> ok so your point is that when technology creates long term downwards trends in the value of labor, anything that decreases the value of labor can be thought of as an externality?
Almost certainly, it is an externality in the strict economic sense, in that the "thing that decreases the value of labor" is almost certainly the product of investment decisions made by actors that are not the same set of people who are impacted by the reduction in the value of labor.
> Redistribution can counteract this effect.
Right, but in practice rarely does not, because what redistribution occurs is controlled by who has power over government, and power over government is disproportionately in the hands of those who have gained the most benefit from the economy, so those harmed by externalities and who would be most inclined, on a self-interested level, to seek redistribution are also the least likely to see their wishes reflected in government policy.
> If productivity increases but it also increases inequality, then there is some level of redistribution that will correct the inequality while making everyone better off (in the sense that the number of people earning more than X increases for all X). Not exactly a theorem, but a rough consequence of general equilibrium theory.
Its not really a "rough consequence of general equilibrium theory", whereas general equilibrium theory holds that without externalities (and with rational choice) a pareto-efficient result will be achieved, your conclusion requires the assumption (which general equilibrium theory does not support) that with externalities, a pareto-efficient result will not be reached, and further that the actual result will be such that there will exist an alternative result reachable by redistribution which features less inequality by whatever the relevant measure of inequality is, and is closer to being pareto-efficient.
But general equilibrium theory does not guarantee pareto-inefficiency with externalities, and if a pareto-efficient result is attained prior to redistribution, no redistribution can "make everyone better off" (since the definition of pareto-efficiency is that no one can gain without someone losing.)
ok so your point is that when technology creates long term downwards trends in the value of labor, anything that decreases the value of labor can be thought of as an externality?
Redistribution can counteract this effect. If productivity increases but it also increases inequality, then there is some level of redistribution that will correct the inequality while making everyone better off (in the sense that the number of people earning more than X increases for all X). Not exactly a theorem, but a rough consequence of general equilibrium theory. You might claim that this kind of redistribution is impossible, but there are countries (e.g Scandinavia and Aus/NZ/Canada/UK) that redistribute a lot more than the US.
>But new technology frees their labor for new purposes and uplifts the standard of living for everyone in society.
I hear this a lot in discussions about technology (and about free trade) but it contains a fallacy: just because a group is collectively better off it does not mean that all persons in that group are better off. It's quite possible for a society to become wealthier at the same time that many members of that society become poorer. Indeed, there are large parts of the U.S. for which this has been true for the last 30 years.
That doesn't mean that we should retard technological progress, but it's disingenuous to paper over the real suffering it causes real persons by talking only about society collectively.
> Trying to prevent technology from advancing is not possible, and even if it was, it would limit everyone’s standard of living, which is undesirable.
Technology doesn't immediately raise everyone's standard of living. Distribution of wealth from technology increases standards of living. But until we solve the distribution problem, technology will just exacerbate inequality and reduce standards of living for those not useful to the economy.
Do you have running water? A sewage system? Mass produced cheap clothes? Access to meat every day from an average salary? A smartphone? Access to the world information? Access to all the music ever produced for $10 a month?
What you are saying is simply not true. It appears true when you look at inequality but any technological development always benefits almost everyone. And some win a lot, but many win even more.
It's not clear why the author thinks it's not a fallacy.
What bothers me about this sort of discussion, though, is the assumption that we need to work. I want technology to do my job for me, so I can focus on fun stuff. But for that to work, we should change our economic system so we don't need to work, or at least not as much.
What technology has really done, is not so much take away people's jobs, but make capital investment an increasingly large part of productivity, leading all the profits of this increased productivity to end up with the small elite that controls the capital. Look at how much wealth inequality has grown over the past 100 years, particularly in the US.
Keynes predicted in the 1930s that due to increased productivity, we'd all have to work a lot less than we're currently doing. He's wrong because the benefits of our increased productivity are not distributed equally.
In short: we need a basic income. Or something else to ensure that everybody benefits from this.
