There's some nuggets of truth in here, but I am disappointed that this article sidesteps what I feel is the most important reason for startup success in 2020: easy and abundant access to cheap capital.
- Interest rates are at all time lows, borrowing is cheap
- The Fed's balance sheet is at an all-time high. The economy is flush with cash, particularly the investor / VC class
- This excess cash creates an (arguably artificial) wealth effect and drives an appetite for risk
- Large unicorn startups that are perpetual money losers continue to operate only because they are effectively subsidized by regular capital raises. Look no further than all the Silicon Valley darlings such as Uber, Netflix, AirBnb, Tesla, and so on. All of them would cease to exist without continued capital injection from secondary share offerings or VC raises
- These companies achieve growth and put pressure on the competition by offering their services below the real cost that would be needed to achieve profit, hence driving huge share price growth
- This share price growth attracts new investment from the momentum-chasing crowd, increasing appetite for subsequent secondaries, and then the cycle repeats
I don't mean to be cynical, but it's hard to see this ending well for some of the nouveau riche. Tech has been a great avenue to riches by offering real innovation in some cases, but the article's error-by-omission really gives the wrong impression.
> - Large unicorn startups that are perpetual money losers continue to operate only because they are effectively subsidized by regular capital raises. Look no further than all the Silicon Valley darlings such as Uber, Netflix, AirBnb, Tesla, and so on. All of them would cease to exist without continued capital injection from secondary share offerings or VC raises
You should look up the financial statements of the companies in your list.
Apologies for some hastily chosen examples. I think the point still stands if you consider the following companies:
WeWork, Lyft, Snapchat, Pinterest, Dropbox, Slack, Casper, Lime, Peloton, Beyond Meat, Wayfair, Zillow.
More generally speaking, take a look at Goldman Sachs' Non-Profitable Technology Index:
Would you have put Google and Facebook in this group when they weren't profitable? You are missing something - many companies have great long term economics even if they are losing money right now. Slack (if still independent) could easily be profitable - they just have to spend less growth (ie, largely they could cut their sales and marketing dramatically, along with other items). Snapchat the same, Pinterest the same. Some of the others I believe you might by and large correct. The general statement that lots of companies are giving away dollar bills for $0.80 isn't right.
This is a common argument but would seem wrong to a lot of people. It's just unintuitive. Most people of our parents generation would find this argument slightly absurd, and our grandparents would find it entirely absurd.
It sounds weird because it assumes that every tech business has either insurmountable lock-in or insurmountable first mover advantage, without explicitly stating that. To fill in that assumption requires a lot of cultural knowledge of tech - the vast majority of businesses don't have either.
The problem is these assumptions are very likely incorrect for most modern "tech" businesses. It looks like over-generalisation. For example:
1. Slack has relatively little lock-in. The last company I worked for was in the process of migrating to Teams when I left. The justification was cost savings. Slack is trying to build network effects and lock-in with shared inter-firm channels, but most employees don't need to interact with other firms at least in today's business world, so even if Slack becomes the Bloomberg Terminal for the rest of us, it won't be the foundation of a huge business: only the people who need to communicate with other Slack-using firms will have Slack accounts and they charge by account.
2. Snapchat is a social network, and the iron law of social networks seems to be that they're at the top for only a relatively short period. Facebook is by far the longest lasting but even so, they've had to shore up that position by buying Instagram and WhatsApp. Snapchat's value won't last forever, so burning cash to get to the top in the hope of monetising it over the long run seem a bit optimistic.
3. Uber is basically a taxi firm. There is no moat there. Me using Uber doesn't really make it more useful for you, except in the sense that it attracts drivers. But drivers are capable of using multiple apps at once and switching between them. If Uber's prices were to increase really significantly, their market share would probably go into free-fall yet the hallmark of a company with lock-in is that they can charge very high prices for decades without facing competition.
4. Amazon was never able to convert high market share in retail to high profits. Its profits come mostly from AWS: a pure tech supply chain business.
It's also worth noting that Google and Facebook became profitable quite quickly relative to the sorts of companies people are criticising these days. It took Google less than 6 years to reach mega-profits. There are now firms that are doing Series G (!) raises, which aren't profitable after 15 years.
1. Good unit economics can come from various sources. The idea that Slack has little lock in and hence can't have good economics is misguided. Coke has little lock in, yet amazing economics. Google has little lock in, yet amazing economics. Sources of competitive advantage aren't restricted to lock in. Scale is a source of competitive advantage, for example.
2. Your point is hard to refute and may be correct - it isn't obvious they will do well or poorly over time.
3. This is almost certainly wrong. If Uber had no moat there would be more than Uber and Lyft in the US. It's going to be impossible to enter this market for a new player short of having self driving all worked out.
4. Yep, it wasn't/isn't clear on Amazon's retail biz, I'll agree with that.
You have some examples which are correct - there are specific situations where you are right. But the statement cannot be generalized.
For (3) it isn't required to have a moat. Market dumping is sufficient. Nobody is going to compete with a firm that's selling below cost, as Uber/Lyft are doing. But, I've used non-Uber/Lyft taxi apps that were perfectly competent. It's not that hard to build such an app, especially if you 'just' want to sell taxi rides in local jurisdictions instead of any conceivable moving service in every possible geography. If/when they stop burning money, only then we'll find out what kind of moat they have.
Uber is a public company. They do over 50% gross margins. One may reasonably suggest some of their marketing expense should be in the COGS, but even if you take all of it, they are still GM positive. Similar story for Lyft (also public).
These stories persist, of companies deliberately running their companies so as to give away a $1 for $0.80 or whatever - but with very few exceptions it's a bs story.
I think we've reached the depth limit here, so this is an answer to below.
I'm spinning it as positive because I'm attempting to break out their fixed and variable costs. If one looks through the line items and imagines themself as CEO, there are items which can easily cut and/or don't need to climb as revenue climbs. EG, their R&D is probably too high and doesn't need to double for their revenue to double. By breaking out their costs one can figure if they are likely to be "perpetual money losers" or just "currently money losers", which is the question at hand.
They are valued in public markets at over $100 billion. Usually the public markets do a reasonable job at getting a reasonable number for a company's value. Thinking about Uber's cost structure in some depth is how folks have arrived at that number.
Yet they make a loss. A $6.7 billion loss if I read their 2021 financial report correctly. I don't understand how you can spin this as "positive". Gross margin positive is not the same thing as being profitable, which is what we're talking about.
This is an excellent answer and took the thoughts right out of my mind.
To elaborate a bit for GP:
No I would not have classified early stage Google or Facebook or Amazon as "perpetually unprofitable tech" because, frankly, they clearly weren't. All 3 of these companies had strong, obvious moats that enabled them to preserve pricing power. All 3 of these companies had a small handful of initial cap raises and have grown entirely via Free Cash Flow ever since. The fact that all 3 of these companies continue to operate with staggering profitability decades later confirms this. (You can of course debate the ethics of having such a moat, antitrust etc., but you cannot deny it's there.)
It's incredible that Amazon was able to build such a moat in the early days. Logically, you'd think that somebody like Sears (which became a huge company in the first place by offering the convenience of shopping from home!) would have made a big early investment in online shopping and become gigantic.
WeWork was also never a tech company but pushed really hard to brand themselves that way. If evaluated truthfully as a real estate company, the money they raised was hilariously idiotic.
So much of this world is driven by idiotic speculation based on slick websites and charismatic presenters.
There's a ton of tech behind Beyond Meat. Their core science is based on research from an RNA professor at Stanford. That proteomics research is the reason their burger tastes so much better than previous generation veggie burgers.
I think it depends purely on your definition of "tech".
Impossible engineering soybeans to produce more heme to make fake meat behave more like meat is a technology, in that it is a novel innovation applied to solve a real world problem.
But in modern common parlance "tech" tends to mean either that a company's offering is either entirely or heavily augmented by new software, or that the company has ties to a specific network of talent/investors/etc, or that the company has very low incremental costs per user. In those cases, they might not be a tech company.
It's technology innovations in food rather than electronics, but it's still technology innovations that are based around disrupting the existing industry.
Marketing companies would be my opinion. Fake meat has been around for years, but has become trendy again in the last couple of years. (Maybe it's better now, but that is subjective).
About half the companies you mentioned are cash-flow positive, so their economics work, they just have accounting for depreciation and other lines on their balance sheet. They are default alive companies using accounting practices to avoid taxes, but they have more money coming in than going out
> These companies achieve growth and put pressure on the competition by offering their services below the real cost that would be needed to achieve profit, hence driving huge share price growth
Which I find weird, if I sell fruit at a loss to run a local competitor out of business as a major supermarket it's illegal predatory pricing (or at least was when I was growing up), yet do it to an entire industry and it's fine. Maybe this is just one of those US exception things.
Missing (or implied) by your list is that incumbents are not an all-or-nothing gamble based on other people's money, so are reluctant to engage in such tactics themselves and will suffer for it.
I don't think this covers all of this - but I feel like the reason it could never be investigated is that most of these things are only unprofitable because of the administration. Not on a per item basis.
Netflix may lose money on their show but clearly by giving you a month free and then charging just $12 a month they are making money on that unit. AirBNB is making money on each additional rental they do even if historically that didnt cover all marketing and tech.
For a store selling berries if they buy it for $3 and sell it for $2 then it is more tangible (though Im sure today they could just call it marketing)
I guess that makes sense and is one consequence of moving so many things to an abstract 'service' model. Many services are essentially free to provide - until you count all the other overheads any business also has to pay for. It's not as simple as buying and selling berries like you say.
Your comment leaves me wondering if we're reading the same essay.
PG specifically states that the "main reason it's easier to start a startup now is that it's cheaper". And, "cheaper" comes in the form of lower infrastructure costs, lower advertising costs, and lower cost of capital.
>> But the main reason it's easier to start a startup now is that it's cheaper. Technology has driven down the cost of both building products and acquiring customers...now investors need founders more than founders need investors, and that, combined with the increasing amount of venture capital available, has driven up valuations.
> now investors need founders more than founders need investors, and that, combined with the increasing amount of venture capital available, has driven up valuations.
These companies could easily cut their marketing budgets in half and basically be profitable. They could also cut their R&D and focus only on their main money streams and be profitable. There is just no reason to be profitable, when you can raise more money.
I think everyone just wants to get a piece of the future. The companies of today, if successful, will become huge conglomerates given the accelerated globalisation.
Netflix and Airbnb are profitable, and as far as I can tell the others could be profitable but aren’t because they want to stay huge / have the capital access to do so. When you have unlimited money pouring in, whats the point of profit other than a checkbox for wall street? You can pay everyone their wages, compete fiercely, grow like crazy, and so on. Profit is just inefficiency - we don’t have a use for this money so we just put it in the bank.
I don’t disagree that Uber and Tesla and many of these are on life support currently, but from a game theory perspective, if you have unlimited access to money, why bother being profitable when you can just spend it getting bigger and smarter?
There is one fairly obvious reason: survival is the great filter. Anything that's not under survival pressure is almost by definition not good in the long run. If something is bad, you want it to die quickly before it becomes too big to fail.
Isn't that in a way a ponzi scheme? Companies that don't bring value and need a supply of investors... that does ring a bell. Why regulator doesn't look into it?
Nono, lots of differences. In a ponzi scheme, the early investors get paid by the new investors and the company doesnt have any real business other than gathering new investors
I'm rather disappointed PG would think that the Forbes wealth list could support any kind of conclusion whatsoever. One of the biggest reasons that the top of the list is filled with tech billionaires is that their wealth is relatively transparent, being mostly in the form of stock holdings in publicly traded companies and often directly disclosed. This makes it much easier for Forbes to estimate their net worth with some degree of confidence. Older wealth is often more opaque and diffuse, hidden behind various complex financial structures or stored in assets that are difficult to value or rarely change hands. Whether Forbes is aware of how much wealth there is and in what form, depends largely on the desire of the possessor to make it known. Some would want to disclose (or even inflate) their wealth for ego or branding reasons. Others would likely prefer to remain off the Forbes list altogether. So the Forbes list is a poor starting point even for a discussion soley about the wealthiest people. To draw any kind of inference from it to the broader economy is just downright ridiculous.
This is an ongoing curiosity of mine. One really cool example is Mubarak of Egypt who became wealthy from corruption. When he lost power he had some wealth exposed and he was richer than any known person in the world.
Thanks for the link. I'm a bit skeptical of that number ($700B). Intuitively, it's just a very large amount of money to hide without anyone noticing. It should be relatively easy to track down most of it.
However, after searching for follow-ups on that story, I wasn't able to find any news article saying that any significant (>$1B) amount of wealth was found. There were $664M that were frozen in Switzerland, as well as an undisclosed amount in the EU [1] (but both freezes were annulled in the meantime). Additionally, there were some properties and luxury cars he owned in Western cities [2].
All of these (and some generous extra for wealth he was able to hide) would add up to wealth in the order of billions, but most likely below $70B, and definitely below $700B.
Royal families and dictators are big secret. There is an ongoing mystery about lose of a $128B (yes billion!) in my countries (Turkey) CB budget which they don't talk or give any clue and it's just a recent thing. Imagine beyond this, offshore accounts and freeports.
At some point I guess you run into definitional questions around what counts as wealth or ownership. If you could seize any building in your country at will, do you own all of them? What if you could probably only size a few dozen before people started getting angry about it? Etc.
The same goes for stock, though. When we talk about billionaires, most of that money is invested somewhere. So nominally it's worth $X because it's N shares worth $Y each; but if they try to sell them all off rapidly, that would drive the price down. Finding enough buyers might also get tricky.
I sometimes think this is overrated. Bezos has as much stock as anyone but if he sold it all in the course of a year I don't think it would lose value. Musk probably would - but only so many people on the top of the list (at least I think)are in a position where there company worth would drop dramatically from the founder selling.
Cryptocurrencies have created many paper-rich people who wont be on the list. Just 10k bitcoin would make you very rich these days, and there must be a few low-profile geeks with that may coins on a HDD.
Also anyone rich, non-domiciled and "avoiding tax" will presumably not be on the list.
Even simpler than that, you could have inherited a billion dollars, stuck it in an index fund, and not made a big deal about it. I'm certainly no billionaire but I can appreciate living below your means and not having a flashy lifestyle. If you stonewall the Forbes people, you don't get on the list. If you send an accountant to politely explain that Forbes has no idea how much of that billion dollar investment is left, you don't get on the list.
PG himself is a good example. His equity stake in VC is very likely worth in the $1-10B range (YC didn't take outside capital, see footnotes: http://www.paulgraham.com/worked.html). But his ownership stake isn't transparent to Forbes.
I think a lot of VCs and real estate investors would fall in this category.
An example is the House of Saud. They are incredibly wealthy, but I believe Forbes doesn't look at _families_ only _individuals_, even if, say, the head of the family would technically make the list.
Also, they're unlikely to put out public accounting statements
This is a bit "I don't even own a TV" in a thread about TV shows. The topic is wealth and the industries/methods behind it. You're responding to two people having an interesting discussion about known and unknown riches.
To become the richest people on Earth, they have to collect economic rent from the actual producers of wealth, which is all the rest of us. Wouldn't you want to know who is being unfairly enriched by your labor?
Perhaps. But I tend to look at the actual interactions I have as a laborer and consumer, and try to determine the effects of those actions. So I care about Jeff Bezos because I occasionally order goods from Amazon, not because he is the richest person on earth.
Even in the example you describe, there is an interesting question: how much of that money that you pay to Amazon for those goods ends up in the pockets of those people who fulfilled your order, and how much ends up in the pockets of Jeff Bezos? And how does it affect the quality of the service that you get?
>So it's not 2020 that's the anomaly here, but 1982. The real question is why so few people had gotten rich from starting companies in 1982...a wave of consolidation was sweeping through the American economy
Microsoft, Oracle, Apple, Bloomberg, etc were all started in the late 70's/ early 80's. Their founders are the richest people in the world.
Seems like the question he's asking, though, is why weren't they obscenely wealthy after only 5 years, but that requires a different thesis than PG's.
Every time I read one of PG's posts, it seems like he's working from a narrative that he's trying to conform facts to.
> Every time I read one of PG's posts, it seems like he's working from a narrative that he's trying to conform facts to.
Indeed. Compare this gem from [1]:
You could probably work twice as many hours as a corporate employee, and if you focus you can probably get three times as much done in an hour. [1] You should get another multiple of two, at least, by eliminating the drag of the pointy-haired middle manager who would be your boss in a big company. Then there is one more multiple: how much smarter are you than your job description expects you to be? Suppose another multiple of three. Combine all these multipliers, and I'm claiming you could be 36 times more productive than you're expected to be in a random corporate job. [2] If a fairly good hacker is worth $80,000 a year at a big company, then a smart hacker working very hard without any corporate bullshit to slow him down should be able to do work worth about $3 million a year.
The process is: Start with a hidden conclusion, selectively pick convenient facts (or make up bullshit numbers), ignore that they don't make sense in context, and finally present your a-priori conclusion.
I'm not seeing the issue with the except you posted. In context, it seems clear to me that those are all very back of the envelope estimations. Not everything needs to be backed by multiple citations to double blind trials; approximations can be quite useful.
The point (IMO) is to take statements you strongly suspect to be true from personal experience (ex that a pointy-haired middle manager reduces your productivity) and attempt to assign ballpark numbers to them. The numbers don't need to be super accurate, merely within the correct order of magnitude. The hope is that such an exercise might allow you to estimate an expected return (to within an order of magnitude) for decision making purposes, or perhaps just to better understand the world around you.
Put another way, even if you dispute the exact outcome ($3 million a year), presumably you agree with the broader premise of being significantly more productive? (Note that increased productivity won't necessarily translate to increased income. It should give you something to work with though.)
Software Engineers sometimes act as if administration and coordination of effort are unwelcome distractions to productivity, but those are necessary components to any viable commercial effort. The super-productive, "$3M/year engineer" who goes and starts a successful new startup always metamorphosizes into the pointy-haired boss. Why is that? Because that is the steady state of companies, anything else is transient.
However, VC's make money from a steady stream of disaffected engineers who are convinced that there is a better way - for a while, there is, until the same VCs ask the founders to step-up their administration-game, or they have to raise capital, or manage paperwork.
I mostly agree, but I think it's important to note that the necessity of administrative overhead (and associated friction) scales with team size and project scope. I expect a lone developer to be the most productive by far in the narrow sense of producing working code. However, at some point a single person just can't do everything that needs doing themselves.
So I'll agree that as things grow administrative overhead will necessarily creep in. But I expect that if you can find a way to turn a profit, a smaller team will probably involve significantly less overhead. So if (as in PG's hypothetical) the developer is worth $80k at a big company, how much would you estimate them to be worth at a company of only 4 people that has a good idea and funding?
> So if (as in PG's hypothetical) the developer is worth $80k at a big company, how much would you estimate them to be worth at a company of only 4 people that has a good idea and funding?
My point is that a 4-person company with a good idea and funding doesn't usually remain a 4-person company. Sure, they could be churning out good code at an amazing rate, but is transient state - in order to make money at the levels that the VC-class demands, pointy-haired bosses will be required, and they come with structure, meetings, emails, templates, and other administrata rituals.
edit: I think this is proof enough that VCs don't optimize for individual productivity - nobody who likes having more money does.
Hm? That paragraph is accurate. When you're free to work flat-out – as hard as you can, as much as you want – you can make a lot more progress than if you were paid to do the same thing for someone else.
36x may not be the exact multiple, but it's correct within a power of two.
No, the assumptions in it are ridiculous in context:
1) "You could probably work twice as many hours as a corporate employee": Okay, maybe you can "work" 80 hours a week, as in "be in the office 80 hours per week".
2) "if you focus you can probably get three times as much done in an hour": No. You can't stay focused for 11.5 hours a day, especially not 7 days in a row, especially especially not week after week after week.
3) "You should get another multiple of two, at least, by eliminating the drag of the pointy-haired middle manager who would be your boss in a big company": No. First, that's already covered by "being focused" in point 2. Second, there will be other aspects that will drag down your raw coding output, like clients, employees, legal matters, or organizational issues. They can be worse than your boss.
4) "Then there is one more multiple: how much smarter are you than your job description expects you to be? Suppose another multiple of three": No. At 80 hours per week, you're not three times smarter/more productive per unit of time than an average employee at 40 hours per week.
Look, I'm not saying that an equivalent compensation of $3M per year for a founder is wrong. I'm saying that those numbers are bullshit. Everyone can make up figures, multiply them, and arrive at any conclusion they want. That doesn't mean there's any truth in them.
No. You can't stay focused for 11.5 hours a day, especially not 7 days in a row, especially especially not week after week after week.
