Why the Sharing Economy is Awful

Continuing with my thinking on late capitalism has brought me to consider the idea of the “sharing economy“. Many people seem to intuitively understand the gist of the sharing economy– people use information technology in order to facilitate other people’s renting of their stuff. Immediately, there is something strange: “sharing” does not mean “renting” in any other context except in the term “sharing economy”. The sharing economy is the renting economy; no ownership is actually shared, nor is any use actually “shared”, except in exchange for money.

If anything, the sharing economy refers to the mass choice of struggling workers to rent out the combination of their labor time and their expensive stuff to information technology companies. The “sharing” with the the end-users is the least relevant part of the story because the end users are actually just consumers finding their preferred product. Consumers are not participants in the particular economic theme of “sharing”, as they share nothing whatsoever, and instead buy the product as they desire it.

Typically, the sharing economy doesn’t provide a totally novel product to consumers, but rather a more convenient product than the traditional competition for the same product. The consumers for the product being “shared” existed before the sharing economy came along, so the demand was already there too. The consumers are finding the most efficient path for their money to turn into the product they want– a path that information technology companies have provided for them by creating an app which allows for mass utilization of capital that they do not own, using workers they do not hire.

In a time of weak economic demand, the incentive to generate revenue in is high as ever. There is strong pressure to keep costs down (precluding large capital purchases or development of brand new products) and cut unprofitable programs in order to keep revenue as strong as possible despite weaker sales. This poses a problem: how can revenue be generated reliably when demand is weak? To answer this question, we have to step back and examine how revenue is made under normal circumstances.

Revenue is produced by workers utilizing capital to provide something of value. Capital may be thought of abstractly as large quantities of money that can be transformed into physical objects which are used to produce more money, or it can be thought of as the objects that produce money themselves. Traditionally, capital might be a piece of factory equipment, and the owners of capital are the business owners. Capital may depreciate in value as it is utilized to produce revenue. Eventually, the capital may need to be revitalized or replaced.

In the traditional model, normal workers don’t own the capital that they utilize to produce revenue. The worker is paid a fraction of the revenue of the company– most of the revenue of any given company is used to maintain its capital and its workforce. It is the responsibility of the owner of the capital to provide wages to the worker who utilizes said capital to produce revenue. What remains after  maintenance of capital and wages is called profit. The profit may be used to purchase more capital, put in the bank, or paid out to workers or owners. The key takeaway here is that workers traditionally do not have any financial responsibility toward the capital which they utilize. The role of the worker is to utilize the capital in order to collect wages.

The difference between companies renting capital in the sharing economy and traditional companies producing the same good is critical. The traditional competition is likely to be burdened by upkeep costs in ways that sharing economy correlates are not– after all, traditional companies have to own and maintain the capital themselves in addition to retaining workers. Sharing economy companies typically find ways to use contractors instead of full time workers, reducing their operating costs by providing fewer benefits. The utilization of worker capital to produce revenue is quite an interesting development when paired with the rise of “contractor” style employment arrangements.

The most visible pillars of the sharing economy are AirBnB and Uber. I am not trying to suggest that these companies are “bad” for the economy. I use both of these services, and enjoy the products that they offer. I am suggesting that the sharing economy is detrimental to workers who are effectively forced to pony up their own capital before being allowed to participate in what amount to low wage, unskilled labor style jobs. What isn’t commonly understood is that the sharing economy is economically exploitative by allowing people to create revenue from their personal capital.

The sharing economy turns the traditional capital-and-revenue equation on its head. Instead of capital being owned by a company and utilizing workers to gain revenue from that capital, a company merely rents capital owned by the worker as part of the worker’s wages, offloading the up-front cost of capital and discharging the costs of capital maintenance to the worker. Revenues no longer flow toward the owner of the capital, but rather to the renter of the capital. After that, things function normally: workers are paid their static amount of the revenue, which is low despite bringing capital to the table.

The effect of the sharing economy is a part-time injection of previously untapped capital into the economic ecosystem. Common items which most people have (a spare room or car, for instance) can now be used as revenue-producing capital by their owners, who are likely strapped for revenue due to poor economic conditions. Thus the sharing economy allows workers short on revenue to rent out their capital alongside their labor, allowing them to have labor opportunities that they wouldn’t have otherwise– a very strong economic incentive. Instead of requiring capital sunk on credentials or time used to beef up a resume, workers in the sharing economy are merely required to lay a chunk of their capital on the table in order to start working. In some ways, this is good, as it allows people to work for wages that would otherwise not be competitive enough to get a job.

