How People Get Rich and Income Inequality

Paul Graham argues in How people get rich now that we are returning to a period where wealth is mostly generated from starting companies (as opposed to inherited wealth from oil and natural resources) and that’s a good thing even though wealth inequality is growing. He argues that it’s that rich people coming from tech get rich faster and much more wealthy and not something more sinister that technology companies growth correlates with rising income inequality.

Of course, it’s not that simple and Just be rich, a reaction to the essay mentioned above, points out that Paul Graham’s essay is meant to make rich people feel better for being rich and that the answer is to start a company and be rich. That’s a bit of a straw man which makes it easy to poke at PG, but it seems they are both right. Declining middle income is bad and causes struggle and lack of access to opportunity. Also, tech is better than what we had 40 years ago when most wealth was generated by exploitation of natural resources or inheritance.

While the reaction blog post got a lot of airtime on HN, it’s a bit sensational. The reaction offers no alternatives and draws no new conclusions about what to do about the problem.

See also:

  • Wealth-Creation Mechanisms Are Simple

    The list of ways wealth is created is remarkably short.

  • The Economics of Superstars

    There are two common elements of economic superstars. First, there is a close connection between personal reward and size of the market. Second, there is a tendency for market size and reward to be skewed to the most talented people in the field.

  • The Elephant Graph Shows Globalization Was Great for Everyone but the Middle Class

    The Growth incidence curve from 1988 to 2008, also known as the Elephant Graph, shows the income growth by percentile of global income distribution. It shows two things: global inequality has declined and the middle class (80th and 90th percentile of global income) stagnated.