I'm a former software engineer. The best engineers absolutely, genuinely can work very long hours and remain productive. 80 hrs/week might be a bit high, but 65 hours a week at 3x average-programmer-productivity is definitely something that exists in the real world, and although it is rare, it is not vanishingly rare.
Hacker News is in denial about this extremely simple fact, even though you can easily verify it by e.g. working at FAANG for a couple years. Probably because lots of Hacker News readers are kids who have not gotten to work with a broad cross-section of programmers; and because the rest of us are literally slacking as we post here, and want to believe our slacking is some kind of biological necessity.
I agree with your broader point that PG's line of reasoning is, at best, a gross simplification of the real world (although I still enjoy it as an intellectual exercise).
> [...] and because the rest of us are literally slacking as we post here, and want to believe our slacking is some kind of biological necessity
Maybe that's because we've observed one too many "I work 80-100 hours per week" CEOs, who still find time to write blog posts, keep up with the latest memes, and shitpost on Twitter.
hey now. that blog is part of the job, memes are cultural research, and shitposting is how you stay in touch with retail investors. that's at least thirty hours a week together
You don’t have to work 80h’s though. Many employees waffle around so much that you can get the same work done in an hour or two of distraction-free, meeting-free, daydream-free grafting.
I agree with point 2.
Point 3 may be valid, but have you ever worked for a real idiot?
Point 4: remember that an IQ of 100 makes you smarter than roughly half the population. If you can string two formulae together in Excel, you’re probably ahead of the game. That may be a little cynical but my point stands.
I agree with you. I run a corporate data science department. Maybe I'm an anomaly, but I have a lot of freedom to decide how things get done. And when our website went down the other day, I got to hand the problem to our Tech team, go to sleep, and wake up to find a functioning website because I work in a company that pays a skilled team of people to handle problems like that. One of my friends was moving from a salaried job to freelance and balking at charging really high rates. I explained how much BS other people handle for her in her job, like buying computers, finding clients, etc.
Personal experience. But, my experience is merely anecdata. Does it hold true in general?
It seems to. Suppose your company consists of ten people, and its valuation rises to $10M. The value must have come from those ten people. If they weren't at the company, the company would not be worth $10M.
It would be easy to dismiss that example too. After all, I made it up. But that kind of example happens all the time in startups. It's such a striking correlation that you'd now have to explain away many hundreds of examples as coincidences, or claim they're due to other factors like the founders' connections, upbringing, being in the right place at the right time, etc. Those things do matter -- in fact, you'd be hard-pressed to start a successful startup without at least one of those -- but you can't bullshit your way through a startup. Either you've made something people want, or you haven't. And if you haven't, your upbringing and personal connections won't change the fact that your startup is doomed.
So it seems the simplest explanation is probably true: a small group of smart, dedicated people can do enormously valuable work, given the right conditions. And pg's paragraph seems to explain those conditions pretty well -- at least in my experience.
Valuations are bait that VCs use to motivate founders and employees to take below market wages. But after all the rounds are done, the employees are almost always massively diluted back to below market wages. You could just have diluted them in advance, but then they wouldn’t have worked as hard.
> Every time I read one of PG's posts, it seems like he's working from a narrative that he's trying to conform facts to.
I share your suspicion too. It seems most essays start with a prejudiced narrative, a climax in mind.
Then there are chains of weakly cohesive theories and numbers presented as pseudo-facts, some cherry-picked evidence to stretch the imagination, forever nudging towards the predetermined, targeted conclusion and a veneer of logic holding it together. All supporting the same narrative.
There's the same humble bragging, FOMO peddling, "trust me"isms; rinse and repeat.
Very much like a religious manifesto.
I believe this appeals to the hopes and false beliefs for those who already took the plunge. And at the same time trying to net newer fish.
I regard these essays now as promotional and propaganda material over substantiative, context driven sharing of knowledge from a unique perspective.
He said that poorly. But if you follow his point, he's saying that the richest people in the world in 1982 should have been the founders of companies in 1940 to 1960. He's not talking about those who founded companies in 1982; those are the richest people of 2020.
And so his point stands - why were the richest people in 1982 not the founders of companies?
> Microsoft, Oracle, Apple, Bloomberg, etc were all started in the late 70's/ early 80's. Their founders are the richest people in the world.
How are they the richest? Per https://www.forbes.com/real-time-billionaires/ Gates is #4, Ellison is #7, and Apple/Bloomberg/etc are lower. Above Gates are the founders of the much later Amazon and Tesla (then there's FB, Google, etc)
Because you can scale a technology company much faster with less capital and lower acquisition costs today. A lot of the infrastructure has been built out for internet companies to take advantage of. That’s the point of the article that it keeps getting faster . Msft, aapl etc grew faster than their predecessors and today’s companies are growing even faster. Bill gates was a billionaire at age 31.
> Every time I read one of PG's posts, it seems like he's working from a narrative that he's trying to conform facts to.
PG has been a cheerleader for VC backed capitalism for a while, which has produced both anodyne and strained articles alike. I think the more interesting question after an article like this one is this: does he actually believe this stuff?
It's really interesting to see the world through PG's eyes. Kudos to him, I guess, for actually saying out loud what most of the mega-rich are unwilling to.
Everyone who isn't like PG (so, 100% of the population) is finding it difficult to make enough money to have a life in the most basically fulfilling sense: education, retirement, support for loved ones, and good health.
> Everyone who isn't like PG (so, 100% of the population) is finding it difficult to make enough money to have a life in the most basically fulfilling sense: education, retirement, support for loved ones, and good health
This exactly. PG arguing the relevance of the Gini coefficient is oblivious to the the crumbling state of the public infrastructure in the US and the declining accessibility of high quality public goods to the working and middle class.
The Gini coefficient is an indicator, not an objective in and of itself.
Investment in public goods might even make the super rich even richer by making the corporations they own more effective through better trained workers and less loss due to poor infrastructure.
Life expectancy is dropping like a rock, and that's a number with a little more rigor behind it than PG's moronic hand waving. The guy has no idea what he's talking about and comes across as incredibly desperate to justify obscene hoarding of wealth. He'll draw a line between any two data points you can dig up, no matter how distant and spuriously correlated, if it will allow him to fellate a few billionaires.
We get it, these people pay you. Just say it: "I can see nothing wrong with the current distribution of wealth because the lenses in my eyeglasses are actually solid gold, a gift bequeathed to me by the Duchess of Facebook." The guy needs meritocracy to not be a myth, because he's styled himself as some kind of kingmaker who can selectively pluck only the most deserving young founders from a bubbling vat of Stanford alumni DNA. It's been a good run, but it's just getting gross now.
> The guy has no idea what he's talking about and comes across as incredibly desperate to justify obscene hoarding of wealth.
I don't think he's ill-intentioned, but like many people in his position, he's probably just personally unaffected by the crumbling of public goods.
He'll never take a dangerously overcrowded train, nor will he ever worry about whether his kids are in a safe school. Inequality seems mostly like a set of interesting stats to him, with little real world negative personal impact.
I don't believe he has ill intent because he has taken concrete steps to examine the issues (i.e. YC's UBI experiment), but it sounds like he's limited like anyone by the environment he mostly exists in, where he reasons about issues like inequality too much from data like the Forbes top 100 list.
The Gini coefficient is a relative measure. It is possible for the Gini coefficient of a developing country to rise (due to increasing inequality of income) while the number of people in absolute poverty decreases. This is because the Gini coefficient measures relative, not absolute, wealth.
In Capital in the 21st Century, Piketty is looking at wealth groups (top 1%, top 10%, rest of the population). And it paints a very different picture.
Agreed. Admittedly upon reviewing the article, PG did use it as an effect, not an objective. But at the end of the day he's reasoning from rarified datasets like % of billionaires inheriting their wealth, vs using more broadly meaningful indicators like inequality in healthcare and education access, housing uncertainty, and others. That's what makes him so out of touch.
This essay feels really dishonest. It tries to simplify the vastly complex problem of income inequality, on which there is a sea of existing, detailed research, into a simple "it's easier to start companies now" argument. And it doesn't even explore that argument in that much depth.
What about bottom incomes? Why have those barely increased in real terms in the last 30 years, while the top 1% of incomes has been shooting steadily up? Surely that's nothing to do with people starting companies.
His constant defense of high-risk startups also acts as a defense of his own wealth. If you can do it, and deserve wealth for succeeding, I must deserve my wealth for the companies I've founded. I'm not saying one shouldn't be rewarded for founding useful businesses. I'm saying there's a whole lot of mystification, self-mythmaking, and luck involved.
For the average person, being born to a somewhat comfortable family, being able to train yourself into a good career, and being able to save and invest in a mundane way are far safer and comfortable ways to live a good, secure life. The gulf in security between someone like him now, and anyone but the very top percentiles in wealth is literally unimaginable for him, because he doesn't live the reality of an average person. His constant push in this direction is not much more than "let them eat cake", or "let them found startups".
Some of his bits about the superiority of the hacker mentality lead to some really distressing places if they're extended from the office and into politics.
It's not just dishonest -- it's gross. Paul needs to spend less time on yachts. Being a mouthpiece to try to find a morality in increasing income inequality, when so many are suffering, more each year, is simply vile.
> You would think, after having been on the side of labor in its fight with capital for almost two centuries, that the far left would be happy that labor has finally prevailed. But none of them seem to be. You can almost hear them saying "No, no, not that way."
This line is particularly disgusting. Labor has not prevailed. Labor in fact has been crushed by deregulation, union busting, automation, and most importantly globalization. Real wages have been stagnant for over 40 years while the cost of living continues to increase.
Paul Graham is delusional. He thinks that we're all getting richer because 0.01% of the population has the means to start a startup.
You're mis-reading him. You need to understand that this entire essay is an attempt to define tech founders as "labor". That's the only way any of what he's saying makes sense. So it's not really about, "how to get rich," but instead, "My friends and I aren't the next generation of robber barons, we're working-class folks like you."
> He must be in some world where all labor gets rich on RSUs
He's even out of touch with that kind of labor.
Even in RSU land, most don't get "rich" (meaning enough $ to work electively) from them. Companies have increasingly been shifting regular pay to things like RSUs.
Many people at RSU granting companies are using the proceeds to pay their mortgages or for childcare.
> That line is disgusting. Labor has not prevailed
Workers in newly industrializing countries have seen huge gains in incomes. That's "labor" as well, and those gains should be counted when asking whether "labor" has done well.
Right wing thinkers, PG definitely among them, seem obsessed with this idea that the left won. I literally have no idea what world they've been observing, but it doesn't seem to overlap very much with the one I occupy.
PG is probably not delusional. To make such a claim without proper evidence is probably suggesting you may be having an emotion response to what he wrote. Understood. Not Cool to call people 'delusional' with paltry evidence.
I know PG only a little, but I think his intention was to stir the pot on this old debate.
But yes, for the lower 70% that have as much wealth as the top 10% (and it takes about $ 95K net worth to be in that top 10%) it would be difficult to make a case that 'labor has prevailed over capital'. I would enjoy hearing more about PG's argument to support this claim.
What I see is the surplus is now going mostly to the very top -- which appears to be the point PG is making!
He is either delusional or he's lying. How else can you explain his claim that labor has prevailed?
As Amazon and Tesla employees fail to unionize, as Uber buys a law to avoid treating their drivers as employees, as the Democrats fail to increase the minimum wage despite holding all three branches of government, as the US is the only western nation without universal health care... What honest person can look at the current state of America and think labor is winning?
The children of upper middle class parents getting rich by starting startups is not labor prevailing over capital. It's just capital. It's just the rich getting richer.
Nit: Democrats definitely don’t hold all three branches of government. They hold two, the Supreme Court is 6/3 conservative. Democrats have two chambers of one branch, the legislature, by the thinnest margins possible.
If I were to read an article " How seaweed is making the entire human race more productive"; one trying to reason why you should consume seaweed if you want to be more productive, penned by someone who actively owns portions of companies involved in growing, packaging, promoting and distributing seaweed, it would feel suspicious and distasteful.
The inequality is also being caused by the internet. Before, people would choose a product, restaurant, retailer, service, entertainment, etc based on what was near them. Or what they had a good experience with. Or what their neighbor recommended. But now the internet has pushed everything into what’s “best”. So if a company comes out with a great product or service, it can get huge and popular fast. Same with movies and music, the distribution and popularity travel basically at the speed of light. This is the meme economy and keeps pushing things to the head of the curve, while the tail gets longer and flatter. That then trickles down to the companies/founders/shareholders etc.
> What about bottom incomes? Why have those barely increased in real terms in the last 30 years
Because the main source of productivity growth in that period was technical change, and those who were not well positioned to adapt were stuck at the bottom of the income ladder. Of course there were other factors (globalization, increasing costs in some sectors putting pressure on real incomes etc.), but that's the main story. It's quite consistent with Graham's argument.
> It's easier now to start and grow a company than it has ever been. That means more people start them, that those who do get better terms from investors, and that the resulting companies become more valuable.
This may be a quibble, because I think Paul Graham really means a certain type of high-growth startup in mind when he says "start a company". But the rate of new business formation in the US has fallen off a cliff in the past few decades.[1] The number of new companies as a percent of total businesses is 44% lower in 2012 than it was in 1978.
Again, I think this is different than what Paul Graham is talking about. When he says "many more people are starting companies", I think he's thinking more about a SaaS startup than a McDonalds franchise. Obviously that fits in much more with the theme of how people generate massive fortunes. Nobody becomes a billionaire from starting a landscaping service or an auto body shop.
But still, I think it's important to keep the context in mind. In the larger sense, entrepreneurship in America is very much dead. That doesn't mean that it isn't thriving in a specific Silicon Valley subculture, that to be fair makes massive contributions to the broader economy. But it should make us question what makes the Valley so different from Main Street, USA. If not just to figure out how to export the model from Palo Alto to Oklahoma.
Actually, I think this is almost the perfect response to his article. It's not hard to imagine that a guy who made his fortune off of startups would be biased to think that everyone should create a startup and get rich that way. So, after correcting for rich guy tunnel vision, the statement "more people are starting companies" translates to "more people are starting technology companies in Silicon Valley." And of course, as you point out, the reality that the rest of the country is living in is conveniently ignored.
So yeah, rich guy writes a blog article saying essentially "people should just do what I did" and water is wet.
Agreed. Maybe unpopular opinion, but entrepreneur insights from CEOs are rarely valuable because no individual contribution outweighs sheer luck. Every day millions of people make smart decisions, take good risks, and work hard without significantly improving their conditions. It is pure survivorship bias to think individuals are capable of more than slightly nudging the cosmic needle if it happens to land near the right place.
It makes people uncomfortable to think that success is mostly a matter of luck. I am extremely lucky to be where I am in my career, and I greatly respect people who can admit this instead of rambling about “hustle.”
Not even just luck, there are biases in who gets funding in the first place. PG himself says he's biased toward founders that remind him of Zuckerberg and other past founders. That group is very predominantly white and affluent with a small cut of Asian-american and affluent and a small cut of other.
It helps a lot to have an affluent background when you start a tech company because, like a lot of other risky endeavors, even though the potential rewards are enormous it's a lot less initial earnings than just joining a company as an employee. And you worry whether if your company doesn't take off and get its next round of funding in a few months if it'll be harder to get that first job. And you may be poorer than you were pre-startup.
Not to mention that poorer kids might not ever see starting a tech startup as an option. Both because of the biases in which founders get funding and because they may culturally never have the option floated to them.
> It makes people uncomfortable to think that success is mostly a matter of luck.
I constantly hear this sentiment and don't think it makes people uncomfortable at all. If anything it is the opposite, people cling to this idea to absolve themselves of responsibility for their own situation.
What makes people far more uncomfortable is the nagging feeling that success isn't mostly a matter of luck. Success is a choice in life that requires restraint, sacrifice, an appetite for risk, and resilience.
But if you follow some basic rules (finish high school, don't have kids before marriage, don't do drugs or smoke, minimise alcohol, eat healthy and exercise, don't buy things to impress others), you have a very good chance of being successful in life. Obviously we can't all be billionaires or whatever, but you can definitely live a fairly comfortable and modest life.
Ironically, people I know who did the most drugs in high school (myself included) are the most successful out of the people I know. The straight-laced A students are all way behind.
Yes, I know kids who did drugs (partied as they say) and have some success in life. I also knew some kids who did drugs and barely graduated or dropped out and did poorly or are just hanging on and a handful who didn’t make it out of young adulthood due to those choices.
What we need are statistics to tell us what is more likely, not our particular anecdotes.
I did plenty of drugs too and am doing just fine as well. Not a million or billionaire, but that is a pretty tough standard to meet.
That being said, only drugs I ever did were weed, acid, shrooms, MDMA, and trying the odd pharmaceutical. Never any opoids of any sort, never meth etc.
And in terms of broad advice, I think not doing drugs is still a fairly consistent rule for good outcomes.
Yes, this is my point. You are the people who want to believe that all it takes to be comfortable in life is to “follow some basic rules.” Putting aside that the circumstances of your birth are already a huge matter of luck, I’ll point to the entire US working class and unemployed college graduates as evidence to the contrary.
At some point those of us who have grown up in this economy stopped believing in fairy tales and bootstraps. There were a million points from my upbringing to now that could have diverted me from the middle class, so I’m not looking down on my underemployed peers as inferior beings for their struggles.
> Putting aside that the circumstances of your birth are already a huge matter of luck
This is another one of those points that sounds superficially plausible on the surface but makes little sense once you think it through. The circumstances of my birth weren't a matter of luck. My (married) parents decided to have 4 children of which I was one. Before doing this they both finished high school, and stayed away from drugs. They also tried to live healthily etc (but certainly weren't monks). They weren't going to have sex and then a child might pop into existence in Uganda. The only way the whole "your birth was luck" thing makes any sense is if you perceive yourself to be an atomised individual with no deeper ties to the family you came from or the choices that were made by your ancestors who preceded you.
Like I said, people are EXTREMELY comfortable with the handwaving of "it's all luck anyway". They won't even take responsibility for themselves and their own lives, so asking them to also feel responsibility to their children/grandchildren/descendants is even more of a foreign concept.
As for "I'm not looking down on my underemployed peers as inferior beings for their struggles" those are your words, not mine. I certainly don't look down on my struggling friends/family either, but I am also not going to withhold judging them based on the actions they take. Because very often they also KNOW they shouldn't be doing what they are doing, but choose to do it anyway.
Weakness corrupts as much as power, and it is wise not to forget that.
Before you are conceived, before you even become a zygote, who rolls the dice for which womb you'll end up in? Who decides whether you'll be in the womb of a Japanese mother, an American mother, or a Greek mother? Do we as individuals have any control over which country we are born in?
To pretend as if this is not pure chance (luck) is bonkers.
Or are you saying it was just luck my mom got pregnant then? She just fell asleep one night, the stork visited, and then she woke up pregnant?
I think you don't understand how sex or genetics work, I am 50% my mother's dna and 50% my father's. It's not like they were going to have sex and then I would be born with the genetic code of two entirely different people.
Well duh, noone who has ever lived has willed themselves into existence. But just because you didn't will yourself into existence, that doesn't then imply that the circumstances of your existence are based on luck.
My parents chose to have a kid, where else would I be born except in the country where my mother chose to live? There was 0 luck involved, I wasn't going to randomly pop into existence in Mongolia when my parents decided to have a kid while both living in Australia.
If you apply your reasoning to any other area in life you can see how silly it is. If you put in a lot of work/effort into building a car, is the existence of the car the product of "luck"? After all it had no more choice in where it was created than a person.
>If you apply your reasoning to any other area in life you can see how silly it is. If you put in a lot of work/effort into building a car, is the existence of the car the product of "luck"? After all it had no more choice in where it was created than a person.
That is a false analogy. We're talking about you being born, not you putting effort into building a car.
Why are you switching the argument around to where your parents decided to settle? The whole point is about where you are born, not the area your parents decide to give birth in.
If you can't intuitively understand the relevance of where my parents live (more specifically my pregnant mother) to where I am born, then I am not going to be able to make you understand it.
You seem to be getting hung up on the fact that when two people decide to create a car they are creating an inanimate object (which they own in totality) and when they create a child they create a person with human rights and that will develop into it's own autonomous individual.
But this difference has absolutely 0 relevance to the question of whether or not the circumstances of your birth are the result of luck. Either they both are (which I think you can see is silly) or neither are (which is true but seems to be an idea you are resistant to for some reason).
Like I said at the start, this whole "the circumstances of your birth are luck" is a truism (in the philosophical sense) without any real thought put into whether or not it makes any sense. It could be luck in the deterministic sense of "the entire universe is pre-ordained" but if you believe in free will for the individual at all in any area, then the circumstances of one's birth are not luck.
They are not luck for your parents but you are not your parents.
One of the problems here is that there is one position that everything is either the result of my decisions (ie under my control) or it is luck (ie it is not under my control) and another that defines luck much more narrowly.
