Tim O'Reilly schools Paul Graham on inequality

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An interesting post. However, it misses the point.

The real question to ask is why the poor are not acquiring wealth.

The rich by and large, get richer by spending less than they earn, and investing the surplus. That surplus then gets larger by compound interest and capital growth.

So there are two parts to why the poor aren’t doing the same.

First, are they generating a surplus, second why aren’t they investing it.

Well they are earning a surplus. They earn money and governments take it to pay their retirement benefits of others. It doesn’t go on their services at all.

That answers the second part, the state spends their surplus, leaving no assets. It’s worse. They are now owed a pension, a retirement income, and that’s a debt [hidden off the books]. They are on the hook for the debt, and that’s negative wealth.

That’s the cause. The redistribution of people’s pension contributions, and the failure to invest those contributions so that they are owned by the people earning the money in the first place.

“Well they are generating a surplus”

But they are not earning the results of said surplus. Its not their surplus.Wages are stagnant for those outside of executives of most companies. People who are poor generally have to spend a larger % of their income for basic survival than the middle class or wealthy would. One of the key metrics of being classified as poor is that one does not earn enough to meet general living needs.

“why aren’t they investing it”

Technically they are, just investing towards the income of others, not themselves. Again the money is there but not going to them. Soaking the poor and working class is a time honored business plan.

Poor people usually lack the resources for low cost aspects of living. They generally have to pay more for food and clothing than the middle class. Poor neighborhoods seldom have supermarkets or shopping malls in them. Poor homeowners, being seen as risky lending prospects have to pay higher interest rates for their homes than middle class and wealthy owners. Few have enough savings to be able to use checking or savings accounts without being bled dry with onerous fees. So many have to pay fees for money orders and postage to pay bills where others would just pay bills online as a free part of their bank accounts.

If anything the state has also created a greater burden on them because those capable of generating a living wage bear a greater burden in taxation. The poor pay a lower percentage of their income but what is left seldom is enough to live within their means. Middle class pay more but usually have more left over (barring the crushing effect of healthcare and retirement costs). The rich seldom pay their tax burdens, using their resources to work around the tax laws or lobbying efforts under the phony guise of “trickle down economic theory”.


But they are not earning the results of said surplus.

I presume you mean they are not benefiting from the surplus. Correct.

However they are earning the money. They generate it.

_ Its not their surplus._

It is. The problem is that the state takes it from them.

Technically they are, just investing towards the income of others, not themselves.

An investment is an asset. They are forced to spend their money by giving it to others. Redistribution.

Poor people usually lack the resources for low cost aspects of living.

But they have to pay the state first, like it or lump it.

The poor pay a lower percentage of their income but what is left seldom is enough to live within their means

The state takes it first.

You still miss the point.

Since the working poor would have the same services, but lots of wealth if their were forced to invest their surplus, and they owed the resulting assets, they would be better off.

The state doesn’t let them and instead gets them into debt. They are forced to pay off the pension debts of the government.

So you can’t blame the rich when the cause is the state.

That’s what’s bonkers about your position.

On trickle down, I agree. That’s not the solution.

Stop taking the poor’s money and giving it to someone else. Instead force them to invest it.

How many shares of Enron stock do you think they should be forced to purchase?


Hearing people like Graham talk about poverty is like listening to a white person opine on Black culture as if they know something about it specifically because they’re an outsider.


Its not the state taking from the poor which keeps them poor. Its the lack of money they are receiving in the first place. Taxes are necessary. Not all tax burdens are spread in an equitable or sane manner.

"An investment is an asset. They are forced to spend their money by giving it to others. Redistribution. "

Yes the poor are redistributing their money towards the wealthy through being slowly bled by lack of opportunities, stagnant wages, rising costs and onerous other extraction methods.

I get your point. I just find it ridiculous. The state is fairly limited as to how much wealth it can take from the poor. It doesn’t change the fact that they are not earning enough to begin with. Taxes or no taxes. For example a person who receives welfare does not pay taxes on that money, but they will be poor because it will not be enough to live on. The gross base salaries of the working poor are seldom enough to create a surplus let alone make for an argument that taxes are crushing them. Wages are stagnant. Corporate executives have incentives to shift resources towards stock manipulation to increase personal wealth and for austerity to employees to free up money to do so.

Taxes don’t create the burden on the poor that housing costs, education costs, and daily living costs extract from them. Plus the poor are net tax consumers not contributors. People who are far more dependent on the state for services necessary for their lives than other social classes.

The poor do not have the ability to dodge taxes like the wealthy do. The wealthy ARE the state on this subject. They are the ones who can devote the energy and money towards putting forth laws to put greater tax burdens on middle and working classes than themselves.

Blaming the poor because they don’t invest money they don’t have and is being sucked out of them is ridiculous.


That’s a mighty broad brush. It applies to some, but not all. And more so to some careers (finance) than others (plumbers). Should two guys, one with kids, the other not, get different incomes because any excess shouldn’t belong to them? Should a woman who lives modestly earn less than a woman who only buys expense stuff?

Otherwise, I generally agree with your post.

Best part of the essay:

That’s because financial markets have increasingly gone from being a source of capital for companies to a kind of giant betting pool, in which winning and losing is much less correlated with underlying economic activity.


Here’s a sample quote from the article: [quote]
In an economy where financial instruments are increasingly unmoored from the real market of goods and services and profits derived from those services, it’s possible for many people to reap rewards that weren’t actually earned. I’m not just talking about bubble-inflated stock-based compensation that has made many people in Silicon Valley so rich, or the excesses of Wall Street banks which nearly wrecked the economy in 2008, but the entire structure of executive compensation.