> It appears true when you look at inequality but any technological development always benefits almost everyone.
Less inequality will create opportunities for better education for millions if not billions of humans. That will improve technology in ways that just producing more stuff will not.
I do not think that to tie increased consumption with better technology is true. Most of what we produce is low tech stuff like fast fashion. I will argue that producing less and having more time for leisure will also increase scientific output.
So, economic growth is not the same that technological advance. And that is one of the points of the "lefty Europeans": economy measurements are not tied to human advancement and well being but just money.
> This has more to do with advancements in medicine and technology than people becoming richer.
It's impossible to separate people becoming richer from advancements in technology. We didn't grow GDP by 77 times, because we work 77 times harder.
Improvements in underlying technology are what help us create more wealth. The problem is that the new wealth being created and benefits of that new technology is being shared so proportionally.
It’s ridiculous to spin being able to spend less labor in total for the same amount of goods as a bad thing for society. It is a Pareto improvement. If it leads to people being overall worse off, you should blame the governance, not “techies”.
> But if we fix all the bad causes of economic inequality, we will still have increasing levels of it, due to the increasing power of technology.
So, PG's logical conclusion is that economic inequality is an inevitable byproduct of technology and capitalism. I'm happy to grant him that. But it seems to me that history (pick your favorite revolution) teaches us that no matter what the inevitable consequences of a given system are, the majority of the people will not stand by and see their economic futures reduced to scraping by.
Which is why I'd love to see more people in the startup community (including PG) discuss what steps could be taken to both incentivize creators while simultaneously making average people better off. Because that's the amazing thing about creating value and growing the pie. Win-win scenarios.
I think what you're trying to say is that technological progress brings highly increasing returns to intelligence such that one person has the capability to produce an extremely high amount of value relative to their peers (increase in income inequality, perhaps).
And I agree, this is most likely the case. But inequality as a side-effect is something that can be dealt with via relatively inefficient policies that do not distort too heavily the division of labor as it exists.
In other words, we should let this grand increase in efficiency happen, but correct perhaps for inequality resulting therefrom in a relatively efficient way as we need too.
Far too many people use the inequality argument to prove too much (that we should attempt to slow specialization of flat-ouf efficiency at its source), and this argument is deeply flawed IMO. In other words, don't shoot the messenger. Intelligent people are creating enormous amounts of value, but their income/price is just a messenger of this information.
> If machines produce everything we need, the outcome will depend on how things are distributed. Everyone can enjoy a life of luxurious leisure if the machine-produced wealth is shared, or most people can end up miserably poor if the machine-owners successfully lobby against wealth redistribution. So far, the trend seems to be toward the second option, with technology driving ever-increasing inequality.
> Technological progress allows concentration of power in the one who holds the capital, as he will be the main one to benefit from a more efficient capital
I do not think that is true. The consumers of all goods and services also benefit from technological progress, because they become cheaper, more widely available, higher quality (different ways of saying the same thing).
Technological progress in the last ~200 years has radically improved the lives of everyone, most significantly by freeing them from being subsistence farmers and clothes-makers. Even though most people today do not own a lot of capital, the cost of living well has come down so substantially that even poor people today arguably have much better quality of life than historical kings. For example, the majority of US households below the poverty line own an automobile, have multiple televisions with cable TV, a refrigerator, air conditioning, mobile phones, etc. [1] Despite owning no capital, the life of even those in poverty is astronomically better off than 200 years ago.
Are you familiar with the trope where poor people from the distant past would wear clothes until they literally turned into rags? The reason that happened is because clothing was ridiculously expensive compared to today. There was an article about this on Hacker News about two years ago called "The $3500 Shirt - A History Lesson in Economics" [2]. To summarize, in the pre-industrial age, a single shirt required so much labor that its cost was on the order of $3500 - $4000 in modern dollars. Buying a single piece of clothing could cost you multiple months' wages.