Anything that happens to you as a result of someone else's decision is luck for you, even though it's a controlled decision for them. And you had no control over your conception because you didn't exist at the time.
Or, to put this in the simplest possible terms: "other people's free will is your luck".
> But if you follow some basic rules (finish high school, don't have kids before marriage, don't do drugs or smoke, minimise alcohol, eat healthy and exercise, don't buy things to impress others), you have a very good chance of being successful in life.
The discontent in millenials nowadays is exactly because they are peddled that fairy-tale myth.
"Get a degree and get a job, you can will be able to afford a house and a family with children."
It might have worked for the older generation but it sure as heck doesn't work now. Why do you think "hustle" culture is so pushed right now? Our parents didn't need to "hustle" to afford these basic things.
> "Get a degree and get a job, you can will be able to afford a house and a family with children."
This is still true, you just might have to move to a different place from where you grew up to get it. You know, like enormous amounts of our parents/grandparents/ancestors did (why did people come to the USA in the first place? Lack of access to housing where they were from ;p )
> finish high school, don't have kids before marriage, don't do drugs or smoke, minimise alcohol, eat healthy and exercise, don't buy things to impress others,
none of these correlate at all with the successful people I know.
> So yeah, rich guy writes a blog article saying essentially "people should just do what I did" and water is wet.
I think it's even better. Rich guy that became reach by funding tech startups says: "wanna become a billionaire? The easiest way nowadays is funding a tech company! I can help!"
I am a bit of a PG critic myself at times but he became rich from selling his own startup. He became richer by starting YC but he didn't need to start YC. Based on his essays he basically had enough money to be set for life from selling Viaweb and when he started YC he was looking for something to do next other than just retire.
I’m also annoyed when people make the argument that goes: “person X became rich from A he didn’t need to do B”. Maslows hierarchy holds true for all of us. Once he got wealth he desired influence (and power).
This is a huge part of "start up culture" though - like any religion (or lottery, or whatever), superstition plays a large part, and the most important superstition is that those who have been successful before know how to do it again.
It's not religious to observe that founders who made a successful exit are well-poised to do it again.
They're swimming in money, they have a bunch of investors in their phone contacts, and they know all the ins and outs from the last time they put a startup through its life cycle. How could they not be in better shape than some kid slurping ramen in his first YC cohort?
This does leave two big wildcards: the idea (specifically its product-market fit) and pure dumb luck. From what you wrote, I'm guessing that you think this isn't realized by the "cult of YC" as well as it should be, whereas I guess differently, but it doesn't matter that much. We all recognize that it's there, and without those two ingredients you can't succeed.
As an aside, I've seen two different kinds of 'luck' come up in these kinds of conversations: the sort I'm referring to above, and the sundry genetic and social inheritances to which a person is heir.
They're both valid uses of the word, I think the first is more obviously lucky than the latter. It is luck of a sort that someone is 2 meters tall, but I bet their parents were also taller than average, so saying that it's lucky that they were able to be a pro at basketball is going to confuse some people. There was no "them" before the peculiar genetic combination which conceived them, and after that, we're talking about some favorable circumstances (adequate time, a court, no crippling car accidents or stray bullets) and a great deal of hard work.
Similarly, you can call it luck that Jeff Bezos was able to borrow a quarter million from his family, or that Elon Musk apparently can sleep for four hours and work for twenty, constantly, for decades (a genetic quirk no less special and rare than being two meters tall): but you can call it fate as well.
> It is luck of a sort that someone is 2 meters tall, but I bet their parents were also taller than average, so saying that it's lucky that they were able to be a pro at basketball is going to confuse some people. There was no "them" before the peculiar genetic combination which conceived them, and after that, we're talking about some favorable circumstances (adequate time, a court, no crippling car accidents or stray bullets) and a great deal of hard work.
Hmmmm, I think it's obviously lucky. Luck in this context means everything in life that is not under your control (most things are part luck part control, of course). Since you did not exist when you were conceived, your genetic inheritance is obviously not under your control at all.
It's exactly equivalent to saying that someone with a genetic disorder is unlucky, which I think is a much more accepted valuation.
Certainly, the hard work is absolutely a fair point - within the universe of people who are over two meters tall with high hand-eye coordination (as someone 1.98m tall with terrible hand-eye coordination, I'm very conscious of how that affects sporting ability) those who work hard at sport are more likely to be successful professionals than those that don't.
There is a more subtle question about whether we should count the mental disposition to work hard, one that is likely in large part from genetic and social inheritance, as being luck. Some people are much better at it than others, and it does not seem to be the case that those who aren't can become much harder working purely through an effort of will (somewhat, by will and regular practice and it becoming habit? sure. Reaching the level of those who are doing so anyway? No). So is that disposition a matter of luck? If it is, what does that mean? What do we do differently as a result? Do we say that it doesn't matter how hard people work, they should be rewarded the same? Obviously not. So what does that actually mean?
No real argument with this! I think we're talking about different things.
If I could put my difference in opinion in my own words, it would be that I believe many people play the startup game with the right "intrinsic" qualities - hard work, brilliance, etc - many more than the number who exit with a billion dollars. Hence, "lottery". Of course, some of that luck can carry forward in terms of experience, networking... That's not really my point either.
If Paul Graham wants to join our startup, I wouldn't have to disavow my beliefs to welcome him with open arms. That would obviously be to our great benefit. The leadership team would tout his resume, and look forward to his insightful contributions. I, on the other hand, believe that his primary contribution would be to generate a bunch of "Paul Graham Joins X Startup" headlines, increasing our value in the eyes of VC.
The religion is this: you can hire Developer X or Developer Y. "X" was an early employee at a successful startup, where "Y" seems much more technically proficient. I think many startups choose "X" and don't even consider whether they're doing that for status within the startup world (which is what I believe), or because they genuinely believe that having a successful startup under their belt means - even in the face of evidence to the contrary - that the company is more likely to achieve a billion-dollar valuation with "X" than with "Y". You could argue for either justification, honestly, but it's the failure to see a distinction that strikes me as religious.
And also, Paul Graham's ability to found another successful company aside, the clinging to his every word is /definitely/ religious to me.
This is the problem though. There really isn't any clear evidence one way or the other in your example. Predicting how someone will perform in a particular context is incredibly difficult (see the frequent disagreements on HN surrounding the hiring process). More technical proficiency might or might not translate to better overall performance in your particular case.
Meanwhile, the other candidate has already been in what was presumably a substantially similar situation. Given that the previous startup succeeded, I'd assign good odds (but no guarantee, of course!) of that candidate having performed well (all else being equal, a startup with dead weight seems statistically unlikely to succeed).
> You could argue for either justification, honestly, but it's the failure to see a distinction that strikes me as religious.
It might not be that someone else is failing to see a distinction (social status vs technical proficiency vs something else), but rather that they disagree with your estimates of how much various factors will contribute to the likelihood of success for a candidate in the first place. In other words, I think someone might reasonably disagree with you that there's a meaningful distinction to be made here. Such a view would of course be expected to lend their actions the appearance of religious dogma from your perspective.
The first part of your comment is arguing for the second justification. Which I agreed was logically fine to do, and I think you laid out the case well.
The second part seems to reveal a difference in opinion unlikely to be resolved easily in this forum. Food for thought, though - thank you!
Whoops, I didn't mean it to read like that. I actually happen to agree with you (that social status is a likely factor in certain cases for VC, and that people often seem uncomfortable about acknowledging such things). I was just trying to illustrate that it's at least possible for someone's behavior to appear dogmatic when in reality their mental model is carefully reasoned but differs from yours.
For sure, point well taken. There is a question of differing goals and values there between me and the "startup" or "get rich" people, I think, but I suppose we all have our own dogma in the end.
> So yeah, rich guy writes a blog article saying essentially "people should just do what I did" and water is wet.
Are you actually seriously complaining about the argument that you'd be better off starting a tech company than a non-tech company? I didn't realize that was even up for debate. Sure, that's how PG made his money, but that doesn't make his argument any less accurate. Just because there's a concept of a success bias, it doesn't automatically apply to every argument.
When Paul Graham says "get rich" it goes without saying that he means "billionaire rich" by virtue of being a founder of a unicorn that goes IPO. That's nice for those that can do it but it's such a tiny number of people, it's irrelevant and non-actionable advice for practically everyone. Right off the bat, he's talking about the "100 Richest".
What about people that run a business and make a good living and some profit for themselves and their employees doing innovative stuff? Is that too inconsequential to even mention because VC's aren't interested?
You're a successful machinist/plumber/accountant/chiropractor/electrician/IT specialist/etc with a couple decades under your belt working for other people. In decades past you'd strike out on your own.
In 2021 you look at the regulatory environment and overhead costs of starting a business, say "screw that" pick it up as a side gig and find a day job where you can coast. Maybe if you have some special love for the IRS you make an LLC and call yourself a consultant.
This change has affected both the blue collar trades and a growing share of white collar professions these days. The larger of a headache it is to be Real Business(TM) the larger the potential upside needed to justify it. Unless you think your ideas are gonna change your industry or you plan to become the regionally dominant player in your niche why start a real business when a cash only side gig will scratch that itch most of the time?
I had the exact same thought when I read pg's statement, "Why are people starting so many more new companies than they used to, and why are they getting so rich from it?". People aren't starting so many more new companies than they used to - they're starting significantly fewer, and that's a bad thing.
pg is obviously focused on the tech side of businesses, but if you look at the US business climate more broadly, tech is a poor indicator for what's been happening the last several decades.
[3] When I say people are starting more companies, I mean the type of company meant to grow very big. There has actually been a decrease in the last couple decades in the overall number of new companies. But the vast majority of companies are small retail and service businesses. So what the statistics about the decreasing number of new businesses mean is that people are starting fewer shoe stores and barber shops.
People sometimes get confused when they see a graph labelled "startups" that's going down, because there are two senses of the word "startup": (1) the founding of a company, and (2) a particular type of company designed to grow big fast. The statistics mean startup in sense (1), not sense (2).
PG is wrong about this. In the past it probably was easier to get rich (> $10mm) by starting what he will not call a startup than it is now. Lots of people used to get rich this way starting small businesses serving the automotive industry (making airbag assemblies and other important things) or providing specialized services to the Oil and Gas industry, etc. These are just examples, there are obviously tons of things like this. And while these opportunities still exist they are much rarer than they used to be.
There are many reasons these opportunities are fewer, but I think the main ones are
1. Increased firm size means it is harder to compete since you don't have economies of scale.
2. High labor costs in the US mean many things are not profitable to do in the US, so no small US businesses can engage in them (they have to be big enough to engage overseas manufacturers or savvy enough to negotiate that environment as a small business... again, it can/has been done but it's harder).
3. Higher cost of living in the more dynamic parts of the country make it harder to start a business without getting VC funding, especially if that business requires some amount of R&D before generating revenue.
This seems to contradict his analogy between 2020 to, say, 1890. Instead of a bunch of people starting small local businesses and gaining moderate wealth, we have winner-take-all dynamics.
Not to mention that you miss out on one of the bigger wealth building opportunities, the IPO. While not true for every company, tech IPOs have been gangbusters as of late. I would have loved to invest in AirBnb at their last evaluation before IPO. But that is only available to the truly wealthy.
Paul now uses “company” to mean unicorn, similar to how he uses “startup” to mean potential unicorn (startups are not companies trying to make only millions according to his meaning). He knows that this is confusing, yet he doesn’t choose to clarify his words except through a footnote. I find this frustrating.
Talking about the Gini coefficient is just ridiculous, because the usual reason Gini is referenced is to talk about what has happened to the wealth of the majority of people, not the Forbes list. There may be more tech billionaires, and that may make the world a better place: however what many people are worried about is what happens to everyone else that isn’t a billionaire... His argument doesn’t reference them at all except perhaps to imply that “a few people can become ultra-wealthy and that is good”.
Perhaps he could argue that Gini is a useless index because it depends on a few ultra-wealthy people, and that the index tells us nothing about the vast majority of people.
An honest title would be “How a few people become very rich”.
I want to see a graph by cohort of current wealth for all the founders inducted into YC: at a population level would that graph show that founding a company with YC was a worthwhile investment for your time? Even if the expected return is high, is the ergodicity such that it is still a loser’s bet? I”m curious whether it is a losing proposition for most, with a few big winners.
> Nobody becomes a billionaire from starting a landscaping service or an auto body shop.
few, but actually it's quite reasonable to expect to become a millionaire as show in [1], given the age of the book I'd extrapolate to multimillionaire
When I say people are starting more companies, I mean the type of company meant to grow very big. There has actually been a decrease in the last couple decades in the overall number of new companies. But the vast majority of companies are small retail and service businesses. So what the statistics about the decreasing number of new businesses mean is that people are starting fewer shoe stores and barber shops.
The news has gone from bad to worse. Winner-take-all regulations, customs, and market manipulations are good for Bezos, but not for normal humans and not for the economy as a whole. It has been even worse in pandemic time, since the small shops just closed down while the bigger firms were somehow exempted from those requirements.
> So what the statistics about the decreasing number of new businesses mean is that people are starting fewer shoe stores and barber shops.
He might like to point out that the decrease is disproportionately higher among those types of businesses that are part of a thriving community, but the reality is the overall number of businesses being started has gone down.
> Nobody becomes a billionaire from starting a landscaping service or an auto body shop.
If that's your terminal investment, correct. But if you take that $100k you earned from your landscaping service, or in Buffet's case, selling newspapers and detailing cars, you can continue to apply business acumen and perhaps one day reach $1 Billion. Wealth begets more wealth.
> The number of new companies as a percent of total businesses is 44% lower in 2012 than it was in 1978.
.... because the number of total businesses is so much higher already? The number of existing businesses that didn't create a subsidiary for an additional business line is higher?
That data point doesn’t tell you enough of anything. I’m glad it got you to look in that general direction, so now let's dig deeper.
While I think this is in general interesting, a couple things stand out to me:
> And there's a reason why: these are mostly companies that win by having better technology, rather than just a CEO who's really driven and good at making deals.
Really? Always? Are we sure that some companies [which are funded by giants like softbank and have names that rhyme with schmuber] don't [at least] sometimes win because of massive capital injections which allow them to subsidize consumer-facing pricing and stomp all over the competition? Having "better technology" wouldn't allow you to beat uber, you'd also need to subsidize rides for years to choke out uber on pricing. This is true for a lot of big modern companies - they can leverage their capital to crush early competition and wait till they're the only game in town to raise prices and cover their costs (or hope that economies of scale will catch up). I realize that PG isn't saying this _doesn't_ happen, just seems like he's painting a glossy "it's because meritocracy and innovation" picture over things that often have a lot more to do with simply having access to insane amounts of capital (i.e. being good at making deals)
> Of course the Gini coefficient is increasing. With more people starting more valuable companies, how could it not be?
I think this is a really deceptive statement - it kinda sounds like "more people are getting rich" when in fact fewer people are getting [even] richer. The details of _who_ is getting richer are interesting and I think well covered by this post (and I'm not arguing that), I just have a personal beef with the presentation that maybe it's somehow OK (or good?) that income inequality is getting worse because... tech?
A reframing of this story about how the combination of tech & the modern world of VC enables the ultra-wealthy to more effectively concentrate and grow their wealth (even if sometimes a startup founder gets to win the lottery and join the club) could be just as factually correct and a little less rosy.
Maybe things have shifted, but the Jobs bio and the Gates bio makes one think that in the technology land rush, "better technology" looses to "driven and good at making deals." Perhaps the "worse is better" feature of technological culture explains it, but the Woz and Unix did not win; Jobs and Microsoft won. (Perhaps free software will win in the end, but no guarantees in history.)
In fact, if I had to explain the change in technology over my lifetime it is that the people who understand technology and love elegance and efficiency are being pushed out by the people that want to be wealthy and get in on good deals.
Alternative hypothesis: old wealth has become more adept at maintaining discretion via trusts and fictitious persons such as LLC's and off-shore investment vehicles.
CEO's of new companies can't be discreet. Their job requires the opposite.
Lack of discretion always distinguishes new money from old.
With the collapse of well funded investigative reporting, it is well nigh impossible to track down wealth that seeks not the spotlight.
Strangely, an explanation for the increased number of wealths coming from new, tech companies and investments that is ignored in his post is the disturbing fact it was taken from the average employee cut of the profits.
I quote:
"The 2017 CEO-to-worker compensation ratio of 312-to-1 was far greater than the 20-to-1 ratio in 1965, and more than five times greater than the 58-to-1 ratio in 1989"
I hate this comparison. Stock based compensation didn't exist in 1965. It's an oranges to apples comparison.
CEO salaries today are still about 20-1, depending on the business. For instance:
- Doug McMillon of Walmart makes $1.2 million in salary.
- James Quincy of Coca-Cola makes $1.5 million in salary.
- JPMorgan's CEO Jamie Dimon has a $1.5 million salary.
- Sundar Pichai of Google makes $2 million in salary.
You only get 312-1 by adding in performance based stock and incentive alignment options. But these don't come from the cashflow of the business like wages and salary. They come from diluting Wall Street. Knowing this, the whole thing is way less of an outrage. The comparison is so uneducated.
If there is outrage over CEO pay, it doesn't make sense to come from the unions or left politicians, it should be coming from activist hedge fund billionaires, which it does. Carl Icahn for example is wildly against this level of CEO compensation because it dilutes his ownership.
John Doe on his forklift stacking pallets in the Coca Cola factory is not made poorer over excessive CEO pay. Carl Icahn is.
You're not wrong, but the perspective feels like missing the forest for the trees. So what if stock-based compensation was uncommon in 1965? The average employee doesn't get to benefit from the very real contributions they've made to the company, while the CEO does benefit. Why didn't employee profit-sharing increase at the same rate as non-salary compensation did for CEOs? That's still relevant.
Additionally, your comment leaves out the golden parachute CEOs often have, which is orders of magnitude greater than most severance packages, if there's even a severance package in place. Financially, it's pretty hard to fail as a CEO of just about any public company; even in failure, you profit considerably.
Exactly, pensions were considerably more common in the 1960s also, but at the end of the day, I don't really care if my retirement is actually funded by a pension or a 401k or by stuffing dollar bills under my mattress, I want to know when I can retire and how comfortably I can live when I retire.
Yes, getting into the weeds is valuable, but here we're talking about the money in your bank at the end of the day, and that CEO salaries haven't changed much doesn't say anything.
Yes, a CEO should be making more money than the average employee. The debate is over how much -- why do CEOs get absolutely massive bonuses and golden parachutes and stock options and for employees it's expected that you put in the work in the hope of future recompense in terms of bonuses, promotions, etc.
Didn't you just say the stock owners were being diluted by the CEO compensations? Doesn't that include the 401k and pension funds? Isn't this is a massive transfer of wealth the the managerial class, justified simply because they can do it, and leave the consequences to others to clean up.
Bingo. The massive growth in the stock market in the past 40 years is directly a result of the massive inflow of capital from middle class 401k purchases. Overinflated CEO compensation packages are a way to siphon some of this into the pockets of the ruling class.
I think the Cyclically Adjusted PE ratio is more useful in this regard. It does seem to point to overinflated prices compared to earnings. The current PE ratios are only surpassed by those during the dot-com boom when people found it difficult to create valuations grounded in reality. One theory is this is due to access to cheap capital in the last decade +
Because their decisions can drive a company into bankruptcy or transform it into a trillion dollar company. Your average line employee has no such leverage from their actions.
That would make sense as a post-exceptional-transformation windfall. Not as standard comp for keeping the seat warm while saying "yeah do more of that thing that prints money".
I don't know, but half of them are below average by definition.
Take a scan down the Fortune 500 and put a star next to each one you think has had 'exemplary leadership' rather than 'competent administration' or 're-arranging deck chairs while the titanic burns'.
The CEO of eBay got busted sending bloody pig masks to people who left bad reviews on the internet, for god's sake. These people aren't a higher plane of being.
But also, the board makes CEO decisions, and it's not totally uncommon for board members to also be CEOs of other companies, so they buy the kool-aid because they also benefit from it.
Plus, CEOs and boards don't exist in a vacuum. You've got to keep up with the Joneses if you think you're letting a good candidate get away.
Almost everyone owns stock in all the major companies - indirectly via their 401k or index fund.
To a first approximation, there are no non-stockholders.
One real question is why, when stockholders vote on CEO compensation, fund managers are allowed to cast the votes of fund investors. If you invest money on behalf of other people, there are all sorts of fiduciary duties to keep the money separate, but that money gets you votes, and you get to vote them according to your personal preferences, not according to the preferences of your investors.