This reversal of the normal order certainly has many other benefits: the freedom afforded to those who choose to work as Uber or Lyft drivers is much higher than the median worker who must adhere to standardized hours and habits. The same could be said for the person who puts their spare room up on AirBnB. The income afforded to the workers of the sharing economy certainly keeps many people afloat– but broadly speaking, the sharing economy is an unequal economy because neither risk nor profits are shared.

Workers accept high risk to their capital from constant heavy utilization, and are not rewarded for it. Capital depreciation is likely, and is not compensated for by wages. Total losses of capital are not compensated for whatsoever. Instead, workers put a lot on the line in exchange for average wages whose rate does not increase despite large profits. Should the worker lose their capital, they are out in the cold.

Before the sharing economy existed, the capital of the lower classes was unreachable and reserved solely for personal use; in this sense, the sharing economy is a huge economic leap forward, as it increases the ability for wealth to flow, which broadly speaking, generates opportunity. Unfortunately, within the paradigm of the sharing economy wealth largely flows upward rather than circulates. It is unlikely that a worker participating in the sharing economy will make enough money to afford another capital purchase should their revenue-producing capital be destroyed by the process.

There is a case to be made for the sharing economy to be considered a system for transferring wealth from the lower economic classes to the owning class. The capital of the lower classes is used as a certificate signalling employment-worthiness, then is used to generate revenue for those who can afford to rent it out in mass to create products for consumers. The profits made are not returned to those who own the capital, but rather to those who own the information technology company which rents the capital. The owners of capital are in this situation bled at every step of the process and subject to high amounts of instability.

What’s a consumer to do? To start, do research and find out which sharing economy product provider is the most ethical. Paying workers better wages for ponying up their own capital is more ethical than the alternative. Finding out which companies bring on workers to be actual employees rather than contractors is also a good idea. Profit-sharing for workers and accommodations for worker capital loss and depreciation are items which are yet unheard of, and so are to be considered the icing on the cake.

If you liked this article, check me out on Twitter @cryoshon and also hit up my Patreon page!

 

 

How to Survive Late Capitalism As a Worker

My recent response to Paul Graham’s article on economic inequality allowed me to express a few of my relatively mainstream economic ideas to a wider audience. I think that the discussion about inequality is worth fleshing out a bit more, but I’m not so interested in getting into the much-rehashed capitalism versus socialism theoretical debate. Instead,  I think a practical article is due: how should people who make their livelihood by selling labor survive and thrive in our current era of soaring inequality and reduced labor-power? How should people avoid realizing downward social mobility? The short answer to these questions is that people must embrace identification and proper utilization of personal resources.

Before we continue addressing the title’s question, let’s define some terms that may not be common. First, “late capitalism” is a term which refers to a turbulent phase of the economic system of capitalism. I’m not going to define what capitalism itself is here, but late capitalism is characterized by matured globalization, soaring inequality and attendant opulence/poverty, reduced economic growth, weakened social safety net, mass consumption, and reduced boundaries between political and economic systems. Departing from the definition that Wikipedia offers, I do not believe that there is an overtly Marxist revolution in our near future which would bring a definitive conclusion to the economic system of capitalism. I do believe that workers must advocate for themselves in order to receive compensation for the resources which they expend at work. The term “late capitalism” is still fruitful because it is a convenient way of describing the broad strokes of an unstable period of time.

The confluence of these trends results in increasing poverty and a threat to individual standard of living. The purpose of this article is to shed new light on how an individual can navigate this period of time conscientiously rather than as shark bait– the unfortunate fate of the underclass. The underclass is filled with people who experienced downward social mobility, and who now have trouble surviving.

The next terms to define are “survive” and “worker”. To survive late capitalism means having sufficient personal resources to ensure that physical and emotional needs are met for an individual, as well as their dependents. Critically attendant to this is that survival in late capitalism constitutes the continued ability to rent personal resources in exchange for money. For our purposes here, having no money and no ability to get money is equal to death.

