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 a bigger pie. But that doesn’t mean that some people aren’t getting far more of the benefit, while others are losing out.
This highlights probably the biggest flaw in Graham's original article, and if he does reply to Tim's critique I hope at minimum he addresses this point. The reason that the wealthy are claiming an increasing slice of the growing pie is that we've institutionalized, in the form of law and custom, many, many, "rich-get-richer" rules. Tim enumerates a few of them, but there are many such mechanisms woven into the economy, some of them not so obvious. (For example, recently HN featured a Priceonomics article showing how cigarettes effectively transfer wealth from the poor to the rich: https://news.ycombinator.com/item?id=10941671.)
There are only two ways to combat the rising rate of inequality: 1) modify all those rules and customs to make them wealth-neutral (unlikely), or 2) legislate new counter-rules that move wealth the other way. Any other solution is wishful thinking and not mathematically viable.
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.
There are many ways to re-engineer the system to lead to better outcomes. Say you gave everyone twice what we are giving them now. But that extra 50%, you don't give them that as income, but instead as money that can be spent on certain kinds of investment. Not commodities, food, finance, or real-estate. What sort of outcomes would that cause in the system? The standard argument for giving people any sort of wealth is, well that causes inflation. That only causes inflation only because of the way the money is used. If it is used different it can cause innovation and better distribution of wealth.
I don't see how they are fungible. At the end of the day the people are investors. They invest in a real company that carries out real business. Is that business any of those listed above? If not, then yes you can invest, if not no you can not invest. Obviously the investors would at some point see a return on their income. And you simply don't give them the returns. You put the returns back in the same fund. You can get that money back when you are 65 to pass to your children. You can only get back a certain amount, depending on the number of children, enough to pay for their schooling and a home. That way everyone has an education and a home, and the banksters don't get rich off mortgages and loans. The residual the government can keep for social programs or something as such.
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 a bigger pie. But that doesn’t mean that some people aren’t getting far more of the benefit, while others are losing out.
This highlights probably the biggest flaw in Graham's original article, and if he does reply to Tim's critique I hope at minimum he addresses this point. The reason that the wealthy are claiming an increasing slice of the growing pie is that we've institutionalized, in the form of law and custom, many, many, "rich-get-richer" rules. Tim enumerates a few of them, but there are many such mechanisms woven into the economy, some of them not so obvious. (For example, recently HN featured a Priceonomics article showing how cigarettes effectively transfer wealth from the poor to the rich: https://news.ycombinator.com/item?id=10941671.)
There are only two ways to combat the rising rate of inequality: 1) modify all those rules and customs to make them wealth-neutral (unlikely), or 2) legislate new counter-rules that move wealth the other way. Any other solution is wishful thinking and not mathematically viable.