Inequality and fragmentation

January 5, 2016

At some point I’ll post more than just some links, but these essays were too good not to link to. If you don’t know who Paul Graham is, after building one of the first e-commerce sites and then selling it to Yahoo! he founded Y Combinator, that invests in and nurtures tech startups; some of the companies he invested in include Reddit and AirBNB. (He’s also an expert on Lisp.)

The Refragmentation

One advantage of being old is that you can see change happen in your lifetime. A lot of the change I’ve seen is fragmentation. US politics is much more polarized than it used to be. Culturally we have ever less common ground. The creative class flocks to a handful of happy cities, abandoning the rest. And increasing economic inequality means the spread between rich and poor is growing too. I’d like to propose a hypothesis: that all these trends are instances of the same phenomenon. And moreover, that the cause is not some force that’s pulling us apart, but rather the erosion of forces that had been pushing us together.

Worse still, for those who worry about these trends, the forces that were pushing us together were an anomaly, a one-time combination of circumstances that’s unlikely to be repeated—and indeed, that we would not want to repeat.

The two forces were war (above all World War II), and the rise of large corporations.

The effects of World War II were both economic and social. Economically, it decreased variation in income. Like all modern armed forces, America’s were socialist economically. From each according to his ability, to each according to his need. More or less. Higher ranking members of the military got more (as higher ranking members of socialist societies always do), but what they got was fixed according to their rank. And the flattening effect wasn’t limited to those under arms, because the US economy was conscripted too. Between 1942 and 1945 all wages were set by the National War Labor Board. Like the military, they defaulted to flatness. And this national standardization of wages was so pervasive that its effects could still be seen years after the war ended.

Economic Inequality (shorter version)

The most common mistake people make about economic inequality is to treat it as a single phenomenon. The most naive version of which is the one based on the pie fallacy: that the rich get rich by taking money from the poor.

I’ve included some quotes to give the flavor, but you should read the whole thing for both of them.

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