1) The CEO compensation, while grotesque, is a drop in the bucket. Would I avoid eBay because they've employed a revolving door of terrible CEOs? No, I avoid them because they're a bum opportunity. The CEOs know this, better ones go elsewhere, yet somehow they still pay top dollar for the leftovers they can get.
Good company, bad company, the CEO compensation won't drive the stock price. It's still grotesque and unnecessary, you could pay half or less and get the same mediocre result in most cases.
2) I lied, I don't avoid eBay. I buy the same index funds as everyone else. Shareholder activism is a myth right now unless you're one of a very few people controlling in actuality a very small % of the market.
Compared to Steve Jobs, Cook is milquetoast. He's fantastic at supply chain management, and milking existing products/services. He's exactly what stockholders have wanted for a CEO after the Jobs died. Someone to basically do the same thing for decades. Milk the iPhone for all it's worth.
Yes, I know he's introduce the Watch and AirPods. But he also introduced the HomePod. He's no tech visionary, and eventually his value will drop and Apple will need a new leader. But for now, he's warming the seat.
Do you really believe Cook is just warming a seat? There's a lot more to running Apple than being a visionary.
I'm an Apple shareholder since before Cook, and admit I was skeptical about Cook. But as a shareholder I'm very happy with Cook's leadership. If his compensation is $$$$, that's cool with me.
BTW, Jobs was a visionary, sure. But that wasn't enough - he nearly wrecked Apple through mismanagement. Next Inc. bombed due to his mismanagement as well. But Jobs learned how to run a company with his management of Pixar, and then returned to Apple as still a visionary, but with management competence.
But hey, I might be wrong. Let us know how your shorts on Apple are working out.
I don't own any stocks directly, I prefer index funds. But I've owned Apple hardware since 1984, so perhaps I've invested in Apple through side channels.
I'm sure Apple shareholders are happy with Cook's leadership. AAPL has done very very well in the last 20 years. But is that due to Cook, or is that inherent in being CEO of a company that
created the iPhone? Would Scott Forstall have been as effective in driving the stock price higher had Tim stayed as COO?
Imagine Apple today without the iPhone. It would still be a 2nd tier personal computer manufacturer with a recognizable design aesthetic. But everything that makes Apple the trillion dollar gorilla stems from the iPhone. Not only the outsized profits from selling 200m units a year, but without the iPhone, there's no iPad. No watch (same cpu designs). And no M1 Macs to boost sales to 2x the previous year. All stemming from a bet Apple made in 2004.
And when they drive it into bankruptcy, the company will still go to court to argue that these bonuses, compensation, parachutes should be paid, regardless. Win-win game. Except for the employees and shareholders.
There's of course legal ways to do similarly. I thought this was a good example of John Krafcik's resignation which to a certain extent meets the same aim:
> Why didn't employee profit-sharing increase at the same rate as non-salary compensation did for CEOs?
Because employees generally hated profit sharing and created unions to fight against it. Joseph Blasi talks about this in his book The Citizens Share. And it's not like he's some crank conservative, he's the economic advisor for Elizabeth Warren.
A good example of that [0]. Amazon is quoted as saying that hourly employees prefer the "predictability and immediacy of cash to RSUs", and I imagine Amazon would prefer to give RSUs, so this is probably accurate.
If I'm making a below-livable wage, I need ALL of that cash NOW. I can't wait a few days for it to clear - I can't handle the loss if I have to sell in a dip.
And amazon is using that fact to justify lowering total compensation for hourly workers, so I don't think they actually do have an incentive to give RSUs in this case
Cash is generally better than its equivalent worth in RSUs. If Amazon faces fiscal troubles, then you can potentially both lose your job and your retirement plan. The upside of potentially becoming a millionaire doesn't make up for this.
The problem is that a lot of people will spend their surplus cash on more consumer goods rather than rather than investing it their 401ks.
How so? Isn't it just taxed as normal income at vesting time? Most employers automatically sell enough to cover the tax withholding to solve any issues.
Wash sales, long term/short term gains and associated tax issues, RSU withholding which is a fixed amount and not based on the income tax withholding, and a typical broker account to sell/get money are massively more complicated than a direct deposit to your bank account and money back from the government at the end of the year unless you massively screw it up.
By number, most of Amazon’s employees are working minimum wage and probably don’t have much of a balance. Many of them might get evicted if pay gets delayed even a couple weeks.
I only have limited experience but first I had to do an 83(b), then dealing with a K-1, and didn't make crap from the company so my RSU ended up costing more in accountants than netting money for me.
You can't get a CEO without offering a golden parachute. This is because you're not hire a loser CEO, you're going to hire a winner, and you'll need to attract him away from his current lucrative position.
It's the same thing as top athletes getting contracts paying them millions of dollars whether or not they continue to win games.
> top athletes getting contracts paying them millions of dollars whether or not they continue to win games.
I know in the NFL, a lot of those contracts have clauses big enough to drive a dump truck through. Many of those million dollar football contracts are back loaded to only pay out if the athlete competes the full term [0]. Winning and losing games is definitely tied to whether they stay or are cut.
Unlike a CEO, a poor performing athlete has no golden parachute to fall back to.
They get paid more for good performance but they don't get paid less for bad performance.
Athlete contracts on the other hand are fixed. If the athlete does well the team organization gains the benefit. If the athlete does poorly the athlete may be fired or transferred. And there is no gold parachute when they are cut.
So I don't recognize the similarities between CEO and pro athlete compensation at all.
Athletes aren't comparable to the CEO in this situation.
Athlete pay (at least for athletes who are paid by an owner and not mostly from prize money) isn't really tied to winning or losing, but is largely defined by collectively bargained negotiations, based on how much the league brings in. You also have guys like Bryce Harper who, even when he goes 0-for-3, will earn their keep in other ways, like getting people to watch games on TV which increases rights fees & ad rates, selling tickets to games where people spend money on parking and beer or jersey sales: https://www.mlb.com/news/bryce-harper-sets-pro-sports-jersey...
In short, athletes get paid a lot because they know how much money their bosses are making from their labor and have collectively bargained to get their fair share.
I must say I'm amused by the notion that people running around a field holding a ball are worth megabucks while people managing a company that provides jobs to 100,000 people and valuable services/products to millions ain't.
> The average employee doesn't get to benefit from the very real contributions they've made to the company, while the CEO does benefit. Why didn't employee profit-sharing increase at the same rate as non-salary compensation did for CEOs? That's still relevant.
This is correct, but the post you're replying to has the answer: CEOs successfully claimed more of the portion of surplus value which was going to stockholders, employees claimed less.
It's key to analyze these things if the goal is to see employees better rewarded, as they should be, but it must start from the correct analysis.
The details of how to do this are way over my head, and I won't embarrass myself by trying to make suggestions here.
There are about 100 references on this page here alone stating that CEOs get relatively low cash comp in return for exceptionally high equity comp. Even CEOs have to treat equity as a form of compensation (duh!), and they have to trade off one against the other.
Some people here also pointed out that Amazon would rather pay RSU, but people prefer cash. We all know that Amazon outperformed the market in the last couple of years and that the RSU would have been more valuable than cash, but even with the benefit of that hindsight, most warehouse workers would still pick cash because they don't have the privilege of making long-term investments. The sad reality of today's society is that it's not that hard to make profitable long-term investments (just look at pretty much anyone's 401k) - but for the majority of the population, they just don't have enough money to put it to work.
To a certain extent, I think the worker is at least in part to blame. According to the BLS, union membership has declined from over 20% in the early 1980s to 6.3% today in the private workforce. I personally don't think it's by chance that this coincides with wage stagnation or even decline.
Union membership is much higher in public institutions (I personally have some issues with that but it's a digression) which probably un-ironically are known to be relatively stable and well paid.
And yet, workforces continually vote against unionization while these debates about pay abound. Maybe it's just the vocal minority, but I don't quite get it.
Interesting that you phrase this as the worker being to blame and not anti-union lobbying and legislation, coupled with an intense psyops campaign from the landed gentry to convince the serfs that voting for their own interests is un-american.
Yes, because I give the individual's agency and try not to infantilize them. They have a right to collective bargaining protected by the right of association (within the US at least). They choose not to wield it.
The benefits should go to whoever is responsible for the success of the company. This obviously opens up a political can of worms: the Left will say the CEO can't get anything done without the workers, the Right will say the workers can't get organized without the CEO (eg: what was Apple doing before Steve Jobs came back?). The workers can obviously leave and seek employment elsewhere. So can the CEO.
For better or worse, the data presented in the parent post indicate that the market seems to be increasingly siding with the CEO-side of the above argument. I am not really sure that there's a simple regulatory move that would negate that (eg: you can cap salaries, but CEOs make most of their money from stocks. You might be able to cap how much stock a hired CEO can own, but most of the wealthiest people like Bezos and Zuck are founders).
>The benefits should go to whoever is responsible for the success of the company. This obviously opens up a political can of worms: the Left will say the CEO can't get anything done without the workers, the Right will say the workers can't get organized without the CEO
And a pragmatism can say that all kinds of CEOs have driven companies to the ground, reducing their valuation even 1/10 what it was, and destroying their market share, and walked away just fine, with golden parachutes and even bonuses...
CEOs get more because CEOs get to determine what they get (and the board members and execs rub each other's back when it comes to their collective advantages).
It has little to do with performance and "whoever is responsible for the success of the company".
A sharper metric: it tends to do with whoever is responsible for the success of the company at the least cost to shareholders.
Imagine a company starting out. If they need you to join or they fail, and they can get you for 1% of the company, that founder is rewarded incredibly for securing you with very minor cost to the company, making them rich and you not, even if you are responsible for the success of the company. The reason being: if you’re so integral why didn’t you start your own company and keep all the equity? Why didn’t you bargain for more?
Capitalism doesn’t make any prescriptions about what should happen, it’s just a system where individuals make consensual transactions and the chips fall where they do.
In the above scenario, whether the founder “deserved” to be rich or not doesn’t matter, because you “made” them rich with your consensual transaction. As long as we are all free to be the founders or the employees, I don’t see why there should be some moral issue there. If your effort is worth more to others, either you need to haggle harder, start your own company, or you’re lying to yourself.
Everyone is a stock in capitalism, that’s all that is true. Everyone sets the value of each other’s labor and capital. If your stock isn’t doing so hot it’s because others aren’t buying it.
The problem with this position is its naivety. Are you going to say with a straight face that all potential founders are equally likely to be funded by investors purely on their probability of success, and not via false signals and stereotyping if not straight up bigotry? That there aren't credentials that can be effectively bought to gain access to that?
Markets are just markets, not oracles of unbiased merit. Making whatever the market does morally normative as you're doing is frankly, evil. They're useful tools, but that is all. They should not be a religion.
That argument sounds familiar, but it's not reflected in the latest YC stats (32% of founders come from underrepresented groups). I feel good knowing that one of the fastest career paths in the history of the world has a 32% admission rate to practically anyone anywhere in the world (again, if you're feeling down about your chances as a US citizen, spend a minute talking to one of the Nigerians in YC and your perspective with change instantly).
>I feel good knowing that one of the fastest career paths in the history of the world has a 32% admission rate to practically anyone anywhere in the world
Anybody, as long as they had a westernized upbringing, access to computers and education, and a middle class or higher status in their country...
Fair enough. But having all those things in Nigeria still puts you way behind someone who was born into a poor family in the US (out of around 200 founders I met at YC, far more of them reminded me of Garry Tan - who is awesome! - than of the Winklevoss twins). It's not ideal in either case, but some things are less ideal than others.
I was making the opposite point actually: markets ARENT moral, and what they support isn’t moral. It isn’t necessarily immoral either. They’re just systems of consensual transactions where everyone collectively decides value. The parent comment was making the point that markets should be moral, but are currently immoral. My stance is that they have nothing to do with morality.
They certainly shouldn’t be a religion, but they aren’t just “useful tools”. Not infringing on people’s freedom to make consensual decisions should be the default, not some “tool” we “allow” because it’s “useful”.
This isn’t about worshipping capitalism or markets, this about the fact that preserving individual freedom necessarily results in free markets. The core ideal is individual freedom - which is moral - free markets are just the byproduct.
> As long as we are all free to be the founders or the employees
But we're not. Much of it comes down to the simple lottery of the circumstances into which you were born.
If you have an inherited trust fund, or wealthy parents and friends to fall back on, you can take huge risks, one of which might eventually lead to a multi-million dollar payout even if several of them fail dismally in the meantime.
But if keeping a roof over your head and putting food on the table today is dependent on working two backbreaking jobs today and every day, you're not "free" to be a founder.
As someone who grew up lower middle class to poor, with parents that struggled to put food on the table for a great many years, and who dropped out of an abysmal highschool to go full time into tech at 16 - and is now in stealth mode founding a startup - while what you are saying is OFTEN true, it is never ALWAYS true.
The things I got from my parents are things many people have had - some of which; such as help buying a terrible beat up old ‘78 Dodge Van to move states to my first real job, or a relentless drive to get better, to DO better, a great many people have had. I’ve also been lucky to get into the industry when someone motivated but without credentials could get started.
I’ve had zero money from them since I started working at 16, and before that it was a minimal allowance I earned through hard work with chores. I earned the $200 to buy my first computer digging holes and repairing fences.
Don’t buy into the myth it’s not possible. It’s self defeating. Also, don’t buy into the myth it’s easy for anyone - even those from money. It will test you like nothing else will, and I’be done enough hard things over the year to know
Performance and incentive alignment. John Doe stacking pallets at the Coca Cola factory really won't produce much better top or bottom line results for the business if you offer him a stock bonus. His forklift only drives so fast, and he plays a very minute part in the direction of the business. The CEO on the other hand can have a huge impact, and it's why shareholders choose and vote on certain incentives and bonuses.
But more importantly, in other businesses this type of comp is certainly offered. If you work in a small startup in any position, you probably get stock options, because your performance on a 10 or 20 person team probably does have real noticeable and measurable impact on the business's success.
> John Doe stacking pallets at the Coca Cola factory really won't produce much better top or bottom line results for the business if you offer him a stock bonus. His forklift only drives so fast.
A counter-perspective would be that John Doe becomes incentivized to improve efficiency and innovate in the process. People are not machines or primitive animals. Humans are capable of creative problem-solving.
Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back.
> Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back.
While pedantically true, in reality this is generally not the case. As long as you are still employed by the company that granted you the options, you do not have to exercise them ('invest') until you wish to sell them. What this means in practice is that nary a single dollar ever comes out of your pocket.
> As long as you are still employed by the company that granted you the options
I think that's the key, which makes them fundamentally different. So, in the _very_ narrow scenario in which you happen to join a company that will IPO and that you're there from pre-IPO until post-IPO, yes -- they're nearly the same; you really just benefit from the difference of the strike price and public price. If you've spent time at the company, vested your options, and want to leave for just about any reason, it's nothing at all the same. I posit that a vast majority of startup departures fall under the latter scenario.
> A counter-perspective would be that John Doe becomes incentivized to improve efficiency and innovate in the process.
But the best-case percentage improvement in the overall company bottom line due to his innovations as a fork lift driver is still very, very small. To make it bigger, John Doe needs to stop being a fork lift driver and move to some other position with more leverage. And a person who really does have the ability to "improve efficiency and innovate" enough to make investors notice is probably better off quitting their current job and starting a startup.
> stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back.
My experience is that virtually all employees of large corporations who get stock options exercise them for direct cash, meaning they never actually own the stock; they "buy" it and then "sell" it immediately and take the cash (in practice whatever financial institution is running the company's stock option program does all this automatically and just sends the employee a check and a 1099 form for when they file their taxes). So virtually no employees actually take the opportunity to invest in the company. They just take the additional immediate income.
>But the best-case percentage improvement in the overall company bottom line due to his innovations as a fork lift driver is still very, very small
Depends on whether you count sharing his "this is a better way to use a fork-lift" around the company as best-practice as being due to his innovation or due to the manager who made it best practice.
If you count that as his innovation, then it isn't small if there are a lot of other people doing his job. If Amazon could use fork-lifts in their warehouses 10% more efficiently, they'd save an enormous amount of money.
> Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back.
As a technicality that's true, but irrelevant in practice. Employees receiving options are nearly always going to do a same day sale where the option is excercised and immediately sold and you get the difference. No need to put any money in.
> Note: stock options are not stocks. You're not given a share in the company, you're given the opportunity to invest in the company. You have to put money in to _potentially_ get money back.
Stock options and shares are pretty much equivalent. If the stock price goes up the option goes up (by a ratio). You don’t have to put your own money in, i.e you get 100 options every quarter, you sell 50 of them to get the money to exercise the other 50.
> i.e you get 100 options every quarter, you sell 50 of them to get the money to exercise the other 50.
And lose the opportunity at longer-term gains for the ability to afford the short-term cost. They're really not equivalent at all. I know they're billed that way, but there are very real reasons startups forgo IPO for so long and remain on the options track in the meantime. Startups can offer stocks and often choose not to.
But why not give them stock options as well? Why shouldn't all the people employed by the company share in its success? Even if it's the CEO's decision which determines the direction the company will go, it's all the people implementing that plan that actually cause the company to make money and succeed.
And it's not like a top down plan is the key. Having all the people in the company feel interested in and empowered to fix problems they see is the key to a successful organization these day. A genuine commitment to "people are valuable" is key to getting people's interest in fixing problems.
A lot of employee compensation does come from diluting Wall Street. Until recently, Tesla was operating at a loss. During that time the workers were paid by diluting equity.
I don't think "upper management comp has exploded only because they invented an entirely new way of compensating themselves" is the get-out-of-jail-free card you seem to think it is.
This distinction seems meaningless. At the end of the day, the stockholders own the business. They are paying the salaries of both the CEO and the pallet worker, regardless if it comes in the form of cash or stock.
Also wages don't always come from cashflow. Amazon lost money for its first X years. Salaries and everything else were covered by investor cash.
First, when PG compare wealth of rich persons, he does not just compare salaries but the total wealth that come from the total of incomes.
Second, there is something not to forget about the stocks:
It is a "right" to the proportional part of all the future financial results of the company.
.
So, let's forget about inflation and consider equivalent dollars:
Imagine you have a 30 employees company, that will generate 1000$ of income. Of these 1000$, there is a 50% margin, so it remains 500$ of benefit.
.
In 1965:
- Boss will have a salary of 200$
- 30 employees total wages of 300$ (so 10$ per person)
- Net result of 0$ (total of stocks, going to the boss anyway)
.
In 2017, same company and conditions:
- Boss will have a salary of 50$
- 30 employees total wages of 19,23$ (so 0,64$ per person)
- Net result of 430,77$
The net result belongs to Boss + other shareholders.
-> boss get: 150$
-> other shareholders get: 280,77$
(So in result 200$ for the boss, 0,64$ per employee, 312-1 ratio)
.
Some people will say that the stocks value, based on valuation, does not correspond to 1 year of revenue.
So, for example a 100$ stocks might correspond to an expectation of 10 years of 10$ benefit.
But, on the previous article the 312-1 ratio corresponds to a year compensation, that is repeated every year. So it means that as a boss, you will also get new stocks or bigger capital for your stock every year to have this ratio maintained.
A more useful longterm metric is total compensation CEO:worker ratio. Stating the salary ratios are the same isn't a compelling argument since that's only one factor in the total package.
The guardian article and the commenter I replied to are pointing out the difference between 1965 and 2020 as if it's a problem.
A problem is defined as something that has a negative impact on people. My analysis points out that the only people that modern CEO pay has a negative impact on is the shareholders.
I illustrated that it makes literally no difference to your average floor worker whether the CEO gets $0 or $20 million in stock comp.
If that worker has a pension or 401k, then it does matter. The fleecing isn't directly from him, but aggregate it by "managerial class" and "middle class" and you see the high $ managerial cash flows are directly at the expense of the middle class and retirement of the middle class. Thru in some tax policy, and you can see it is also taking money away from education of young middle class folks, and investment in communal things like roads and public health and so on.
Money is money. If the business used to have it and now the CEO has it then the business gave it to him.
There's no class of equity that wasn't originally created and owned by the business so that's where the money comes from.
And lest there be any confusion, all the companies we're talking about do massive stock buy backs so it's not even hypothetical, they spend billions of dollars to prop up the price of stocks and the executives get it.
Both stock comp and cash comp are the same from the shareholders view. They are not the same from the employees view. A higher cash comp for CEOs may well result in lower employee pay, a higher stock comp will not.
> A higher cash comp for CEOs may well result in lower employee pay, a higher stock comp will not.
Why? The whole point of publicly traded stock is that it's, like traded, in public. That means it's freely exchanged for cash in a matter of seconds.
If the company can use it to compensate one person it can use it to compensate another person.
What's your theory here, is it that the company has a resource that can generate compensation without any consequence to the company's finances, but it's only possible to give that compensation to certain people?
No. There is really no difference whether CEO is paid in cash or in stock, regarding the negative impact of the pay.