This presumes that acquiring wealth is a goal.

Most of the poor people I know don’t care about acquiring wealth. They care about having a place live and food to eat and fundamental heirarchy-of-needs kind of stuff.

The goal is to not live life in a constant state of panic over how many dollars are in your bank account.

The government can solve that problem by taking wealth from those who imagine that acquiring wealth is the goal, and using it to pay for people to eat and live and be safe and secure.


None of these tech giants talk about network effects, returns to scale or near-zero marginal costs so characteristic of tech and uncharacteristic of most real world products, particularly those generally created by the 99%?

There is basically only one Google. There is only one Facebook. This is not because other search engines or social “networks” don’t or can’t exist, but rather that their very size and ubiquity compel participation and degrade the value of alternatives. Watch as Uber sweeps away thousands of taxi companies yet Lyft can barely get off the ground with a similar model?

Silicon Valley and wealth creation through software itself is another surprising omission: once written software can be “re-used” by massive numbers of customers at close to zero cost. Thus you have Instagram launching and operating for three years with under 50 employees yet selling for $1B.

Further, much of the “product” is generated by consumers themselves, writing, commenting, sharing, uploading… Google’s original PageRank mined the knowledge and time invested by others into their page links (the very infra-structure of the web) for private profit. How feasible is it for most people/firms to have their customers give them the product they are selling on to others? How replicable is that model?

I’m surprised these tech gurus skipped a lot of what makes tech unique.


Have you ever met any poor people? What “surplus” do you imagine they have? While they do have regressive state and local taxes hitting them, it’s typical for poor people to not pay Federal income tax. So then, do away with State and local taxes (and lose the “same services”) and tell poor people to invest that paltry savings in something? Why you think they’d have the time/ability to be successful in that enterprise?


Hey, speaking of forcing the poor to invest, is now the right time to talk about Ronald Reagan and Alan Greenspan’s unprecedented draining of the Social Security trust funds to pay for the Reagan Tax Cuts?

I’ll let Matt Taibbi fill you in on the details

Let’s be clear about what’s going on here. Social Security was never the cause of the nation’s debt problems. This issue dates all the way back to the Eighties, when Ronald Reagan hired Alan Greenspan to chair the National Commission on Social Security Reform, ostensibly to deal with a looming shortfall in the fund. Greenspan’s solution was to hike Social Security tax rates (they went from 9.35% in 1981 to 15.3% in 1990) and build up a “surplus” that could be used to pay Baby Boomers their social security checks 30 years down the road.

They raised the SS taxes all right, but they didn’t save the money for any old Baby Boomers in the 2000s. Instead, Reagan blew that money paying for eight years of deficit spending and tax cuts. Three presidents after him used the same trick. They used about $1.69 trillion in extra Social Security revenue (from the Greenspan hikes) to pay for current-day goodies, with the still-being-debated Bush tax cuts being a great example. This led to the infamous moment during Bush’s presidency when Paul O’Neill announced that the Social Security Trust Fund had no assets.

Well, duh! That is what happens to a fund, when you spend 30 years robbing it to pay for tax cuts for Jamie Dimon and Lloyd Blankfein. It will tend to get empty.


So for all the money they have handed over to the state, what wealth do they have?

How many shares of Apple do you think they would have liked to buy cheap?

My understanding of the fund, is the same as most unfunded pension set up.

Here’s your test.

Get a piece of paper out. Write on it.

I, [Insert your name here], owe [Insert your name here], 10 billion dollars, signed [signature here]. [Date]

There you go. You own 10 billion in assets.

So why is the SS trust fund [part of government] owning debt issued by the government make a real asset?

Face the reality. All the money was spent. Whether it went on pension debts, or some other spending. it was all spent.

So there are no real assets, or you’re a billionaire.

However, there are real debts.

But a nice try on blame spreading.

Ask instead, what assets the poor would have had if they had been forced to invest their money. Couldn’t have gone on tax cuts or any other spending.

Try modelling it or backtesting what people would have had. You would be horrified.

You are absolutely correct. small business people like plumbers or any kind of tradespeople/personally skilled labor are the exception to everything I just said. But the primary topic had to do with the disparity between corporate leader and their employees. Corporate bigwigs and their office drone thralls.

What money? Poor are generally net tax consumers. They use far more government money in the form of services than they contribute towards. So the money handed over to the state by the middle and upper classes generally goes towards keeping the poor alive.


You are wrong from square one, and it never gets any better. How can you compare the Social Security Trust Funds to an “unfunded pension set up”? Of course it’s been paid into, over multiple decades, and its assets REPLACED (not invented) with IOUs in the form of U.S. Govt debt.

Your strawman example is insulting and your Schrodinger’s accounting conclusion, farcical. Horrifying is the idea that there are people like you in the world which can somehow reconcile this clear and willful distortion of facts to their own personal reality.


How many shares of Enron stock would they have wished they hadn’t bought at any price?

The stock market isn’t a guaranteed investment. Stock value isn’t guaranteed to increase. With the circumstances referenced in the responses to Graham, specifically that the actual value of a company is often wildly unrelated to its stock valuation and the stock market is one big gamble that increasingly pays rewards to destructive and risky behavior, it’s not a great place to be investing for your retirement. That’s not to say that it doesn’t work out for many people, but it’s a destructive, socially-irresponsible method of building your retirement.