Money can be thought of as living inside all resources like an ore within rock. The resources in question are too many to list, but I’ll get into some of them, namely time/energy, physical health, skill set, disposition, fluid cash, and social network. Taken together, the sum of personal resources that an individual can bring to bear can be considered as “capital” which a corporation may rent in order to make a profit by utilizing the individual’s resources. A worker is a person who rents their personal resources as their primary way of gaining money. The most important step to surviving late capitalism is understanding what your personal resources are and ensuring that no single personal or social resource is depleted beyond renewal as a result of renting them out for money. 

If a resource is depleted beyond renewal, opportunities to sell your labor which would tax that resource are now cut off. Resources depleted beyond renewal typically result in realized social mobility downward or abject poverty. For many people, there appear to be few choices but to continue depleting the few resources they have until they are barren. If resources are on track to be completely depleted with no way of renewal, we can call it a death spiral because it eventually results in economic death.

Why would renting personal resources out for money at a job result in these resources being rendered barren? Given the way that I have identified my terms, there is inherent tension between the concepts of surviving and being a worker. Working is renting out personal resources in exchange for money, and there are no guarantees that these resources are being rented out and expended at the correct rate or monetary return.

At a naive level, we can say that a worker who rents their physical health resource out too aggressively may end up sick or injured, and thus unable to work until they have recovered. If the worker’s physical health is completely depleted, they may become disabled or dead, precluding their use of renting that resource in the future– an economic deathblow resulting accidentally or from mismanagement. This may seem a bit flip, but it’s a real concern for manual laborers.

Physical health is a personal resource which is finite, but renewable. The same could be said for a worker’s mental energy resource. All workers rent out some of their physical health resources as part of the package that employers demand. Sitting at a desk hunched over a computer all day is detrimental to your health, as we all know– yet it’s part of many jobs.

“Working harder” by expending more physical effort may result in injury, but it’s seldom worth extra money directly. A dilemma occurs when the worker unwittingly or unwillingly expends more of a given resource than they intended given the terms of employment; it is rarely possible to go back and re-negotiate a new fee based off of personal resources expended, though a corporation is sure to do exactly that if they overrun their budget for a contract. So in many situations, workers cannot retroactively correct imbalances in resource use, assuming that the imbalances are noticed at all. I will state that this situation is the progenitor of many injustices, and there is little economic or political pressure to create a remedy.

An additional difficulty occurs when we consider exactly which personal resources are going to be expended for a given job. Every job will deplete a worker’s physical energy/health, mental energy, and time resources. Most jobs will also deplete some of a worker’s money indirectly in the form of transportation. It is very easy to lose track of our individual resources and how much we are taxing them, as we often realize when we look up from our work and see that it is 9:00 PM instead of the informally agreed upon stopping time hours earlier. Thankfully, our time resources are always renewable, though we may have plans to utilize them in certain ways on any given day.

In order to prevent personal resources from being depleted beyond renewal, explicit knowledge of the total quantity of each resource and the rate at which that resource is used must be understood in depth by the worker. Making a rational deal with an employer regarding use of personal resources is impossible without explicit knowledge of what those resources are and how much they will be expended, yet most people have only vague ideas of what is in their stable, and what is in their work contract. Furthermore, employers always have concrete knowledge of their company’s financial resources, but never have an itemized list of employees personal resource expenditures; this inequality favors the employers massively, as it means they cannot be held accountable for breaches of contract resulting from too many personal resources being used. Having this kind of knowledge explicitly stated will benefit employers massively as well, allowing them to understand inefficiencies of individual resource use and provide crutches as needed to make their workers happier.

Employers hide and thrive in the ambiguity of personal resource use; workers are eaten alive by uncalculated overages. Surviving late capitalism is possible by rectifying this inequality via the surgical application of knowledge directly where it is unwelcome. A vague plea for economic fairness falls on sewn-shut ears, but an itemized invoice for resources disbursed is undeniable. Though corporate culture is not yet receptive to such brazen empiricism, they will grudgingly adjust if the issue is forced by their employees– and it must be forced vigorously.