Scenario 1: CEO get paid $50 million in stock.
Scenario 2: CEO get paid $50 million in cash. And then the company raise $50 million from stock market, so that it will have the same amount of cash as scenario 1.
Or they may not be able to raise cash, or they may be a private company without access to the stock market, or they may have bylaws preventing such a thing.
Either way, the employee is not made worse off because the CEO collects a fat stack of options at the expense of the shareholder.
> Either way, the employee is not made worse off because the CEO collects a fat stack of options at the expense of the shareholder.
Of course the employees are made worse off by that: If the shareholders didn't give all that money to the CEO, they could give it to the other employees in stead and be no worse off themselves. The CEO uses up all the available potential for employee compensation at the expense of everyone else.
What you clearly have here is a principal/agent problem.
The way it works is like this:
1) Money is invested in companies by a diffuse set of investors. That diffuse group is unified by people responsible for managing money.
2) They invest it with the intention of having it go into the productive activities of a business, such as staff and plant and equipment or technology or software or marketing. That money when received by the business is managed by the company management.
3) What is actually happening is that each of these gatekeepers is taking as much as they can get away with. It really isn't all that much more complicated than that.
They'll concoct increasingly complex rationalizations and call it "performance" and launch decades of public relations (like the article we're all commenting on) but at the end of the day the people who should be tasked with fairly apportioning resources in a common enterprise are taking more and more of it for themselves.
The solution is to stop letting them get away with it.
stock based compensation exists for C-level employees because it allows them to reduce their tax burden by taking their income via long term capital gains. It's still income!
> If there is outrage over CEO pay, it doesn't make sense to come from the unions or left politicians, it should be coming from activist hedge fund billionaires, which it does.
One doesn't have to be a shareholder or even a direct stakeholder in a specific company to claim the right to outrage over this growing inequality in pay.
The question is whether anyone is worse off because of it, and my comment points out that contrary to popular rhetoric, if anyone is getting hurt by it, it's not the employees.
If you think nobody is getting hurt by it, it's not a problem, it's just envy.
Yes, jealousy and envy that other people do in fact make more money than I do. This is not a real societal problem, it's a personal and human nature problem.
What does "diluting wall street" mean? How is it different from "taking money from the business owners"? If I'm CEO at a company what difference does it make to me if I'm compensated by salary or shares/bonuses? If I'm an employee at a company what difference does it make to me if the CEO is compensated by salary or shares/bonus3s? If I'm a shareholder in a company what difference does it make to me if the CEO is compensated by salary or shares/bonuses?
The distinction between salary and bonus compensation is irrelevant outside of possibly some minor tax impacts.
And in that context, the article does speak to this point.
>the companies themselves are more valuable, because newly founded companies grow faster than they used to.
The added reliance on stock-based compensation combined with higher valuations leads to higher CEO salaries.
This isn't making a case one way or the other about whether this is a fair or sustainable model, just meant to bolster your point about why greater context is needed when discussing executive salaries as a multiple of the individual employee.
I'm not going to name companies, but I think this is actually not quite right. While I agree with your broader point, in a lot of larger legacy companies the heavy use of buybacks to buoy the stock price, which in turn benefits executing compensation, directly plays into whether that cash is available to use for employee compensation.
> But these don't come from the cashflow of the business like wages and salary. They come from diluting Wall Street.
How are these different? If the business pays its employees $X more, that money doesn't just appear out of nowhere. It comes out of other areas of the business -- such as capex, M&A, or retained profits. All of these things contribute directly to the value of the shares held by Wall Street, whether directly (in the case of a dividend or share buyback) or indirectly by growing the business. Likewise, dilution means that an existing shareholder benefits less from $X worth of these things, and therefore should demand an increase in X (or a reduced stock price).
TLDR: CEOs are wildly better paid nowadays, compared to decades ago, via mechanism X, as opposed to mechanism Y. Both X and Y ultimately deliver money.
And the question is whether that's a problem or not, and if so, who is it a problem for. My comment illustrates that modern CEO pay does not hurt the average employee in any way, only the shareholders.
Either you don't think modern CEO pay is a problem, or you think it's a problem because it makes shareholders poorer. It doesn't impact the rest of the employees or reduce their incomes.
I find the notion that paying a CEO 321 times the salary of a worker in cash to be problematic for society while paying the CEO 321 the salary of a worker in stock options/grants is not not problematic to society to be completely unconvincing. Both illustrate to me the historic and increasing inequality in distribution of income and wealth. Asking me to ignore that divide and instead sympathize with someone like Carl Icahn is obscene in a humorous way.
Why is it a problem then? Your personal intuitions about how much any human should earn in a given year sounds less like a convincing argument to me and more like envy.
I honestly think the Ayn Rand crowd are missing a few circuits. Well, that's a crude way of putting it, but let's just say it's like color blindness but for ethics. No amount of oratory will make a color-blind person see red. And that's just the way it is.
Those "circuits" play an important role in regulating how groups behave. Lacking them, you open the door for extremely bad things to happen. This is why libertarianism and related ideologies should be treated with extreme caution at best.
No, you're ignoring where he answered the point. You're not answering his argument, you're trying to pretend that he never made it.
I'll admit I had to look fairly hard to find where he did, but he did in fact answer that. (Not saying that I necessarily agree with his answer, but he gave it. Refute it rather than saying he's dodging answering.)
This, many companies even make this quite explicit by issuing stock to employees and buying back the same number of shares, in order to pay with cash flow rather than dilution.
ok. But then they're using cash from the business to get the share count back down to prior levels, and it's still a net loss for Icahn. There are only 100 percents. If the management team gets more ownership through dilution, it means Carl Icahn owns less.
But the employees don't gain anything. You've modeled this is a fight between wall street and the CEO, entirely forgetting about employees who get no (or trivial) stock compensation.
Hypothetically, a company could pay 100M in stock to the CEO, and then issue 100M in stock buybacks to the CEO. This is functionally equivalent to paying the CEO 100M, but it wouldn't count in your salary numbers. And notably, both of these, stock buybacks and CEO pay, dilute wallstreet in the same way. But neither benefits employees.
To use the JP morgan example, (and this is roughly equivalent for Google), the company could stop stock buybacks, and instead pay every employee an additional $150,000.
That results in the CEO and wall street getting less money, and employees getting more.
Walmart and Coke modulate the share price in other ways, so stock buybacks won't tell a particularly interesting story.
Imagine looking at the 5 deadliest plane crashes in 1970 and comparing them to the 5 deadliest plane crashes in 2010. You find that more people died in these crashes in 2010 than 1970. You wouldn't conclude that air travel is now less safe than in the 70s, would you?
There was a lot more air travel in 2010 compared to 1970. The 5 deadliest flights makes up a much smaller portion of all flights in 2010 than it did in 1970. It's a misleading comparison. You should instead look at the number of deaths per passenger or per passenger mile.
You have to think of the same point when looking at the "top 350 companies in the USA in 1965 vs 2017".
Are the companies the same size in 2017? Do CEOs have the same amount of responsibility in 2017? Is the complexity of managing the company the same in 2017 as it was in 1965? What percentage of all companies do these top 350 make up?
These are all factors you might want to take into account when looking at a specific number of top companies.
I'd be curious to know what the numbers would look like if they looked at the top 1% or top 0.1% of companies in the US instead. Or perhaps even the average and median companies. My guess is that those stats wouldn't be politically as useful. I imagine that you'd still see a growing disparity, but a smaller one.
Not entirely sure why you're being downvoted but I think these are at least relevant considerations.
There seems to be a lot of contradictory academic claims about CEO compensation so I thought referencing a meta-analysis would be the most useful[1]. If company size is a proxy for your complexity claim, that seems to be much more informative regarding executive pay. Actual company performance was only about 5% predictive, compared to 40% for firm size. It seems like the heuristic I've heard about the "best way to get a raise is to grow your department not necessarily grow your profit" may have a seed of truth to it.
If you run a company that's 10 times as big, why is it surprising that you're getting 10 times the compensation? You'd need to compare to similarly sized companies today. Instead, they look at the top 350 companies now and then.
The workers that produce 10 times as much today (because of newer technologies, techniques, etc.) don't get paid 10 times as much.
Worker productivity has continued to climb, decade after decade, but inflation-adjusted worker pay is basically flat over the same time period.
This is a myth, and if you look into the statistics of the people pushing this Big Lie, you'll find that they cheat and use different inflation metrics for productivity and for compensation.
They probably won't deliver but I will. Here's a top hit "The Productivity–Pay Gap" [0], what I was talking about, from the Economic Policy Institute, a pro-worker, left-leaning think tank [1].
The top google hit for the "myth" is "Debunking a Myth in 1 Chart: Wage & Productivity Growth" [2] from the American Action Forum, a conservative think tank affiliated with a conservative, Republican advocacy group [3]. Basically it claims the original report compared data that aren't comparable. There's also "Why the gap between worker pay and productivity might be a myth" [4] from the American Enterprise Institute, a conservative think tank [5].
I didn't read them closely but part of the methodology in the AEI article used salary and benefits instead of just salary to draw a compensation line closer to productivity. Given that health care is such a huge part of the cost of those benefits, maybe the claim should be that company shareholders are sharing the wealth with workers but that health care costs are so out of control it's eating up all the workers' gains.
EPI response to criticisms, "Understanding the Historic Divergence Between Productivity and a Typical Worker’s Pay" [6].
but there is just 1 CEO. A 10x sized company has 10x the resources across the board. But it doesn't have 10x _per employee_. That's why the top of the pyramid scales away from the bottom ...
> taken from the average employee cut of the profits
There's never been any such thing. In the US, salaries have always been determined by the supply and demand of skills, they've never been linked to profitability or some share of it.
And stock options and stock grants are relatively new (not really a thing in 1960), so if anything the actual employee share of profits -- since the value of stock is future profits discounted -- has gone up.
The idea that CEO compensation is somehow "at the expense of" employee compensation is a pure myth. If CEO's were paid less, the extra money would flow to shareholders, not employees.
And the shareholders are often held by pension or 401k funds for the employee retirements. Certainly in aggregate, and all the companies have seemed to decide that this fleecing is a good thing all at once.
With respect to tech companies, the compensation ratio is a good starter to get people to think about wealth inequality but as tool or metric for public policy, it is useless.
Here's my intuition on that:
- it doesn't answer how much of the wealth was created (endogenous) or taken (zero sum): tech companies can simultaneously induce new demand and preferences while replacing older companies
- it doesn't answer whether the average worker or society as a whole is better or worse with a lower or higher compensation ratio, because by averaging you lose nuance; for example, are more or less people employed by tech companies now then by the companies that were replaced? are the worker salaries themselves higher or lower compared previous worker salaries?
For me, higher compensation ratios in _tech_ companies is good for people in tech: tech requires less labor for inch of market cap, while that labor is compensated higher. Whether or not that's an overall good for society though, idk.
That doesn't have a lot to do with tech companies. First, the ratio compares CEO compensation with stock options to worker wages (without stock options), whereas many of the workers at tech companies are also getting stock options.
Second, pg is talking about the Forbes 100 where the founders of tech companies are represented. The founders didn't get their stock by being granted it as compensation in stock options, they got it by virtue of founding the company. Whatever they have left, they have because that's what they were able to keep and not sell or get diluted.
For example, Bezos' wealth is mostly due to the fact that he owns ~13% of Amazon. He didn't get that as CEO compensation, he got it by founding the company.
Yeah much of the innovation has been in ways to elude labor laws (Uber) or ways to get rid of labor unions (moving production to China) or ways to hack tax laws (stock buybacks, shell companies, always showing zero profit on the balance sheet). That’s where the profit comes from.
Exactly. And I also think looking at money only may not go far enough. At the end of the day what matters is the amount of resources that the society allow a person to enjoy during her/his life, from food to home ownership to work opportunities, to access to vaccine.
It's pretty clear that a new class of people (founders, VCs and people close to them) are capturing a larger part of the resources today while the majority gets a decreasing share of that. And we should all be working at finding way to reverse that trend.
What you are missing is that the resources in the world that matter are bounded. So if a minority is creating most of the value at scale, they will be able to redirect most of the resources to themselves. This drives the increase in inequality.
That is why thinking purely in financial terms is misleading. It's not because everyone has more $$$ in the bank that everyone is better off.
Is it really the case that Jeff Bezos is consuming a million times more finite resources than someone whose net worth is $100k? It seems to me like what you buy with virtually infinite money is status like hanging out or sleeping with celebrities, a seat in important rooms, and assets. There is only so much additional jet fuel and human labor a multi-billionaire can consume.
It is a fair point if the focus is on billionaires (Bezos, Zuck,...). The proportion of resources they consume is well below their wealth. They may even contribute positively to society through charitable causes.
The real issue is that tech/startup founders and workers who, while less rich, accumulate more wealth at scale compare to the rest of society. And given their number, I'm afraid this will have a real impact by greatly increasing inequality. That would be ok if the other part of the population would also be able to live better. But I do not think it will be the case.
I think there’s an interesting and fair argument to make that one negative consequence of billionaires is entire otherwise unproductive economic sectors that exist for no reason other than their vanity (mega yachts, Swiss boarding schools, high fashion, doomsday bunkers). That is a different argument than one about resource hoarding though — a Louis bag doesn’t take much in the way of resources, just a single python in the worst case!
>one negative consequence of billionaires is entire otherwise unproductive economic sectors that exist for no reason other than their vanity
This isn't just relegated to billionaires. Depending on how you define "consumption", up to 70% of the U.S. economy is consumer driven. Now I wouldn't call all this "unproductive" but it's probably selectively unfair to claim only the uber-rich are spending money on items they don't need.
I respectfully but also totally disagree. Value of money in particular is not intrinsic, it comes directly from the ability to redirect resource today (buy a home) and the future (be able to retire comfortably).
People made rich by Google will absolutely be able to redirect more resources to themselves in a world of bounded resources.
I think a lot of founders are idealistic about it and refuse to believe that at scale the start up mentality will increase inequalities. That's PG's point acutally, see the last sentence of his essay: it will. But he doesn't care. I do.
While you're not wrong, I think what you're missing is an important qualifier. Sometimes they are creating perceived value that doesn't materialize. Meaning the value is at least part speculation, rather than realized value.
E.g., did Broadcast.com really create nearly $6B in value just because that's what it was speculatively valued at when purchased? I'd argue no, unless you think the "greater fool theory" is the correct way to measure value rather than intrinsic worth.
If you've got a superpower that enables you to determine the "real" value of something rather than its "perceived" value, you can use it to become the richest man in the world.
Intrinsic value can be measured, albeit imperfectly. Equity, as an example, is measuring real assets as opposed to some pie-in-the-sky assumption of future worth built on a foundation of hopes and dreams. Value investors have in fact gotten rich this way for a long time.
No, it can't. It can only be guessed at. Everybody knows that "book" value isn't terribly reliable.
> Value investors have in fact gotten rich
Here's a simple test for your theory. You're sure you're right. If so, you have invested in "undervalued" stocks and gotten rich. If you haven't invested based on your theory, are you sure you're right?
I have actually invested a substantial (for me) portion this way. It’s performed better on both an absolute and risk-adjusted basis than either the additional speculative growth or index strategies I’ve employed.
I’d also avoid absolute terms like “everybody”, “always”, etc. because they’re easily falsifiable
I appreciate the advice. While I’ve only been investing this way for about 11-12 years, back testing has been statistically valid to the early 2000s (limited by the availability of index funds for comparison). You’re right though, who knows if it’ll work in 30 years. There’s some evidence that it may based on trends in institutional investing. That enough uncertainty to avoid putting all my eggs in that basket.
I got hammered really hard by the 2000 crash. Down something like 75%. I thought I was smart by not investing in bubble stocks. But the secondary die-off caught me. It was a bitter pill.
It’s certainly possible something similar can happen to me. Part of this is mitigated, I think, by the fact that the overall volatility is reduced. That’s one of the pitfalls I’ve seen in contrast to the growth plays not based on intrinsic value. I think it’s the main reason the risk-adjusted returns are better but time will tell. Black swan events always seem obvious only in hindsight.
I don't think that the top 100 richest people is a good dataset. You can be extremely rich without making it anywhere near that list.
While a lot of those top 100 people made it to that list by starting companies, I'm curious how many of them did so by leveraging family or inherited wealth.
There is a pretty low bar for inherited wealth. Simply having a family who is able to support you if everything goes pair shaped (maybe as little as letting you live in your childhood bedroom for little or no rent) gives you a huge advantage over someone who isn't in that position.
Having parents who are able to lend / invest / gift modest sums of money is yet another step up the ladder.
All the way up to having parents with business / political contacts in the industry you are trying to move into.
I started working full time at 15 to keep the roof over our families head after my mothers cancer diagnosis. Until the early death of both my parents I had an anti-safety net, I can vouch that people underestimate the soul crushing nature of real poverty. My own congenital heart defects cost me many surgeries, procedures and money. Thank goodness for medicaid for children, I would probably be dead without it.
I have fought without connections or degree to hit 1% in earnings for my age bracket in my late 20s, but the lack of wealth, the lack of security means developing ideas requiring runway and capital is nearly impossible.
Struggling and succeeding through the financial equivalent of having you head held underwater by life is very very different than even a lower middle class upbringing.
Thank goodness software development exists, it has the closest thing to effectively 0 signaling/gatekeeping to a very good income.
I'd still kill for a couple years of runway and the money to hire two or three devs.
Speaking as someone with a not dissimilar background to yourself, and happening to have friends in similar circumstances.
You might want to consider what it is, exactly, that you want out of your career.
You already are in a position to give your children a 10x better life, if that’s something that drives you (this is a common denominator for a lot of people).
The stress of chasing the 100x and the fear of the 0x, without connections and an infinite runway, might make you a 10x worse partner, parent, friend, etc. and you end up losing the things you were trying to secure.
Again I don’t know you or what drives you, but just wanted to share this idea in case you hadn’t considered it before.
Escaping poverty into 1% of income is a huge accomplishment that can never be diminished, from my humble armchair you don’t need to prove anything more to people. You’ve made it.
The heart defect thing definitely puts me in a weird psychological bucket when it comes to underlying drive/motivation. I've only met one adult that had similar feelings/views and they had childhood multiple recurrence leukemia.
I have some concepts that I want to try to bring into the world.
One is a first principles notes/app platform I've been using for personal use that upends how apps and data relate. The goal is to reduce context switching costs to nearly 0 and reduce cognitive overhead for 80% of "life things".
One is a social software approach to ending involuntary homelessness that is invasive enough that it needs tons of homelessness education for the general public and buy in from existing homelessness resources. I want to upend charitable giving by combatting the learned helplessness society inculcates from childhood.. because we perceive it as an intractable problem.
Another is a platform for developers to "never" interview again and for high signal employed developers to capture 50/60% of profits going towards recruiters (piggy backing off my work with speaking talent and how speaker bureaus work.)
I'd like to take an honest, well funded stab at those three things before I die, the notes app is the first on the docket because it's the easiest and I'm working my way there via bootstrapping atm because I'm weak at fundraising. Succeed or fail I want to birth these things into the world you know? Do my damndest before I die, that's really it.
I definitely relate to wanting to birth projects like this into the world! The ending-involuntary-homelessness one sounds particularly interesting to me, personally. I'd love to hear more about it.
A follow-up question, is there a reason you want the stab to be well-funded? As opposed to a FOSS, nominal-fee-for-hosting-bootstrap?
From my limited perspective, the worlds' most successful technologies, in terms of (value created) - (costs incurred for each impacted party) tends to follow the FOSS/open model.
Again, limited perspective, but having observed some "well-funded" things from the inside: being well-funded comes with the cost of an incessant demand for outsized and near-term returns.
This demand is, quite frequently, at-odds with net value creation. In fact, it urges your project to become re-distributive: sucking money from bottom-to-top, either directly from the global poor, or indirectly, through government subsidies funded by taxes that are paid by those who need an income to survive (86% of federal revenue comes from individual income tax + payroll taxes, in the US in 2019. 7% from corporations. https://www.taxpolicycenter.org/briefing-book/what-are-sourc...).
The redistribution passes through you, the founder, near the top, which is nice for you because you get to keep some of it, but it doesn't change the net value equation.
All this to say, if your goal is to create real, enduring value, you might be on the right path already, today!
I agree with what you are saying, another thought I have, which could be incorrect, is that there is a reason that so many second startup attempts by founders are successful. I think it has to do with general experience and many other things but one of the big ones is that a first startup that does "modestly" well or has a decent exit can setup a founder in a place where they have more breathing room financially for the next, a 20k chunk of cash gives a lot of breathing room for savings/disaster that takes stress off.