> Back in the pre-industrial days, the making of thread, cloth, and clothing ate up all the time that a woman wasn't spending cooking and cleaning and raising the children. That's why single women were called "spinsters" - spinning thread was their primary job. "I somehow or somewhere got the idea," wrote Lucy Larcom in the 18th century, "when I was a small child, that the chief end of woman was to make clothing for mankind." [2]
NPR also published an article on called "The History Of Light" [3] which traces how much light (like candle light or lamp light) you could buy with a day's worth of labor, at various points in history. In Babylonian times, your day's wages could buy you 10 minutes worth of light. Light was therefore relatively expensive and in-affordable. By the 1990s, a day's wages can buy about 20,000 hours worth of light. Light is so cheap everyone has practically unlimited amounts, which led to substantial changes across modern society.
Technological progress has drastically improved the lives of everyone. It has not made everyone rich, but those in poverty today are phenomenally better off than at any time in the past.
This is pretty silly.
Also, Paul Graham's premise, I'm sorry to say, is sensationalized (by invoking concepts like "inequality" and "startups") but wrong. The premise is, basically, "inequality has bad CAUSES, but startups and technology are never one of them."
Only at the end does he hint at what I believe to be the more accurate analysis: AUTOMATION and OUTSOURCING lowers demand for expensive human labor, therefore reducing one of the main ways that money trickles down to the middle and lower class. The better and more widespread the technology, the more I can
1) Outsource jobs to regions with a lower cost of living, leading to two losses of trickle-down:
1a) local workers don't get the job, and the money goes to someone in another country
1b) either way my company writes the expenses off its taxable income, but my country doesn't get the tax $$ from the worker's income to spend on social programs, safety nets etc.
This by itself is fine, unless you're a nationalist, because it helps reduce poverty where people are poorer, which is outside your country. However, technology also enables:
2) AUTOMATION, which means I now reduce the amount of HUMAN workers, and once again it has two aspects:
2a) Now, the demand for human labor drops, and since the supply of workers remains the same, their average wages drop.
2b) The worst one: monopolies with server farms, contracts of adhesion, and all the power. Like Amazon, Google, Apple, Microsoft, Facebook, Uber, etc. extracting rents from users and providers, until open source disrupts them.
By commoditizing the providers and workers, they get squeezed. See Amazon's dealings with wage slaves, and its tactics with publishers (middlemen which it eliminates). But those same workers are also supposed to be spending money back into the economy on things they need.
It takes time to invent new industries and educate everyone, there is no guarantee that will happen forever, and there is no guarantee that demand shocks for labor won't be severe. So, there should probably be unconditional basic income, negative tax or some other scheme for people to KEEP BEING ABLE TO AFFORD THE BASICS even if they face no prospects of making money, which a growing unemployed class will.
On the bright side, automation will help wean countries from their dependence on an ever-growing population to fund social security schemes. Endless population growth is unsustainable, and countries are currently worried about birth rates mainly because of that. So in a global sense, the solution is: tax the gains from automation, redistribute the proceeds, use condoms.
> Technological progress should cause increasing economic inequality, because the bottom end of the scale is firmly anchored at zero (someone taking a vacation), while technology gives the top end ever more powerful levers.
We measure inequality of income not in absolute dollars but as ratios. So the anchoring at zero doesn't make a difference.
Also, Paul Graham's premise, I'm sorry to say, is sensationalized (by invoking concepts like "inequality" and "startups") but wrong. The premise is, basically, "inequality has bad CAUSES, but startups and technology are never one of them."
Only at the end does he hint at what I believe to be the more accurate analysis: AUTOMATION and OUTSOURCING lowers demand for expensive human labor, therefore reducing one of the main ways that money trickles down to the middle and lower class. The better and more widespread the technology, the more I can
1) Outsource jobs to regions with a lower cost of living, leading to two losses of trickle-down:
1a) local workers don't get the job, and the money goes to someone in another country
1b) either way my company writes the expenses off its taxable income, but my country doesn't get the tax $$ from the worker's income to spend on social programs, safety nets etc.
