Tuesday, January 19, 2016

Some inequality is necessary for the innovation that helps everyone

Jim Tanskersley writes in the Washington Post Wonkblog Sunday, “A big-shot venture capitalist says we need inequality.  What do economists say?

The big-shot is Paul Graham, founder of Y Combinator, which helps start-ups.

Economists point out that some inequality comes with innovation, which makes people like Mark Zuckerberg, and probably (in the near future, with the help of Silicon Valley investors like Peter Thiel) inventors like Taylor Wilson, Param Jaggi, and Jack and Luke Andraka, rich.  Innovation generally raises the standard of living for everyone, and makes poor people “richer” although they may not perceive it so.

But globalization does tend to drive down wages for less-skilled work, and does tend to make it harder for many of those other than the most gifted or most fortunate (or combination of the two) to get a grip on their lives.  And social ties, surrounding the family, are often weaker than they used to be.

The article goes on to get into Thomas Piketty’s favorite subject, “rent-seeking” behavior.  We see a lot of abuse of this in copyright and patent trolling.  But some copyright and patent protection is necessary to make the original innovation pay off.   You could make the same “moral” arguments about the use of capital in general.  People who flip houses aren’t creating real wealth, and neither are designers of credit default swaps.

Here’s a disturbing piece on Vox by Margaret Biser: I used to lead tours at a plantation: You won’t believe the questions I got about slavery”.  Which plantation?  I visited the slavery tour at Monticello, Thomas Jefferson's home in Charlottesville, in Sept. 2015.

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