I almost had it with my talent booking agency (which was bootstrapped over nearly 4 years), and then the money we were making went to a co-founders head and he blew up the company after developing a coke/sex addiction that unhinged his mental health, he couldn't handle the money and the access it gave him and that was at ~50k mrr.... it was like a whole world opened briefly opened up for me before getting crushed.
For me personally I experienced that having an income source not dependent on personal labor has a very strong benefit for being able to focus on execution and setting the company up strategically, it also let me hire devs who I trusted and had a compounding effect on speed of development. I like to think I am a good dev, but I'm not as good as 3-4 good devs, I can't afford that hiring in my current state.
For the homelessness thing in particular, well funded also means well connected, it means you have buy in and backers and vested people going to bat for you. It means I don't have to do all the dev on my own.
> Another is a platform for developers to "never" interview again and for high signal employed developers to capture 50/60% of profits going towards recruiters (piggy backing off my work with speaking talent and how speaker bureaus work.)
That's interesting. You mean to get rid of "Coding Interviews?"
Get rid of coding interviews for devs not already employed is one aspect.
Lead gen for filling a companies open roles either 1. Doesn't get engagement from the employed or 2. Extracts value from the already employed with little career return. It distracts from core competency.
Software engineers path to self monetization is basically be a dev and get paid for labor or start an agency (which sucks and changes what your work actually is), but there is a third path that is pretty well trod that most people haven't experienced (and no devs really), that lets dev write code like they love and still reap most of the profit from placement without an active time sink.
It's basically bringing what Zig Zigler originally modeled with his company and current speaker bureaus do for "hot" talent to the developer world.
Yeah; the ways that small differences lead to big changes in outcomes is super interesting.
I was lucky to live in a state where my college tuition was mostly paid for, and with a parent who, despite making very little (worked in the school system), was still able to help support me with a stable home and to help cover some of the gaps (like living on campus). I was very lucky.
I realized later on the advantages other people had though when talking with people; a work colleague whose parents, though not rich, were far better off than mine, and had equipped her with life skills I and my family simply did not have. It was from her I learned about the company 401k, and investing in general, and caused me to realize that I should be investing money, not saving it.
Anecdotal. In Africa my observation is that people who grew up poor are more driven than the ones who grew up middle class. Kids of middle class parents often can not tough it out and many tend to be spoilt. Many of my middle class contemporaries live below the standard of living they grew up in. They are less successful than their parents.
I'd imagine a good number of those new to the top 100 were born into families in the top 1000. Sure they technically built their own tech company instead of inheriting their position, but they did so starting with a small 10M "loan" from their parents and already connected with the movers and shakers of Silicon Valley.
>Having parents who are able to lend / invest / gift modest sums of money is yet another step up the ladder.
>All the way up to having parents with business / political contacts in the industry you are trying to move into.
Well that and understanding how to leverage those contacts. I have people in my social circle that could serve as contacts, but the idea of asking for that makes me extremely uncomfortable. And if I somehow forced myself to do it, it would still end up in a "what now" situation because it's not really clear what next steps are. I think the kind of people who know how to operate in those circles have a skillset that's not taught in a CS/EE curriculum.
Also, from personal experience people with those support networks almost always say 'And I did it all on my own!', though that's almost never the case.
They don't see borrowing money or using connections as a favor. I've also heard them say 'If I was born today to a broke family I'd still be rich by 30! I'm a hustler!'
These were my own family members and work colleagues, as well as an ex-girlfriend or two.
I agree. A rich individual can give their child $0 in inheritance but one introduction, referral or diner party later and they could be set for life. In between this scenario, and the other (handed money) there are countless scenarios that make conclusions very cloudy.
Shouldn't this be an incentive for parents everywhere to always be networking and upholding their social standing so they can pass those benefits down to their children?
Don't misinterpret what the parent is saying. It's not "one introduction will", it's "one introduction could". If you are wealthy and connected enough there are many folks who will gladly ensure your children are taken care of, if for no other reason than to be connected to the parent/family.
An introduction might lead to a job, apprenticeship, or internship. It might lead to a partnership somewhere or the opportunity to invest in some way you would not normally have access to. Or it could open the door to further introductions and connections. Network effects are powerful things, and being introduced to the right node in the social graph can make all the difference.
Add to it that that one investment requires the capital to invest. I have no connections outside of my career bubble and those people are seemingly in the same class as I am. How would I ever supersede my class?...or should I even aspire to do so? It seems unlikely and in many ways out of my control. This is coming from someone who believes in a strong work ethic and increasing access to risk (good or bad).
To make it on that list, you have to have succeeded at such an extreme outlier level that almost by definition almost everything had to have gone perfectly.
That takes a lot of luck and advantages, such as family advantages. I'm not saying that detracts from what they accomplished, but they can't take all the credit either and it's not reproducible.
It should detract from what their accomplishments appear to be though. Our society worships the ultra rich mostly without recognition of societies own contribution.
Where would Amazon be without pre-existing innovation and infrastructure that the public paid for? Systems like roads, education, technologies, safe working environments, etc.
We tend to regard these uber rich as though their success happened in a vacuum and all of those billions are justified.
(I’m not accusing the rich themselves of necessarily promoting or having this view point. That would vary by case. Just that it’s society’s view in general.)
Third-party sites post rankings showing the best player performance on various metrics worldwide across thousands of boss fights
There's often some choice you can make for your character where it works out like "10% chance of doing 5x as well, 90% chance of doing half as well", and the entire leaderboard is filled with people who lucked out
I'd agree - I have seen a lot of wealthy family children completely underperform relative to this bar. I'd say it's the exception and far from the norm that wealthy families to produce exceptional children.
Exception to the statement being wealth taken from your countries people through corruption (like Putin, Jinping etc).
I'd be curious to see if the rate of "exceptional" children is higher for "exceptional" families than "unexceptional" families since by definition it's going to be far from the norm regardless. But the rate could still be 2x or 3x (I don't think it is, but it's a possibility). There's a lot of focus on the exceptional but I think where having a very rich or wealthy family helps is less in a much bigger upside, which certainly exists in some degree, but in a much higher floor.
If you are born into a single-income, lower-middle class family, your floor is poverty and even literally starving to death. If you're born into a family of two high-income individuals, the odds of you living your adult life in poverty are vanishingly small and your floor is probably something closer to a ho-hum middle/upper-middle life. If you're born into a family where one of your parents is the CEO of a publicly traded company and makes tens of millions a year, your floor is probably a $150k/yr lower management job in some sector-adjacent company that your parents had to call in a bunch of favors to get you.
It's not so much that coming from an exceptional family increases the "genetic" odds of exceptionality, but it provides safety and security that allows you to take risks someone waiting tables at night to pay for college wouldn't be able to, which coupled with the natural contacts and associations you'll have, gives you a huge advantage.
Oh completely agree -- wealth raises the floor, not the ceiling.
I'm not discounting that at all (and I recognize all the advantages that that class receives), rather pointing that generational wealth is normally created once, not multiple times in a family. Probably as a function of environment and not having the same drive - but thats merely speculation.
People should read how the Forbes 400 list got started. It was extremely difficult to get off the ground. It's hard to know who has the most wealth -- it isn't public information, after all. Those who become wealthy via public markets have their ownership disclosed, so we can place a minimum value on their assets, and as a proxy, their total net worth.
The changes to the list over the decades could be more a function of wealth disclosure, which are mandated by the regulatory requirements of equity markets (e.g., we can all look up Zuckerberg's percentage ownership of Facebook).
#1 was born to a teenage mom (and an alcoholic/deadbeat dad). Since she was still in high school, I assume she was probably in the bottom quintile of income.
#7 was given up by his mother and adopted.
#9 was born in the Soviet Union. It's likely his family's income (in rubles) was in the bottom quintile of the United States at the time. (Sources I've found suggest that the top 1% income cutoff in the SU was around 250 rubles per month, which is less than the $5,000--$7,500 cutoff for the bottom quintile in the US at the time.)
#13 was born in Yemen before his family moved backed to India. One could probably assume that he was in the bottom quintile by US standards, because even today, the top 10% cutoff in India is below the bottom 10% in the United States.
#18 was born in China and I have little doubt that he was far below the bottom quintile cutoff for the United States growing up.
You might think it's a stretch to call Bezos's family "bottom quintile", but saying that billionaires Zhong Shanshan, Xu Jiayin, or Qin Yinglin weren't is hard.
When I look at that list, Jeff Bezos is #1. The first woman on the list is at #10 and inherited her wealth. Are you looking at a different list?
Also, people born in foreign countries had completely different experiences, and more importantly, what is relevant is if they were in the bottom quintile in their own country.
If you're super rich in your own country then you have a lot of opportunity. For example Sergey Brin may have been born in Russia, but his family managed to come to the US when he was a kid and he was clearly middle class as a teen.
> When I look at that list, Jeff Bezos is #1. The first woman on the list is at #10 and inherited her wealth. Are you looking at a different list?
I think the comment does refer to Jeff Bezos. Here is the relevant section from Wikipedia:
"At the time of his birth, his mother was a 17-year-old high school student and his father was 19.[17] After completing high school despite challenging conditions, Jacklyn attended night school while bringing baby Jeff along.[18]"
IMO a 17 year old attending night school is pretty low in terms of economic status.
Also I am sure there are other cases but I know about #17 (Mukesh Ambani) and his father was a petrol bunk attendant - pretty low down even by Indian standards.
Ok so Bezos was born in a low quintile, but then jumped when his mom married a wealthy person when he was 4. He effectively had the same advantages of a rich person through his adopted father's success.
Ok but he was wealthy when Bezos was a child. The point is, for all intents and purposes, Bezos grew up wealthy and had the support of a wealthy family when he went out on his own. He famously got a "small" $250,000 investment from his parents to start Amazon.
https://en.wikipedia.org/wiki/Xu_Jiayin "Xu Jiayin was born to a rural family in Jutaigang Village, ... His father is a retired soldier who participated in the Second Sino-Japanese War in the 1930s and 1940s. After the establishment of the Communist State, he became a warehouseman in his home-village. Xu's mother died of sepsis when he was 8 months old. He was raised by his paternal grandmother. After high school, he worked in a cement product factory for a few days and then worked for two years at home."
In 1982, when Qin was in high school, his father saved up money and bought 20 pigs, but all but one died. This motivated Qin to study pig farming at university, so that he could help people in his village earn money raising pigs."
I'm not sure billionaires like Eric Yuan ("collected construction scraps to recycle copper for cash"), Jay Chaudhry ("Chaudhry was born in Panoh, a Himalayan village without running water"), Jan Koum ("When he was living on welfare, Jan Koum's family collected food stamps a couple of blocks"), Isaac Perlmutter ("He emigrated to America, arriving in New York City with only $250"), and Romesh Wadhwani ("He contracted polio at age of 2") count as "super rich in your own country" that would thus "have a lot of opportunity".
Being in the bottom quintile for the US is not very relevant if you're not from the US. What matters far more is your position within your own society, as that's what gives you the safety net, connections, education, etc.
I think this is misleading since Jeff Bezos’ adoptive father (adopted when he was 4) was a petroleum engineer, and his grandfather was a director in the Atomic Energy Commission according to Wikipedia.
Here's a chart that tries to show the decline of upward mobility in the U.S. with an article that explains it. While, from the reading I did while trying to find this - which was not a huge amount - it does appear down, somewhat, worldwide, it is in a much sharper decline in the U.S. on average. This, of course, is in comparison to European nations. Not a true "worldwide" comparison.
Starts at decade born 40's and goes from there. This is the moral equivalent of starting in mid March to look at stock gains. If we had the same information from the founding of our country until today it would probably look closer to a U with "born in the 40's" being pretty damn close to the top of that U. This should not be used by anyone to make any conclusions.
The world just went through massive war that destroyed nearly all of Europes infrastructure and the demand to fix it mostly manifested as opportunity for Americans. Since then Europe has rebuilt and both India and China have arrived on the scene as powerhouses of their own. We will never have the same opportunities that we had then again, or at least we should all pray we don't.
Looking at that link, in particular I really like the 3 tier "chance of out-earning parents" chart because it shows that while average upward mobility may have gone down, there's a sharp decrease in upper classes moving up while the decrease for lower classes is much less. This means that the rich in fact get richer less so than lower class people move up, and by a huge margin, than in the mid 20th century.
Also I like the stagnant wage growth numbers because it demonstrates that the corporations are no longer the gatekeepers to economic opportunity. If you're more likely to make money starting a business than getting a job somewhere and working there 30 years, this is good for everyone because their economic prospects aren't dictated by McDonalds and General Motors. It means a more diversified economy, more opportunity beyond the beaten path, and more creativity driving economic growth.
I'd also like to see the criteria for "upper", " middle" and "lower" used in the chart about income distribution. Judging by the first graph of "is it all bad news?" I'd say it's a hard dollar amount delimitation, a very bad metric, because while that would appear to show a bad trend, all it shows is that more people have higher amounts of money. The only way to get a clear picture is to weight income/wealth with purchasing power as the delimiter between classes.
Another note on this first graph, it clearly shows that less people are in the lower class and lower middle class, and more people are in the middle, upper middle and wealthy class with each graph since 1967, which means people have gotten richer and as a whole life is getting better for people economically. Ideally what you'd want to see is the bars to the right of each sample get bigger and the bars to the left get smaller with each sample, and you almost see exactly that. I'd like to see the same graphs in 20 years and that will tell if upward mobility has actually decreased. I'd also like to see this graph weighted with purchasing power.
From those graphs, upward mobility looks perfectly fine, I'm getting the sense it peaked about 20-30 years ago, but has not had a sharp decline and is definitely still higher than it was 50 years ago.
And, let's be honest, poverty and poor in the 40's and 50's was very different than poverty and poor in todays imaginations. I'm not saying it's fantastic and that the safety nets are great, but they exist. Especially for single mothers, which weren't thought of in the 40's and 50's. I'm not one who glorifies the 60's, but it did help reproductive rights (which is a big step out of a poverty cycle) and it brought in help for single mothers, from church groups to government.
> I'm curious how many of them did so by leveraging family or inherited wealth.
Its interesting to note that many of our own prized meritocratic examples owe their parents in terms of intellectual inheritance or first-round funding.
I believe Trump's father (a billionaire in 2018 dollars) was given start up capital by his father who owned a diner in gold territory during the rush. Elon Musk I believe also was the beneficiary of a small amount of investment from his parents.
The question is whether or not that "counts". It certainly counts when discussing disparate outcomes between demographic groups when discussing success/failure with broad brush strokes but probably doesn't when comparing aristocratic-like inheritances to startup wealth.
> Elon Musk I believe also was the beneficiary of a small amount of investment from his parents.
There's so much mythology around this. I've heard the argument, "he had no support from his father", and I've read in more detail that one of the examples of said lack of support was "Elon and his friends wanted to buy and operate a video game arcade when they were teenagers, but his father refused to provide financial assistance".
There's a whole world between "deadbeat" and "wouldn't buy his son and his friends their own video arcade".
What is leveraging family? Thats kind of broad. I.e. having parents who were able to afford you extra time for learning, paying for secondary education so you have no debt, exposing you to interesting people/ideas or something more Trumpian like offering up a multi million loans for free?
I don't think this article makes the argument the author thinks it does.
If I take the author at his word that more people are creating large new fortunes at a higher rate, and I assume that the large fortunes of 1982 have not become significantly smaller (I admittedly don't have a citation for this, although I feel it's a safe assumption), and finally take into account that wealth inequality has been steadily increasing in the USA [1] since 1982, I come a reasonable conclusion:
"Winners" from the middle class are being promoted to super-wealthy status by consolidating wealth from their peers in the middle and lower classes, and it's happening at a much higher rate than it was 30 years ago.
Seemingly, it's to encourage people to start a company, because it's so easy now and you can get rich (look at all these people in the top 100 that got there by starting a company!)
But I'm not sure looking at the top 100 is a compelling argument. That's for the 0.0001%. How does the top 10% do? The top 25%? What about the median outcome?
Now, I'm all for encouraging people to start their own companies. But this just strikes me as a not very good argument for it. Hell, using similar logic, there is a better case to be made to buy bitcoins and HODL (everyone that bought in 2012 an held made 1000x return!)
I think the point of the article was to demonstrate that the "wealth disparity" we are seeing nowadays is not due to parasitic rent seeking behavior, but due to genuine creativity and the creation of things people want to buy, and also that this was the norm except for the mid to late 20th century.
I think the parent point stands, though. Using the 100 richest individuals as a proxy for measuring and commenting on wealth disparity isn't very helpful. These people have always been outliers. A meaningful discussion would look more broadly at the top 10%, 1%, and 0.1% groups and investigate why they have been accruing wealth at a much higher rate than the bottom 75%/50%/25%
I think it is more meaningful with regard to what the article is after, in that it shows the paths to the top very clearly and how that has changed over the years. You could get a clearer picture with your approach of how on average the paths upward have changed, but I don't think that was the goal of the article.
Pg looking at the top 100 people and giving his essay the heading "How People Get Rich Now", makes for a very distorted definition of "rich". How many hundreds of millions or billions does it take to be rich in his eyes?
When argumenting based on statistics, labeling of the graph or text is where the ideology really shines through.
I think the relevant part here is the discussion of the Gini coefficient.
There are those who argue that the increase in the Gini coefficient (i.e. increase in inequality of wealth or income distribution) means that the U.S. is diverging from its historical pattern of more equal wealth/income distribution and that this must be addressed.
Pg's counterargument is that this is actually mean-reversion, and that the comparanda are actually divergent.
This is somewhat important as it goes to the question of whether Gini coefficients tell us what they're relied on for, what a "good number" is, and if we do decide on a good number what the impact of the required policy changes would be.
Mean reversion to human historical norms is something we, I would think, most fervently wake up each morning to work to avoid. We have stuck our heads up out of the muck; on wards and up wards!
What number of companies are created vs those that made people rich? I think the numbers would paint a different picture than what is implied by the article narrative.
> But I'm not sure looking at the top 100 is a compelling argument.
It seems to be very compelling. Most people spend more energy writing about, worrying about, or praising Bezos, Musk, and Gates than they do the rest of the top 0.1% richest people combined. Perhaps it's not a good argument. But it's compelling.
> There were no fund managers among the 100 richest Americans in 1982. Hedge funds and private equity firms existed in 1982, but none of their founders were rich enough yet to make it into the top 100. Two things changed: fund managers discovered new ways to generate high returns, and more investors were willing to trust them with their money.
PG brushes past this to talk about tech company founders, but I thought this part was actually kind of interesting. Why is there so much money in hedge fund management? My understanding is that their profits come from skimming off the top of the proceeds generated by investing their customers' money. What's stopping hedge fund management firms from racing to the bottom by competing for customers?
> What's stopping hedge fund management firms from racing to the bottom by competing for customers?
Having money doesn't automatically make you wiser or smarter than the average Joe down the race track. Many wealthy people still believe hedge funds have "the knowledge" or some sort of edge. This is re-enforced by many funds being exclusive to those investing through a financial advisor, or with a minimum amount of capital to invest. Having wealth actually does open doors that Joe with his $50K of life savings can't access.
Paying 2 and 20 is indeed less common than it used to be though.
To be fair, nothing stops hedge fund management from doing this. Most funds cannot justify a "2 and 20" fee structure right off the bat. However, there is a certain bias after having some track record of success to charge that fee structure (or more) as a way to signal you are a "big dog" fund to invest in. Does a private university need to have a list price of $75K a year? No, but they do this to signal they are "elite" (even if 80% of their students get financial aid and never pay that list price).
Newer funds always start with a lower fee on AUM and sometimes have more creative fees on top of profits.
My point on universities is largely grounded in my experience at Carnegie Mellon which acknowledged they were going to just start charging more to make themselves more elite (and while some of that money did go back into making the programs better, a lot did not) and it worked...
I think if you want to be a successful hedgefund manager, then you need to beat the market. This means if the market grows by 5%, then the funds capitalization needs to grow by more than 5%.
What you are describing is how a bank or more conservative financial investment management firms work. These are the firms that manage mutual funds or sell life insurance.
Hedge funds are another group who manage to avoid just taxation. All that "carried interest deduction" crap means a hedge fund manager never pays the top marginal rate, no matter how many millions she socks away.
There are a lot of people who have already taken pg to task over the rather thin chain of reasoning (anecdata about the Forbes 100 -> grand societal conclusion)
But what about the initial claim, that inherited wealth now means very little? Tech founders have always come from at least the upper-middle class (I'd say that's roughly where I hail from). But that seems to be trending upwards. Increasingly, "tech" founders have only limited tech skills themselves but hail from a class where they have access to investors, often with a significant cash injection from their own families.