It is my assumption that the majority of worker resources including money (for housing near work, etc) are expended in large quantities by their work, with the remaining resources being expended at home or “wasted” by disuse. A wasted resource is a resource which isn’t utilized by the individual, whether to rent out for money or to be expended on other things. The most easily wasted resource is time, though physical energy and social resources are also typically not fully utilized. We will forget the topic of wasting the money resource, as it is a very large jar of snakes that has been discussed many other times.

For most people, expending the majority of their resources on work is a way of life that is accepted as necessary and virtuous. The difficulty with the “virtuous” component of this point of view is that it promotes a peculiar type of rounding-up fallacy where the worker believes that it is just for their employment to consume the majority of their resources, so a little bit more sacrifice in the name of employment is also just.

There is even a pejorative name for this tendency: the Protestant work ethic. The tendency to commit more resources to work than the minimum explicitly agreed upon in the employment contract is a form of wasting resources, as the resources are not expended for personal purposes nor do they directly result in more money for the individual. The defense of an individual against wasting resources as a result of work is to explicitly agree on the amount of resources that will be expended in the course of work with the employer. 

As uncomfortable as it may be to force the issue of limits, not agreeing in writing to ironclad boundaries always leads to a worker’s personal resources being wasted. For some jobs, overtime is a form of agreement which offers compensation for resources which would otherwise be considered by the worker to be wasted. For most jobs, the there is no such agreement where in fact there should be. This norm is harmful, and must change.

When on average more workers commit more resources to work than the explicitly agreed upon amount, employers grow to expect that level of commitment. This is how a society eventually arrives at exploitation when starting from acceptable premises. More perversely, workers grow to expect their level of resource usage to be higher than the explicitly agreed upon amount even including the previous over-commitment, creating a death spiral of sorts. We as a society are currently in the midst of this death spiral, and only by simultaneous individual action can it be stopped.

How frequently do you spend more time at work than is required? How quickly does being at work physically tire you? Mentally? Does it cost a lot to get to and from work? What does that work out to weekly? Are you zombie-like after work, or still perky? Are your personal relationships being impeded by work? Is your skill set being bolstered at work, or is it decaying from disuse or overly narrow use?

Brutal honesty is necessary here. Work is not the only thing which taxes personal resources, though– family, recreation, religion, and friends count too. All activities that an individual performs consume their personal resources to some extent. Luckily, many activities are beneficial and can refill depleted resources.

As an exercise, write it all down in a table which details the resource, your estimated total capacity for this resource, current amount of this resource, whether the resource is renewable or not, and how roughly how much of each resource you use when you are doing activities required for work, home, or play. Are you being compensated for the totality of usage of these resources, or just a few? Is the current rate of resource usage and renewal going to result in this resource being rendered barren if given enough time? Which resources are being wasted at work? At home? Did you sign up for this, or something else? Aside from economic issues, this is a great way of finding out which activities of your life are beneficial and which aren’t great.

Identify potential death spirals, and use your resources to stop them as quickly as possible. Economic death spirals can literally kill you if you’re relying heavily on your physical health as a resource. Which resources are being tapped to capacity and are in danger of being burned out? Is there a certain changeable life situation which you can see is going to lead you to ruin? Why are your resources being drawn on so hard? Would it be possible to trade expenditure of one resource for expenditure of another for a time being in order to let a heavily taxed resource recover a bit? For mental energy, people might consider a vacation as a way of vaccinating themselves against burnout by expending money and time. If your skill resources are stagnating from not being used, you can use time, mental energy, and money resources to take a class and stay sharp.

Frequently, social resources have to be called on in order to stop death spirals– don’t be shy, and ask for help well before it’s too late. Family and friends can frequently spare some of their resources in order to give a little slack. Social resources include government and state programs; make use of public resources as much as possible in order to free up your own resources. Aside from using public resources, use friends and coworkers as advocates; if everyone systematically quantifies their resource use and demands compensation and a reduction of wasted resources, there will be change.

Remember: economic gravity means that it’s much easier to fall than to rise. The fewer spare resources an individual has, the more likely they are to slip down the economic ladder, and the less likely they are to rise. If an individual is constantly heavily drawing on all of their resources in order to trade them for money, we can say that the individual is a wage slave, and is likely on the cusp of downward social mobility, though they have already likely experienced some in order to arrive at that point.

