Economic Inequality
3rd January 2016
Paul Graham speaks sense to stupidity.
I’ve become an expert on how to increase economic inequality, and I’ve spent the past decade working hard to do it. Not just by helping the 2400 founders YC has funded. I’ve also written essays encouraging people to increase economic inequality and giving them detailed instructions showing how.
So when I hear people saying that economic inequality is bad and should be eliminated, I feel rather like a wild animal overhearing a conversation between hunters. But the thing that strikes me most about the conversations I overhear is how confused they are. They don’t even seem clear whether they want to kill me or not.
The most common mistake people make about economic inequality is to treat it as a single phenomenon. The most naive version of which is the one based on the pie fallacy: that the rich get rich by taking money from the poor.
Usually this is an assumption people start from rather than a conclusion they arrive at by examining the evidence.
Evidence? We don’t need no stinkin’ evidence….
Even people sophisticated enough to know about the pie fallacy are led toward it by the custom of describing economic inequality as a ratio of one quantile’s income or wealth to another’s. It’s so easy to slip from talking about income shifting from one quantile to another, as a figure of speech, into believing that is literally what’s happening.
The phrase ‘share of the national income’ is a key giveaway here, making the Aggregation Fallacy of thinking that the ‘nation’ has an ‘income’ of which the only interesting thing is who gets what ‘share’.
Except in the degenerate case, economic inequality can’t be described by a ratio or even a curve. In the general case it consists of multiple ways people become poor, and multiple ways people become rich. Which means to understand economic inequality in a country, you have to go find individual people who are poor or rich and figure out why.
But that would take actual work, and it’s much easier to assume and opine, which pays the same (or sometimes better).
Traditional economists seem strangely averse to studying individual humans. It seems to be a rule with them that everything has to start with statistics. So they give you very precise numbers about variation in wealth and income, then follow it with the most naive speculation about the underlying causes.
Most economists live in Aggregation Fallacy World because that’s the way they were trained and it’s that sort of work that they’re paid for. Thinking outside the box is rarely indulged in when the box is providing your paycheck.
I’m all for shutting down the crooked ways to get rich. But that won’t eliminate economic inequality, because as long as you leave open the option of getting rich by creating wealth, people who want to get rich will do that instead.
Although the Democrats are doing their best to stamp that out. That’s the one thing at which Obama and his henchmen have actually been successful.
UPDATE: An extensive response is here — read it, and its comments.