I am skeptical of any "top X wealthiest" lists especially for an analysis like this which claims that people are no longer getting rich through inherited wealth. Inequality has gone up a lot since the 1980s and to me a smart person who inherits wealth is not going to flaunt it and probably not going to want to be in any kind of Forbes list. There are plenty of ways to move wealth off of your personal ledger while keeping it in the family, ways that don't even count as "hiding" and I just know casually as a peasant who will never encounter a single one: foundations, generation-skipping trusts, CLATs (maybe the "charity" is your foundation!).
It's an interesting read, and not entirely new information, but I find this leap pretty unconvincing:
> So it's not 2020 that's the anomaly here, but 1982. The real question is why so few people had gotten rich from starting companies in 1982.
It seems more likely to me that industrialization and mass-production in the late 19th century, and information technology in the late 20th century were inflection points at which the gradual progress of new technologies enabled revolutionary businesses across a wide spectrum of the economy. There is no reason to assume that this is always possible, or to extrapolate into the future.
> we should expect both the number and wealth of founders to grow, because every decade it gets easier to start a startup.
Non-sequitur. If the technology that there is is sufficiently well exploited by Google, Amazon, Facebook, then where is your supposed opening? We are not at the end of the IT tech revolution now, but we are also nowhere near the beginning. The best VR experience right now is engineered by Facebook, not by some plucky start up acquiring new customers.
It's easy to imagine that tech will enter a consolidation and comodization phase in the next decades, if it hasn't already.
In fact, if the forces that are claimed to be behind the resurgence of founders getting rich were really correct, we should see lots of new manufacturing start ups. Yet those are extremely rare, and not terribly disruptive in the grand scheme of things.
Edit:
The Gini coefficient bits are also pure ideology dressed up as data. Sweden has more billionares per capita than the US, has a better per capita start up rate than the US, and yet because it never followed the disastrous right turn on economic policy, it has far far far lower inequality (though rising somewhat recently it's still lower than France for example).
> Non-sequitur. If the technology that there is is sufficiently well exploited by Google, Amazon, Facebook, then where is your supposed opening? We are not at the end of the IT tech revolution now, but we are also nowhere near the beginning.
This is so true. I say the "tech" (~= internet software?) industry is now somewhere near the telecom level of maturity. We can think of these companies selling the raw (cloud) infrastructure as of something related to that. (Although the precise economics of this for customers is debatable, as discussed time and time again on HN). Selling ad placements is not predicated on huge innovation either, rather on trying to find untapped markets (as much as they still exist) and efficiency gains for the same thing.
The next stage, farther in the future, is these corporations becoming more like boring railroad companies. In fact, it's one of the few glimmers of hope for people aware of big tech's ramifications.
> The best VR experience right now is engineered by Facebook, not by some plucky start up acquiring new customers.
Maybe AI is a better example of something that has huge potential for sure, but is mixed in equal proportions with fantasy. To use similar analogies, I'd say it's in its (later phase of) dotcom era. And even then, as you say, it's not really made by startups built to get big, but - at best - by entities hoping to get bought.
But this way, we are still kinda able to sustain the public mythos of tech entrepreneur as a big idea person, and not an industry knowledge and capital efficiency person (related to really driven and good at making deals from the essay). It may be a result of fiscal policy, but it's certainly also beneficial for existing big corporations. Also, the romantic idea is more emotionally appealing.
I wish he had listed his classifications. I'm looking at the list now and all I see are tech monopolies, hired C-level names, inheritance, and financiers. A bit different picture than the pro-scrappy-startup narrative Paul has been pushing for over a decade.
Im curious, if we wait, say, 40 more years, I wonder will the richest people again be heirs (of today's current crop of tech billionaires)? If so, what does that mean for Paul's hypothesis?
Long-term economic cycles, 70+ years long (Kondratiev cycles if I remember my classes) are linked to deep trends: Petrol appears, we rework all cities around petrol distribution, new opportunities are built, then stagnate then comes global warming and we undo all of this and people grow out of it.
I associate Paul Graham’s single cycle example to the one of petroleum. And the new cycle is of the computer age. And there will be S&Ps and world domination and boring climb-the-ladder careers and the stagnation of the 1990ies, but in 2090.
The bad news is, companies which exist during the ramp-up phase are also the major players until the stagnation phase. That’s why stakes are so high and valuations with dozens of multiples: A share of the right company today is a share in the control of the world in 2060.
I guess the fundamental question is are we at the tail end of the Information age, does it have more room to grow, or is there a new technological shift on the horizon? Paul seems to take it for granted ("how people get rich NOW") that we have room to grow but who knows?
The information age has room to grow i believe, but will that be spearheaded by adventurous individuals or by big corporations remains to be seen. Most startups these days are either derivatives of existing products or highly specialized in so far as they know their end game is just to be bought out by one of the big tech companies. I find it hard to believe we will see a brand new company that will reach FAANG size without some new technological revolution.
undoubtedly, unless we have a new revolution like the personal computing/internet revolution that makes the pie bigger and accessible for people, and those types of revolution are things that you can hardly for-see.
The internet isn't a revolution, but a meta-revolution. It seems to me we will be harvesting the value of the second order revolutions from the Internet for a long time.
you are right but will those harvesting the value be individuals or corporations. Gone are those days when u can build a billion dollar company over a weekend, and i suspect the trend towards increasing technological complexity will continue, at some point any field where advances are to be made will be untouchable except by very few individuals with highly specialized knowledge and corporations.
"undoubtedly, unless we have a new revolution like the personal computing/internet revolution that makes the pie bigger and accessible for people, and those types of revolution are things that you can hardly for-see.
"
It seems the computing revolution lead to a massive concentration of wealth.
Usually I find his articles entertaining, sometimes thought-provoking.
This one is none of these.
I've commented my own objections, read others'. What strikes me is that this article was proof-read by (the usual) people, and no one realised it will blow up on HN.
> But at the moment at least, there is definitely something they share in common that distinguishes them. What retailer starts AWS? What car maker is run by someone who also has a rocket company?
If you went back a century and tried to figure out who would be running both a car company and a rocket company, the answer would almost certainly be the guy running Standard Oil.
And abstracting "AWS" a bit, if you went back a century and looked for a company that was both a giant logistics business as well as a giant provider of stuff you need to run a business, you'd find Andrew Carnegie, who owned the trains that ran on railroads as well as the factories that built the steel for the railroads.
Amazon and Tesla and SpaceX are "tech" companies in the sense that they make effective use of new technologies just as US Steel and Standard Oil did. But history does not remember those as tech companies; history remembers them as industrial consolidations, as vertically-integrated conglomerates, as trusts.
I think you need a little more data than 1982 to make this comparison meaningful. I suspect there was a time during the last century in which trusts were much harder to build, when there was effective competition, and where the economy was working well for everyone, and during that time, the people with unnatural amounts of wealth only had it because it was previously accumulated and made available to them as an inheritance. I suspect we are now back to the economic/political conditions that made trusts and robber barons possible.
Given the massive concentration of capital to a small pool of behemoths that seem to be paying their employees to not start a competitor and the amount of debt being carried around by the majority of public companies, I'd say it's far more likely we're headed towards a period like 1982 but with new players than we are heading towards the 2000s and 2010s again. Companies saddled in debt will have a hard time innovating but their market presence is worth buying.
"Founders" and their trailers, are picked up and trusted to the sun because there is nothing else left to do with worthless money, to ride the inequality of the "investors" to u-p-p for free.
Loggerheads as Leon Musk might be "rich" but not in charge, and second tier as come to power. If one looks down to the Footlocker crowd, anything can mean "rich". The third dimension Sherlock of the article, time, how long will they last?
The author has a serious agenda to prone, or must be mentally incapacitated to not see ":)", after hoovering that long above the evidenced. Forbes?! what gives. Hard assets in time are still the only measure of value as to any group, cast, clan in existence!
So in the 1960s the rest of the world was rebuilding their bombed out cities. The US had no competition to speak of and provided “mature” at the time manufacturing to the rest of the world. There’s a lot of cracks and hand waving in this article, it’s a very roundabout way to say that income inequality isn’t a problem. It is a problem, and PG is so far removed from it he’s just thinking about how to justify keeping his and his friends’ money.
I don't think he said that. This seems like an article trying to explain increased wealth inequality. At most he's saying its a neccesary consequence of innovation, and he would prefer a world with innovation than without. That's very different from saying its not a problem.
Tying innovation/technology to wealth inequality at all is a false narrative. There’s literally the industrial revolution that “counts” towards this “pattern” and that is it. It’s comparing apples to 1970s automobiles.
> Of course the Gini coefficient is increasing. With more people starting more valuable companies, how could it not be?
The conclusion in the last 2 sentences feels like a non-sequitur. The article forms a cogent idea of how we're back in the age of startups like we were 100+ years ago - and then ends in "yes this is why we have inequality".
Inequality is a lot more complicated concept than "people are starting tech companies and theyre highly valued". A lot of it has to do with government policy, education, etc...
I've been noticing an increasingly bimodal distribution of success among startup founders, at least locally. I see more stories of unbelievably large funding rounds online every day. I read non-stop Tweets about how easy it is to secure funding. Locally, we have a few lucky founders tapping into this easy capital and raising valuations that would have seemed impossible a few years ago.
Yet outside of the lucky few founders securing this money, I see a lot of founders struggling to even get the attention of VCs. I know several otherwise successful local startups with good founders that have been failing to raise for months or even years because they don't fit the mold of a potential rocketship startup. In some ways, having established customers and a working business model with self-sustaining revenue is a negative sign for investors looking for the next 100x investment or quick flip opportunity.
I don't want to derail this too much with personal anecdotes, but I suspect you are much more likely to build wealth with the more established tech companies - and that wealth is "rich enough".
Maybe I am just unlucky or unskilled, but I spent roughly 20 years working at startups or innovation labs. I was "close" to some big events where I could have made big $$ but made 0. Both at my own startup and being at early stage duds. Its kind of like I was the tech guy in 'life of Brian'. However, in the last three years I have built more wealth at a FAANG than I have in the previous 20 years. YMMV.
Back to the thesis, I think pg is saying wealth is built by startups - I am just here to say that's it still really rare unless you get lucky. But maybe you create your own luck by living in SF - I am a Bostonian.
Over 25 years, I worked for 4 startups, 2 pre series A, 2 series A. All were VC funded, high growth, successful. 3 were acquired; 1 stayed private.
I worked for startups because I really wanted to “get rich”. And, I put way too many hours in trying. In the end, I did get moderately rich. But, honestly, it was mostly from saving and investing well, not from exit events. Unless you play the political game, I doubt you’re gonna get rich from options. And, they don’t write the options contracts like they used to.
When I started working, I made $30k / year, and I loved my work. Now, I make $180k / year, and I hate it. I hate the people mostly, and the politics. Lol. I do have enough to retire early, and I probably will because generally I feel the golden years of software development seem over. I liked it better when it was a bunch of nerds playing with tech - people who loved it. Now, it’s more people who would have otherwise gone into banking. Ymmv.
I have a similar background, and also miss the 90s where the people playing with tech were not thinking about the money but actually enjoyed the coding.
What I find hopeful about Paul's essay and the current state of the world is that I can start my own company for next to nothing. And I only have to find a couple customers to cover my living expenses. I'm not going to be the CEO of a billion dollar company and that is fine. I don't want to have those responsibilities.
The world is becoming more fragmented and long tails are getting longer. I'm not going to build a competitor to Facebook or AWS, but there are thousands of small untapped market segments.
Yeah living in SF (or just the bay area) is pretty key.
AirBnB, Uber, Tesla, FB, SnapChat (LA based, but a lot of friends moved there to join friends from the peninsula and knew about it because of being here/near Stanford), Lyft, Snowflake, Stripe, eventually Robinhood, Roblox, Palantir, etc.
I'm not saying luck isn't a factor - but the equation changes dramatically when you're in the bay area. A lot of people I know have been through exit events of some sort, many clear $1-5M via that (which is about enough to buy a house if you're closer to the $3-5M side). Fewer clear $20M+.
That said, you could also have just worked at a FAANG and probably have saved $1-2M if you just stayed there over the last ten years (and obviously if you were at FB pre IPO in 2012). There's also a lot of opportunity to grow in that environment which can lead to higher incomes (particularly at a place like Netflix that just pays a lot up front).
Doing a non-bay area startup seems riskier to me than working at a FAANG. If you live in the bay area for a bit - it's easier to learn which startups are likely to succeed.
Likewise, even down to being in the Boston area. I did OK at a couple of the eleven startups I worked at, but still made even more over just a couple of years at a FAANG. Many of my former colleagues on both sides have had similar trajectories. The vast majority of the "merely rich" in tech got that way by working at companies that had already broken away from the pack.
Speaking of breaking away from the pack, that brings us to the ultra-rich. AFAICT what pg has shown is not that building wealth alone is a path to riches (nor was that his intent AFAICT). The way to become ultra rich is to be one of the "lottery winners" among a cohort of relatively minor wealth creators. Playing the lottery is just as essential as building wealth, just as with literal lottery winners. The main difference is that this lottery isn't entirely random. Even among those who make it into the first round (founders), some players have certain innate advantages over others in the second. There's little demographic distance between Gates, Ellison, Bezos, and Musk - and Graham, for that matter. It's no accident. If you want to become seriously rich, it helps if you can afford to ride out risks - or even actual losses - that would force others out of the race.
I'm not trying to just pick rare counter examples, but I'm skeptical of the claim that there's little demographic distance or the implication that it's a prerequisite. One of the reasons people like the US is an immigrant can come here and they themselves (or their children) can become the richest person in the world (or the vice president).
I'd agree there's a randomness element, but it's less lottery and more placing bets with odds that are hard to determine. Some people have better initial odds, but that's only one part of it.
If anything - I'd hypothesize that extreme outliers share something other personality trait more relevant than demographics, willingness to take huge risks. You could argue that someone who has more of a safety net is in a better position to do so, but someone who has nothing to lose may also find the tradeoff easier. It's possible that most people in a relatively comfortable position would be less likely to take the big kind of risks that outlier payoffs require (I'd guess this is one reason why we have few people like Elon Musk).
The point about the demographic similarities doesn’t go away when you include outliers. Their are vastly more people with poor backgrounds so having them underrepresented doesn’t go away with a few exceptions sprinkled in.
People talk about America as a meritocracy yet, the US has had vastly more presidents closely related to previous presidents than say Black, Hispanic, and or Female presidents combined. That’s to put it bluntly not he outcome of random chance even if you’re limiting things to just white men it’s obvious something else is involved.
I don't disagree really - and the president issue is somewhat separate given its political nature and obvious historical context.
As I said, I agree in the common case - I just see people generalize and include in their examples people that contradict them (Bezos, arguably Musk too).
Extreme outliers are often outliers in more ways than one.
yeah, I think his adoptive dad was reasonably well-off though
I think "demographic distance" makes sense if you think of it in terms of "Coming from a family of at least moderate wealth". My family was pretty poor, and there's a lot they couldn't teach me about money because they just had no idea. Plus, my whole life I've had to set aside $X per month to keep the family afloat, so it's made it a lot harder to dink around with startups that aren't going so well.
I don't think I can get as rich as Bill Gates myself, but I'll bet I can get as rich as his dad, and give my kids a shot at becoming mega-billionaires
Yep, I wouldn't say I've had as much startup experience as you but I did work as employee #4 at one and then after that at a startup that got acquired by Google and while I did get a windfall out of that it certainly didn't make me rich and I've made a lot more money in the years since just taking in my regular FAANG compensation.
FAANG compensations can be quite high. Arguably they are that high precisely to siphon up headcount that would in the past alternatively go into other ventures to seek wealth there. But I would say that these high compensations seem to me to be set precisely high enough to hoover up talent but not high enough for employees to achieve "escape velocity" entirely from the market (without extreme financial discipline anyways)
Regarding the "escape velocity", it really isn't that tough IMO to save enough to retire when you're making 5-10x the median household US income, even if you're wasting $3500/month on rent. Yeah, milk and gas cost about twice what they do in the rest of the USA, but since I moved to the Bay Area I've been saving over a third of my income without even trying despite having a kid, eating out every day, and buying every gadget and gizmo I hear about
~5 years of savings can buy you a house out in the outside world so you can take a stab at building a ramen-profitable startup
I think this is exactly what the parent commenter meant. You'll be able to retire comfortably after your most productive years, but you most likely won't be financially independent within 5 years and have the means to focus on building a startup.
> Maybe I am just unlucky or unskilled, but I spent roughly 20 years working at startups or innovation labs. I was "close" to some big events where I could have made big $$ but made 0.
Probably holds for many people, but we mostly hear the success stories only.
I've worked two startups and two public companies (and a University) in my career. Other than the small salary, I made nothing from the startups. The first public company made me enough to buy a house in the Bay Area and the second made me enough to fund my own startup as well as invest in others.
So yeah, my experience tracks with yours -- all my wealth was made working for public companies (that I happen to catch during their biggest periods of growth). To be fair though, that may change if my investments work out. Then most of my wealth will be from investing in startups.
He is saying you are more likely to become a Billionaire by starting a company than by joining a FAANG as an employee. Now that is a 1:1000000 event instead of a 1:5000000 event like it may have been in the past. I will forgive you if you still think it is unlikely.
Most people's goal isn't (and shouldn't be) $1B. If your goal is a more reasonable $5M then joining an existing company is still your best bet. I am going to plan my own like around the MEDIAN result which makes startup stock $0, and the salary wins.
If you want the BIG payout and "f u" money, then forming your own company is now the highest odds way to make that result. The chance of abject failure ($0 payout) is still high but even that isn't necessarily true these days with the experience and learnings leading you to FAANG jobs (should you choose) anyways. You do fall behind your colleagues who started at those jobs earlier, but they won't reach that $1B goal that you had and now neither will you; the difference being you gave it a shot (and the highest odds shot).
PG's point might be simplified to say starting a company is the newest highest odds way to be super rich.
That's sort of my take. Super wealth comes from founding or having a large stake in a unicorn. That's of course true but also rare and sort of like a kid betting his future on playing in the NBA. Sure some people make it, but the vast majority do not.
"Enough" wealth -- i.e. retiring with millions in assets, is much more attainable by anyone who simply invests sensibly over the course of a working career. You don't even need stock options or equity compensation or a SV salary.
What about those billion-dollar companies that never made money but got acquired by FB, MS etc? Their founders did build a company, but if it wasn't for FAANG's insane profitability, which makes the cost of their moat so high, they wouldn't be worth that much. They essentially joined facebook as employees to make their billions.
Average exit event (going public or getting bought) won't out-pay working for FAANG. The chances that it does are like 10%, and that's if there is a real exit, instead of just a wind-down.
You are not unlucky the vast majority of startups fail.
You need to be extremely lucky, extremely talented, extremely ambitious basically extremely everything to create a company and get rich from it.
It's pretty much a pipe-dream to create a company and get rich from it. The most likely result is ending completely burnt out and having wasted a couple of years.
Right. Even if you knew 100 people that all made startups and made 10M+ it would still prove nothing. What percentage of startups do you think succeed?
I’m kinda busy to go all into this, but generally people who went to top schools and raise from top vcs gave very good outcomes. The problem is when you lump in people with bad or mediocre career outcomes who try to start a company. The data is very misleading, getting funding from Andreesen Horowitz leaves a huge chance of success.
> but I suspect you are much more likely to build wealth with the more established tech companies
FANG: low variance + moderate reward
vs
ENTREPRENEUR: high variance + high reward
The Kelly Criterion can probably be applied here on how much to "invest" in each opportunity. Ultimately it matters how often these opportunities come up.
Yes, EV. I certainly think tech entrepreneurs go into a startup opportunity impassioned by their ideas, but knowing they could IPO or exit at some point in the future for a sizeable amount of cash is certainly a motivating factor.
EV = Probability * Outcome
Probability is very low of an IPO outcome - but EV is probably still higher than FANG work.
Intuitively those numbers feel wrong. theres 7bn people on this planet - and only a very tiny proportion might become tech entrepreneurs. So I think your "1 in a billion" chance of being successful is a bit high. Also, who said $10bn was successful? It is just 1 outcome of many...
Around 1% of seed-funded companies go on to become unicorns (>1B valuation).
Total market value of unicorns ~$2T (~600 unicorns). So average unicorn valuation ~3.3B USD.
Let's say you're the founder and your [ultimately diluted] share of the company is 10%. You have a 10Y runway. Your EV in startup case is 330M (10% of 3.3B) * 1% chance of success = $3.3M or $330K USD per year. This is only counting the extreme (unicorn cases) and will obviously vary with equity percentages.
Sure - I agree; that was only the slice of the pie attributable to the extreme success (1%). There's also exits which are non-unicorn but non-trivial which probably bump that number up quite a bit.
It's a tricky problem in the general case because the skills that would allow you to capture a high compensation in FAANG probably correlate with the skills that would lead to a successful startup (not perfectly, but somewhat), so the better your options in FAANG the better your potential outcome via startup (with much higher variance).