So, how should a person protect and increase the amount of resources they have, given that having personal resources is so critical to survival? A great boon is to have a job which increases your skill resources and social resources via learning new things and meeting new people. As skill resources and social resources grow, an individual’s value becomes more clear to potential employers, even if they haven’t fully tabulated all of the resources they’ll be using in the job.

There will be few people that suggest skill building and networking are not economically useful for an individual. Skill building should be a priority for anyone interested in surviving late capitalism; as employers demand more, you must have more to actually provide. Being in a habit of constantly building skills is being in a habit of constantly providing for your future. This habit will likely tax certain resources heavily until they compensate, so remember not to tap them out completely.

Just skill building isn’t enough to confer survival, though, as not all skills are economically equal. I would suggest a meta-thought here: an important skill is the ability to differentiate economically lucrative skills from merely economically sustaining skills. This isn’t as obvious as it sounds, and many people jump at what is easy to learn rather than what is profitable to learn. Learning how to operate an espresso machine provides a skill that may offer some financial sustenance, but it is not lucrative. Learning how to perform surgery is lucrative. A measurement of economic demand is frequently a good place to get started.

To summarize: a surviving individual’s response to the extreme economic pressure of late capitalism is to increase resource expenditure in themselves in order to to make par, frequently by building financially rewarding skills and social resources. Explicitly knowing what personal resources are and the rate at which they are expended during work is critical, as is a realistic work contract which recognizes the above. In the event of an inaccurate contract or set of circumstances which taxes a person’s resources too heavily, care must be taken to avoid death spirals.

I hope this article shed some fresh light on my personal strategy for surviving late capitalism. Given the bold points that I have bulleted, I worry that I have been a bit longwinded. Unfortunately, I already know that the ideas I put forth here aren’t going to help people who are trapped in the underclass, but maybe it’ll prevent some middle classed people from slipping down to there. I do not yet have a real solution for the general problem of “most people don’t have enough personal resources to flourish”. I’m not an authority on this topic by any means, and “the struggle” is far from over. I feel as though I will have a lot more to add on various aspects of this piece, so expect me to revisit it relatively soon.

Follow me on Twitter @cryoshon and be sure to check out my Patreon page!

 

 

 

A Response to Paul Graham’s Article on Income Inequality

While perusing HackerNews today, I encountered this article and this comment thread by Paul Graham (PG for short), founder of Ycombinator. I think that a lengthy response is in order. I originally intended this response to be in my HN comment, but it was too long. If you’re not interested in debating income inequality, this response is not for you. I’ll be quoting quite liberally from PG’s essay in this response.

So, let’s get started. I think PG really missed the mark with his assessment of the impact of economic inequality and instead substituted a real world struggle against economic conditions with a rosy economic model which starts from the premise that the rich need the ability to get richer in order to have a successful society.

To quote Graham, mafioso of the startup incubators: “I’m interested in the topic because I am a manufacturer of economic inequality.”

Well, not quite. The throughput of successful startup folks is never going to be enough to make a dent in the economy’s general state of inequality. If anything, YC offers social mobility insurance; the potential for social mobility from the middle classes to the lower-upper class without the potential for a slip from the middle classes to the lower classes in the event of failure.

“I’ve also written essays encouraging people to increase economic inequality and giving them detailed instructions showing how.”

Perhaps PG misunderstand the terms here? Has he been instructing his charges to pay lower wages and fewer benefits as their profits scale upward so as to add more to their own purses? A disconnect between rising productivity and worker income is one of the largest factors for economic inequality in the US.

“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.”

Well, “taking” is a bit biased, but broadly speaking, it’s true that the poor must buy or rent what the rich are offering in order to survive. This means that the poor are economically at the whim of the rich unless they choose to grow their own food and live pastorally, which isn’t desirable. People pay rent if they’re poor, and collect rent if they’re rich. The poor sell their labor, whereas the rich buy labor in order to utilize their capital, which the poor have none of. These are traits of capitalism rather than anything to get upset about. People get upset when the rich use their oversized political influence to get laws passed to their benefit; over time, the rich make more money due to their ability to manipulate the political system.

“…those at the top are grabbing an increasing fraction of the nation’s income—so much of a larger share that what’s left over for the rest is diminished….”

Check out these charts… the data is much-discussed because they are unimpeachable. Ignoring the reality of data is a mistake economists often make, which can explain some of their more incorrect predictions.

