t make 100x the films of struggling actors. I don’t think people are stupidly adopting the wrong theory, I think the effort theory is being constantly promoted by people who think it doesn’t apply to them.

3. There is some evidence that equality is beneficial. The point was argued in a book called the Spirit Level, which has generated considerable debate. I am not sure what the right answer is, but Graham is too sure it that inequality is harmless.

4. Some of the people who object to inequality and want to tax the rich want to close the gap, but many more want to see something socially useful done with the money.
Pre industrial societies were very unequal, but but not very innovative. The kind of inequality Graham likes, the meritocratic kind, is not possible without a supply of educated people. Taxing the wealthy and spending the money on education is a feedback loop that keeps the whole thing going.

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Corporations as mini Communisms.

Communist central planning has been ritually lambasted here as a strange and horrible thing occurring in a far off land,, and it remains the case that most people spend their working lives in centrally planned organisations, with many of the same problems.

According to the Worst Libertarian Argument (Apart From All the Others), government bureaucracies are useless because their activities are determined by artificial rules and budgets, not direct response to market conditions. However, daily experience in a large corporation is hardly distinguishable from that in a government department. Budgets, goals and procedures are set by remote figures many organisational layers away.

Hierarchy and Efficiency.

The right kind of hierarchy is beneficial, the wrong kinds aren’t. The right kind is meritocratic, a fluid system arousing out of talent, experience and effort, like the hierarchy in a well run corporation. Any departure from this  system is ipso facto less efficient. For instance, the most efficient way of apportioning educational resources is towards those most capable of benefiting from them. People who call for hierarchy are usually calling for return to a more rigid, less meritocratic pattern….the kind that is based on class,  race, gender or other group characteristics. The kind that squanders the talents of the low-status in favour of “upper class twits”. We don’t know how many potential Einsteins spent their lives as goatherds because that’s what they were born into. (It’s no surprise that the West took off so quickly in the last 300 years or so: it was a virtuous circle , with wider education supported economic growth, and economic growth being ploughed back into increased education. It’s also no surprise that the few traditionalistic societies that can compete are bouyed up by resource wealth).

In fact, non meritocratic hierarchies have a double problem. They are not only inefficient because they don’t put the best people into jobs, they are inefficient because the hierarchy has to be maintained with an expenditure of effort in terms of force (“Guards, guards!”) and propaganda (“God bless the King”). Meritocratic hierarchies are the only ones that seem fair, and therefore, the only ones people will support voluntarily: no one complains that the only people with the right to operate in brains are qualified brain surgeons.