This by itself is fine, unless you're a nationalist, because it helps reduce poverty where people are poorer, which is outside your country. However, technology also enables:
2) AUTOMATION, which means I now reduce the amount of HUMAN workers, and once again it has two aspects:
2a) Now, the demand for human labor drops, and since the supply of workers remains the same, their average wages drop.
2b) The worst one: monopolies with server farms, contracts of adhesion, and all the power. Like Amazon, Google, Apple, Microsoft, Facebook, Uber, etc. extracting rents from users and providers, until open source disrupts them.
By commoditizing the providers and workers, they get squeezed. See Amazon's dealings with wage slaves, and its tactics with publishers (middlemen which it eliminates). But those same workers are also supposed to be spending money back into the economy on things they need.
It takes time to invent new industries and educate everyone, there is no guarantee that will happen forever, and there is no guarantee that demand shocks for labor won't be severe. So, there should probably be unconditional basic income, negative tax or some other scheme for people to KEEP BEING ABLE TO AFFORD THE BASICS even if they face no prospects of making money, which a growing unemployed class will.
On the bright side, automation will help wean countries from their dependence on an ever-growing population to fund social security schemes. Endless population growth is unsustainable, and countries are currently worried about birth rates mainly because of that. So in a global sense, the solution is: tax the gains from automation, redistribute the proceeds, use condoms.
> So it seems that today there are greater opportunities to sell expensive hardware, particularly since even the lower classes are (in absolute terms) richer than the middle class of the Apple II era.
What has happened is instead technology allowed some luxury products to be commodized and available to everyone. I doubt multi-billionairs build their own OS-es, cell phone towers, hardware, batteries, support from scratch. They buy an iPhone. Someone on food stamps could concievable save money and still get an iPhone. They both have a luxury product so to speak. But this is a cool anomaly. It doesn't happen with cars, housing, job opportunities, healthcare, clothes, safety, free time, food, etc.
So I think looking what kind of tech products are avaiable to everyone doesn't work as an argument regarding inequality. What about inflation adjusted salary, isn't that a better metric to look at? Or say the cost of healthcare or housing as percentage of wages... defintely not the type of computer and printers people can get.
> properly integrating high technology into society
High tech is major expensive. Who owns it at the start? Won't this be like a trickle-down effect before it becomes broadly available? And when that happens isn't the cutting edge already far ahead and with the increasing wealth inequality even more in the hands of the few?
Almost certainly, it is an externality in the strict economic sense, in that the "thing that decreases the value of labor" is almost certainly the product of investment decisions made by actors that are not the same set of people who are impacted by the reduction in the value of labor.
> Redistribution can counteract this effect.
Right, but in practice rarely does not, because what redistribution occurs is controlled by who has power over government, and power over government is disproportionately in the hands of those who have gained the most benefit from the economy, so those harmed by externalities and who would be most inclined, on a self-interested level, to seek redistribution are also the least likely to see their wishes reflected in government policy.
> If productivity increases but it also increases inequality, then there is some level of redistribution that will correct the inequality while making everyone better off (in the sense that the number of people earning more than X increases for all X). Not exactly a theorem, but a rough consequence of general equilibrium theory.
Its not really a "rough consequence of general equilibrium theory", whereas general equilibrium theory holds that without externalities (and with rational choice) a pareto-efficient result will be achieved, your conclusion requires the assumption (which general equilibrium theory does not support) that with externalities, a pareto-efficient result will not be reached, and further that the actual result will be such that there will exist an alternative result reachable by redistribution which features less inequality by whatever the relevant measure of inequality is, and is closer to being pareto-efficient.
But general equilibrium theory does not guarantee pareto-inefficiency with externalities, and if a pareto-efficient result is attained prior to redistribution, no redistribution can "make everyone better off" (since the definition of pareto-efficiency is that no one can gain without someone losing.)
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