“In the real world you can create wealth as well as taking it from others. A woodworker creates wealth. He makes a chair, and you willingly give him money in return for it. A high-frequency trader does not. He makes a dollar only when someone on the other end of a trade loses a dollar.

If the rich people in a society got that way by taking wealth from the poor, then you have the degenerate case of economic inequality where the cause of poverty is the same as the cause of wealth. But instances of inequality don’t have to be instances of the degenerate case. If one woodworker makes 5 chairs and another makes none, the second woodworker will have less money, but not because anyone took anything from him.”

The woodworker works in a wood shop, not alone. The owner of the wood shop has decided that if 5 chairs are sold, it takes 2 chairs worth of money to recoup the costs of making the chair. With three chairs worth of money remaining, he takes two and three fourths chairs for himself and distributes the remaining amount to the worker who created the chair.

The woodworker created the wealth by using the owner’s capital, and so the owner of the capital gets the vast majority of the wealth generated, even though he didn’t actually make the chairs himself. Is the owner “taking” from his employee? No, the employee has merely realized that one fourth of one chair’s income is the standard amount that a woodworker can get from working in a shop owned by someone else, and happened to choose this particular shop to work in. “Taking” is the wrong word; “greed” is the proper word. The proportion of revenue derived from capital that is returned to workers selling their labor is far too low. The woodworkers can’t simultaneously pay off their woodworking school loans, apartment rent, and care for their children on the wages they’re offered.

“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.”

Actually, economists have been describing it in the terms of ratios and curves for a long time. Piketty’s account is the most current. The “ways” of becoming poor or rich misses the point entirely. Upward social mobility is very low now, and downward social mobility is quite high. Outside “becoming” rich or poor, the standard of living for the rich has risen and the standard of living for everyone else has dropped. Becoming rich is an edge case which isn’t even worth talking about when there are far more people in danger of becoming poor. We have no obligation to stop someone from “becoming rich”– but we have a strong obligation to stop someone from becoming poor.

“If you want to understand change in economic inequality, you should ask what those people would have done when it was different. This is one way I know the rich aren’t all getting richer simply from some sinister new system for transferring wealth to them from everyone else. When you use the would-have method with startup founders, you find what most would have done back in 1960, when economic inequality was lower, was to join big companies or become professors. Before Mark Zuckerberg started Facebook, his default expectation was that he’d end up working at Microsoft. The reason he and most other startup founders are richer than they would have been in the mid 20th century is not because of some right turn the country took during the Reagan administration, but because progress in technology has made it much easier to start a new company that grows fast.”

Not even close. The richest hundred people have gotten wildly richer as a result of crony capitalism in which the richest are able to bend the political system to their will via overt bribery, creating unfair advantages for their ventures and endless loopholes for their personal wealth to avoid taxation. The ventures of the very rich are given unearned integration into political life, again making them a shoe in for special treatment.

Remember how the failing banks in the financial crisis were considered too big to fail, and were accommodated at the public’s expense? This kind of behavior insures the rich’s safety with the money culled from the poor. Information technology is a gold rush, and creates rich people by forging new vehicles of capital– generating wealth. The economics of a gold rush are quite clear, but PG forgets that the vast, vast majority of the workers in the economy are not participating in the gold rush, nor could they.

“And that group presents two problems for the hunter of economic inequality. One is that variation in productivity is accelerating. The rate at which individuals can create wealth depends on the technology available to them, and that grows polynomially. The other problem with creating wealth, as a source of inequality, is that it can expand to accommodate a lot of people.”

Productivity has been increasing for decades, and at one point in time, wages tracked productivity. The relationship between wages and productivity fell apart. This means that the business owners were benefiting from increased worker productivity, but the workers were not benefiting… another cause of economic inequality that can be attributed directly to the owners not allowing enough money to go to their workers. If productivity is accelerating, wages should be too. Rather than understanding workers as slaves that require a dole as they are presently, they must be considered as close partners in economic production.

“Most people who get rich tend to be fairly driven. Whatever their other flaws, laziness is usually not one of them. Suppose new policies make it hard to make a fortune in finance. Does it seem plausible that the people who currently go into finance to make their fortunes will continue to do so but be content to work for ordinary salaries? The reason they go into finance is not because they love finance but because they want to get rich. If the only way left to get rich is to start startups, they’ll start startups. They’ll do well at it too, because determination is the main factor in the success of a startup. [3] And while it would probably be a good thing for the world if people who wanted to get rich switched from playing zero-sum games to creating wealth, that would not only not eliminate economic inequality, but might even make it worse. In a zero-sum game there is at least a limit to the upside. Plus a lot of the new startups would create new technology that further accelerated variation in productivity.”

Once again: the current flap about economic inequality is not about people wanting to become rich, it is about people wanting to get by. Most people are not driven. Everyone wants to at least get by. You will not stop people from being driven to become rich by making it possible for everyone else to get by.

“So let’s be clear about that. Ending economic inequality would mean ending startups. Are you sure, hunters, that you want to shoot this particular animal? It would only mean you eliminated startups in your own country. Ambitious people already move halfway around the world to further their careers, and startups can operate from anywhere nowadays. So if you made it impossible to get rich by creating wealth in your country, the ambitious people in your country would just leave and do it somewhere else. Which would certainly get you a lower Gini coefficient, along with a lesson in being careful what you ask for. ”

No, it wouldn’t. There is lower and higher economic inequality in many places in the world, and many of those places have startups. There is nothing special about startups, and startups persist whether or not the society is extremely unequal. There are startups in Sweden. There are startups in China. There are startups in Nigeria. There are startups in Denmark. There is absolutely no reason to be prideful in the American startup phenomenon if it requires people living in poverty– I do not believe that it does require this, though.

“And while some of the growth in economic inequality we’ve seen since then has been due to bad behavior of various kinds, there has simultaneously been a huge increase in individuals’ ability to create wealth. Startups are almost entirely a product of this period. And even within the startup world, there has been a qualitative change in the last 10 years.”

Do not confuse the tech startup as a method for creating wealth that anyone can step into. Coding is a difficult skill that most people are not about to retrain into, even if it’s lucrative.

“Notice how novel it feels to think about that. The public conversation so far has been exclusively about the need to decrease economic inequality. We’ve barely given a thought to how to live with it.

I’m hopeful we’ll be able to. Brandeis was a product of the Gilded Age, and things have changed since then. It’s harder to hide wrongdoing now. And to get rich now you don’t have to buy politicians the way railroad or oil magnates did. [6] The great concentrations of wealth I see around me in Silicon Valley don’t seem to be destroying democracy.”

Living with economic inequality is uncomfortable for the majority of the population, but it is comfortable for the rich. The way to live with it is to defer having children, not get a graduate education, never own a home, have a shitty car, never eat out, don’t go on vacation, work two jobs, don’t ever get sick, don’t get married, never pay off student loans, never save for retirement or an emergency, and never get arrested.

Seems pretty shitty, right? Seems like something people would want to change for the better, right? I will also state that all of the above items vastly detract from a person’s free-mental and physical energy, which results in less innovation and ultimately less creation of the “startups” that income inequality is supposed to support. PG even acknowledges this, but doesn’t seem to understand the visceral impact of income inequality.

To crystallize everything, let’s hop backward to a time when there was less inequality and compare lifestyles. In yesteryear, families requires only one breadwinner, and debt beyond a mortgage was unknown. People had a car per person, and college education. If you were sick, you could pay for a doctor. People had savings. People married young, and bought starter homes… then moved into larger homes. People had children. People could care for their aging parents without moving back in. People had pensions, retirement funds, and plans to use both. All of this wealth derived directly from workers selling their labor for money. Starting new businesses happened frequently because there was a robust net to fall on in case of failure. Workers banded together to protect their share. Wages tracked productivity.

Now: none of the above, and families often consist of two breadwinners (& no children) with a hearty amount of debt, nothing owned, and few savings. The family unit itself may even be weaker because of less shared ownership. Wages haven’t tracked productivity for decades, so wages haven’t risen since the previous story was normal. We’ve lost all of that ground: not just some of it, all of it, and more. We’re back to the 1920s– wage slaves with few rights and no political ability to change things.

Is this what PG thinks is okay?

If you liked this response, follow me on Twitter @cryoshon.

Also, be sure to check out my Patreon page!