I think the consolidation thing he describes is happening again, and we are again entering a period like the 60s where access to the markets is limited by a few small, impenetrable companies, and the only meaningful path to wealth will be working at those companies.
I really hope I'm wrong, but the death of the web and the rise of the censored, anticompetitive app stores seems to be the writing on the wall.
I don't think that's a controversial opinion. Start-ups are high risk high reward. You probably won't truly make it, but if you do you have more money than you know what to do with.
I think where PG and others are conflating two topics is being Rich vs being Wealthy.
You can certainly become Rich working at FAANG (top 1% earner + appreciating stock ... and it's way less risky than other jobs).
Where you can become Wealthy starting your own company (super high risk, most likely won't even become "rich" doing it, but you have the potential to create limitless wealth)
EDIT:
If you're going to downvote, can you at least comment why you disagree ... so that we can have a productive conversation to hear a differing opinion.
The definition of "rich" is "having a great deal of money or assets; wealthy." Seems like Rich == Wealth as far as I can tell. There is definitely a difference between well-off and wealthy, though.
While not a dictionary definition, I've seen "the wealthy" described as the subset of "the rich" where their money is self-sustaining (passive income that spans generations).
By most definitions, many of us on HN are rich, but few of us are wealthy. Most of us still have a day job and rely on that salary to pay bills and save for retirement.
I wonder if it really is easier than ever for the bottom 95% of US citizens (or bottom 95% of the developed western countries) to become rich by starting a business these days.
The majority of rich people being tech entrepreneurs does not imply that being a tech entrepreneur will make you rich. It is entirely possible to start a company and not make any money. In fact, greater ease of starting a business would increase the number of companies, thus the amount of competition would also increase and therefore the odds that any individual company makes large profits is smaller.
Seems like it, for the simple reason that the infrastructure and process for an average person becoming rich is in place now in a way it wasn't in the 80s. For example there are startup incubators, VCs and general startup culture.
Or rather, only if you fall into a small sliver of society.
You are describing startup a "website/app company". There is an entire industry for trying to find the next TikTok. Unfortunately that is the ultimate unicorn. That immediately winnows the crowd down to maybe 10% that have degrees / knowledge of computer science?
There isn't really any other "startup" culture right now except hoodie-wearning Rust/JavaScript/Python programmers interested in machine learning.
It is a monoculture, and if you don't program, you ain't in it. Becoming "rich" isn't even accessible to 90% of the US population.
I mean I'm not sure what it would even mean for becoming rich to be accessible to 90% of the population since the definition of rich is having above average means. It seems like only the lottery would fit there. On the other hand it seems much more accessible to go to school and get a degree in CS than to be born into wealth. For example, plenty of foreign students come here from poor countries and find there way into the startup world.
The barrier to entry is very low these days so technically Yes. At least in theory, someone can start a "tech" business with a couple hundred bucks and shit tons of sweat equity. Back in the 70s-80s, I am sure you needed a lot more capital to start a traditional business. Granted, the 1 person bootstrapped tech biz won't hit the same 1B revenue scale in 10 years but you can become "rich" if your definition of rich is not necessarily the Top 1%.
Back in the 70s-80s, housing was very accessible and jobs were simpler and equally available (now you probably need to move to a hot city). So people could build considerable real-estate equity from being a salaried man.
You are not talking about the bottom 95%, you are talking about 5% of the bottom 95%: tech-educated programmers & engineers. Now look at how many have the skills to be a CEO and that's about another 5% of that. So in reality you are describing 2.5% of the population.
The population of people who have the skills to be CEO of a <25 person business is far more than 5% of the population. The blue collar sector is filled with such people running e.g. electrical or plumbing companies. Plenty of those people are doing very well for themselves, and now we're talking about how rich is rich.
I know a woman who is the CEO of her Etsy knitting company that her daughter helps her with. So I guess you're right, anyone can call themselves a CEO.
> So I guess you're right, anyone can call themselves a CEO
Semantics... That's not what I got from GP's point. They are talking about a company of up to 25 people (so, an order of magnitude larger than a two-person company). CEO, general manager, principal, top dog... What does it matter.
The point is you can make bank with a business of that size - possibly the mom and daughter operation you're describing does.
> And there's a reason why: these are mostly companies that win by having better technology, rather than just a CEO who's really driven and good at making deals.
I'm not entirely sure how pg arrives at this point when he should know better than nearly any of us just how critical a factor the latter is, in support of (and sometimes in spite of, c.f. Neumann or Holmes) the former. Isn't the entire point of YC to build the networks of support, advisory, and dealmaking required to turn what would otherwise be good technology in isolation into a high-growth business?
Superior technology by itself is just potential energy. It still takes old-world business skills to harness that energy into something productive.
> It's easier now to start and grow a company than it has ever been.
Arguing that, due to being easier now to start and grow a company, more wealth gets created, is "conveniently" seeing only one [the positive] side of the coin. Because, considering the alarmingly low ratio of success in the startup world, growth in the overall number of startups also means growth of startup failures (which often means destruction of wealth, however small, instead of its creation). But, for obvious reasons, VCs don't like to talk much - at least, publicly - about it ... And this essay is just one more example of that trend.
The Forbes list of 100 wealthiest people will exclude people that ask to be excluded. All of the excluded people have inherited their wealth and all of them are so wealthy they would push out anyone without inherited wealth.
I don't always agree with PG. But this is the first time I feel disappointed by one of his posts. He is thinking about the rich of the rich. The 0.001% . May be he can make the case that intellectual capital is as important as assets capital. But that doesn't make it any better for the millions of people struggling in the middle classes or the billions of people living in poverty.
Two things bother me about this article: One is the message that "'the richest people got rich by winning the lottery, therefore buying lottery tickets is good' says rich lottery ticket seller".
The other is the unspoken (and thus unchallenged) assumption that getting rich is what you should strive for in life, which I personally disagree with.
As usual, it's a well-written article. I wonder about a few things:
1. Why look at the top 100 people? It's an incredible small sample size. Those 100 people represent a huge amount of wealth, but a small number of people. What are the trends is we zoom out to, say, the top million wealthiest people? Does his thesis play out?
2. By extension, looking at the top 100 makes Graham feel myopic and elitist, which is what I think a lot of the comments in this thread allude to. By definition there can only be 100 richest people. The odds of breaking into that group are extremely small.
3. Graham's job is to convince people they have a chance to making it big. That's not a bad thing: we need those people. But it doesn't speak to broader needs of society.
So, honest question, because I haven't researched his essays in recent years: does Graham write about the situation of the bottom 100 million, in addition to the top 100?
What I find really striking.
(1) The outcome being measured as success is building wealth quickly. I think we should measure success instead of building business of lasting quality and value. I think if I lived in a country where everyone was trying to get on the forbes 100 list life would be deeply depressing and nothing innovative would really be done. Maybe its more that people who build valuable businesses and products are making money much quickly (building a product a good reason to start business, trying to get onto top 100 terrible reason to chase business).
(2) The costs of business have dropped, but also the ability to enter and capture market share quickly has also made it easier for companies to grow fast (in pure tech as opposed to something like a cleantech/climate tech space).
There are clearly jobs that require high talent and have a shortage of labour that pushes up salaries. This includes things that require mathematical talent, like quantitative finance, but it also includes skills like motivational speaking or playing sports to a very high level.
However, I think most jobs are ones that, frankly, anyone could do if given the opportunity and a bit of training, but access to these jobs is controlled via gateways such as fancy schools, culture, family connections, your accent, etc. There's a kind of mediocre upper-middle class filling seats at large organizations but not really doing much. These are sometimes referred to as bullshit jobs.
But this is just speculation... I would like to see some data around it.
The number of people doing start-ups is a blip. This is not how most people accumulate wealth.
> Of the 40 new fortunes in 1982, at least 24 were due primarily to oil or real estate
In 1982, oil and real estate was technology. Information technology was still research and not ready for big business. One could argue that those two were based on exploiting natural resources, but so is tech, it's exploiting the natural resources of human attention and information, it's not making flying cars. In that sense , the way people make money has not changed much: make something people want that exploits and indefensible resource, rinse, repeat. Like big oil, the big tech of today can keep on making billions without building any new tech. I really dont enjoy this hero worship of tech, it's 2020 those days are gone.
As an aside, it always frustrates me when people say that someone got rich from investing, when really they got rich from running an investment firm and doing investment managing. It gives the wrong impression that people are getting rich from their own investment.
> This trend has been running for a long time. IBM, founded in 1896, took 45 years to reach a billion 2020 dollars in revenue. Hewlett-Packard, founded in 1939, took 25 years. Microsoft, founded in 1975, took 13 years. Now the norm for fast-growing companies is 7 or 8 years.
How much of this can be directly attributed to actions of the federal reserver?
Besides, when the federal government passes a $2T spending bill, isn't that basically guaranteed to create more billion dollar companies?
It's a classic PG article. Many true facts in there, lots of good analysis with just a few questionable claims thrown in here and there. At the end, there's a massive claim that isn't fully stated but implied. "Of course the Gini coefficient is increasing" translated means "income inequality is not a problem".
Firstly, Gini coefficient is based on income, not wealth. That isn't stated clearly. Secondly, there's absolutely no data on what proportion of income flows to which decile. The conclusion (income inequality isn't a problem) is simply based on an assumption that the rise in the Gini coefficient is based entirely on the wealth accumulated by founders, and that this is a good thing.
I think this post boils down to "people like me are creating a lot of value, please acknowledge it. Also there are no downsides to this accumulation of wealth". This would be fine if PG also didn't argue that policies like wealth taxes are harmful (http://www.paulgraham.com/wtax.html). It just seems like a desperate play to keep his wealth intact.
Paul Graham's articles always shoot immediately up to the top of HN, but I agree with you, they're generally cursory and pithy thoughts which don't convince my skeptical mind. I don't know, can someone explain why his work is so popular?
Think of all the amazing writers across our civilization whose work is linkable, and we're worshipping these decent but not amazing blog posts?
There's a cycle with blogs. The author starts a blog and they have a distinct, somewhat original voice with distinct, somewhat original views. In PG's case, the startup advice about building stuff that doesn't scale, not worrying about competitors, Lisp, etc. were quite fresh, at least to me. The author's blog becomes successful and their ideas become well understood throughout a community. But a person's ideas don't evolve that quickly. They start repeating themselves. The posts become variations on a theme. Maybe the author goes outside their area of expertise (No offense, but I trust PG's advice on startups a lot more than his advice on macroeconomics). By the end people are wondering what you're wondering. Why are we listening to this person?
> No offense, but I trust PG's advice on startups a lot more than his advice on macroeconomics
That's the key bit for me. I've found his writing about startups, software, hacker culture, product development, etc. to be mostly great and informative. But whenever I see anything he writes about society as a whole, I tend to find the conclusions he draws to be pretty out of line with reality, or at least (in the cases where I don't have data) counter to my experience and opinion.
You liked his idea that for a startup to scale, you should be doing things that don't scale. That article has mostly anecdotal evidence, and yet nobody ever pushed back on it. How do we know PG was right back then? (He was.)
A few years later, that same guy writes an extensive essay with footnotes and data that must have taken days to compile (going all the way back to 1892). And yet, this one rubs you the wrong way.
I am not defending PG or attacking you, but just consider this explanation as a possibility: when it comes to how to build a startup, you don't really have skin in the game. Whatever he says, it's unlikely to impact your life. But the minute we start talking about the Gini coefficient, the stakes are higher - it's getting political. Suddenly, it's like listening to Rush Limbaugh make an argument - isn't it clear that no Democrat will ever agree with anything that Rush has ever said, no matter how factual or not it is?
I, for one, appreciate PG's ability to tie together global macro movements in a way that I've never heard anyone else summarize. You might agree or not with his take on the Gini coefficient (and especially his lack of acknowledgement or suggestions on how to deal with its consequences), and you might also get frustrated that PG is starting to dabble in politics, which is going to make him very polarized no matter how right or wrong he is. But there's still a ton of useful advice in this essay no matter which side of the political fence you stand on (eg: in 2021, if you're debating between entrepreneurship and finance/VC, choose entrepreneurship).
While pg has extensive foot notes for this essay, there is a vast amount of research with orders of magnitude more citations contradicting him on the gini coefficient.
There is no argument about his footnotes. Quite likely the very richest might not be inheriting it. This has no bearing on the gini coefficient. And his essay on wealth tax is downright stupid. Are his essays as meticulously researched as Pikketys? Why does pg fail to refer to the most famous recent book on the subject in his footnotes? What could be the reason?
I appreciate this argument, except for one detail:
> his essay on wealth tax is downright stupid
What's everyone's deal with that essay? It literally has no subjective opinion stated anywhere - all it does is calculate how much percent of your wealth you're left with after 60 years of wealth tax [0]. You definitionally cannot push back on anything stated in that article, or otherwise your problem is not with PG's views but with math in general.
I appreciate the thoughtful reference to Thomas Piketty's book, which I think everyone should read. But IMO attacking algebra takes away from your overall argument.
The book's central thesis is that when the rate of return on capital (r) is greater than the rate of economic growth (g) over the long term, the result is concentration of wealth, and this unequal distribution of wealth causes social and economic instability. Piketty proposes a global system of progressive wealth taxes to help reduce inequality and avoid the vast majority of wealth coming under the control of a tiny minority.
PGs attack on the wealth tax is how much a zero effort investor could lose in 60 years. 45% in one case. 40hr per week income tax rates are very often higher than that. PGs paen to the idle rich is absolutely ridiculous. Some one who works hard like Musk will be barely affected by such a tax. It only mildly hurts the idle rich.
> 40hr per week income tax rates are very often higher than that.
You do realize that the wealth tax is on top of the income tax, right?
> It only mildly hurts the idle rich.
And therefore there's no issue! Lol. I shared elsewhere that France tried the wealth tax and then killed it after 42k French millionaires left the country. Why would it work in the US when it didn't work in France and 8 other European countries?
You do realize that a wealth tax of 1% on 5% gain is basically a 20% tax on idle asset appreciation. American middle class pays 1% property tax on their primary asset without flinching.
It is not applying taxes on income. There is a separate tax for it - it is called income tax. A tax cut friendly premier repealing tax laws means nothing. France did not implode in the decades it had a wealth tax. Its not like the USA with a rapidly declining middle class is a fine counter example.
And why are you so hurt at the thought of a 20% tax on asset appreciation on the idle rich? No one really gives a shit.
I come here to learn and hopefully also share some insights with others. I thought you were genuinely trying to teach me something, which is why I engaged with you. But justifying sloppy arguments with "no one really gives a shit" doesn't really do it for me.
3. Pretending to be the only person who understands algebra
If so, I thought you must be made of thicker skin; able to take what you dish out. My adoption of your style might not do it for you, but no one really gives a shit.
No billionaire is hiding his cash under a mattress. Investment assets typically compound at 4% above inflation with zero effort by the investor.
Pg completely ignores the zero effort compounding of wealth and pretends that the investors wealth will be "reduced" by 45% and that too over 60 years!
He forgets to state by how much the zero effort investors assets inflate exponentially in 60 years! If he thought he was making a case against wealth tax, he failed hard!
Also, its really silly of you to assume I don't understand algebra! I thought that pgs article was obviously ridiculous on its face. Clearly, it wasn't obvious to everyone.
Nope, it wasn't. You do realize that the concept you're so stoked on was actually tested in Mr. Piketty's homeland and failed miserably? Oh, the irony!
From NPR [0]:
> Normally progressives like to point to Europe for policy success. Not this time. The experiment with the wealth tax in Europe was a failure in many countries. France's wealth tax contributed to the exodus of an estimated 42,000 millionaires between 2000 and 2012, among other problems. Only last year, French president Emmanuel Macron killed it.
Capital is like water - it flows in the direction of least resistance. That part should be obvious.
You do realize that using the phrase "you do realize" does not make your argument any stronger.
France did quite well in the decades it applied a wealth tax, irrespective of Macron's actions.
You seem to be obsessed with France. Have you considered Switzerland, one of the wealthiest countries with the highest standard of living and super high minimum wage.
Edit: seems like you added some more info to your comment. Ok, I'll bite. Nobody ever uses Switzerland in an apples to apples comparison with Western democracies because Switzerland employs bank secrecy laws that make it a crime to identify owners of bank accounts (which brings into question the legitimacy of much of the capital in those bank accounts). This is straight from Wikipedia [0]:
> Swiss banks have served as safe havens for the wealth of dictators, despots, mobsters, arms dealers, corrupt officials, and tax cheats of all kinds. In 2018, London-based Tax Justice Network ranks Switzerland's banking sector as the "most corrupt" in the world due to a large offshore banking industry and very strict secrecy laws. The ranking attempts to measure how much assistance the country's legal systems provide to money laundering, and to protecting corruptly obtained wealth.
Also, I mentioned elsewhere that a total of 9 countries in Europe implemented and then killed the wealth tax. This has nothing to do with just one politician in one country.
If you want to engage in cherry picking and rhetoric to insist on justifying your preconceived bias, allow me the same luxury.
High income inequality causes regulatory capture by a minority elite. Any financial discomfort to this tiny elite through popular movements that impose a very modest wealth tax, faces relentless attack by this tiny elite and their chattel, which includes the politicians they sponsor - ultimately resulting in the overturning of tax policies that benefit society as a whole.
High income inequality leads to regulatory capture by a tiny minority and results in a government primarily focused on the coddling of the idle rich. Hence, all examples of overturned wealth taxes you picked can be dismissed outright. Cherry picking is not a luxury available exclusively to you.
Your bias is obvious from the fact that you were fixated on France while completely ignoring their much more successful neighbor.
In other words there is a brand identity associated with the articles. And brand identity is a time/effort savings device employed by human minds when making a determination on what to consume.
You see this with consumer products all the time; for example the audiophile world may turn their nose up at Bose, but in the consumer space Bose is recognized as a known quantity (may be over priced for the quantity of quality you get but is recognized as not being extremely subpar generic).
My two cents on why his writings are popular:
- He uses anecdotal evidence which appears to be sound at first. Looking at the top 100 billionaires seems to give a good idea on how wealth is created and distributed, but really it is only a glimpse at a much bigger phenomenon (especially since the data only comes from two years).
- His style of writing is very accessible and natural. He wrote an article on his style (http://www.paulgraham.com/simply.html), and it seems to strike a chord with technicians who prefer this over more complicated prose.
I feel these are the same reasons for why effective altruism is so popular among technicians. It offers clear cut answers, and avoids uncomfortable questions.
Also his conclusions are what some people want to hear, that confirms their worldview.
This is not at all unique to PG, you and I and everyone does the same thing, at least to some extent, in choosing what argument/opinion pieces (now the dominant form of textual media?) we are tickled by.
Same reason Malcolm Gladwell is popular — it's pop science/economics/whatever, made to be readable and digestible, but over simplifies (and sometimes falsifies) in the process.
Could you expand on the last sentence a bit more regarding effective altruism? Are the uncomfortable questions related to the utilitarian nature of how the movement racks and stacks the causes they choose to support or not?
I was more referring to the fact that EA promotes philanthropy instead of asking why we have inequalities in the first place. So it evades questions of redistribution or fairness in a similar fashion as PG.
I'm not quite sure how strong the analogy is though.
We listen to him because he founded the website? Do Facebook users listen to Zuckerberg because he founded Facebook? I doubt that many do.
Or do we listen to PG because the kind of people who find his writings to be interesting have some overlap the kind of people who are attracted to the website that he founded?
I understand the comparison, but the FSF can exist without RMS. PG on the other hand solely supports HN, I doubt he would continue to pay for a site that vilified him.
This site is mainly supported by its volunteer moderators. I doubt it cost more than a few thousand a year at most to run.
So the fact that PG pays for it doesn't mean much. If the community decided to no longer be under his care, they could easily find a replacement model or benefactor and they're more than capable to arrange such an uprising/migration.
What matters far more than dollars paid is having his name attached to it. I recall Scott Alexander getting the forum started around his community to remove any associations to him because of things people were saying were happening “under his watch.”
I love RMS but unfortunately his skepticism doesn't get treated well by the vocal mass. These days people like to view things in a very black and white manner and if you dare to express your skepticism in a topic that is considered clear cut by the mass you get ostracized.
I liked it better when people were religious towards philosophy and universal metaphysics rather than towards technology and science. Now that traditional religion has been in decline for some time now, people have transitioned the concept of orthodoxy towards systems that are antithetical to it. This is nothing new, as there's long been a level of orthodoxy within technology groups, academia, and so forth, but now it's actual heresy to be skeptical towards anything authoritative, especially if that skepticism stems from one's own intuition.
Inversely, the "skeptics" behave so skeptically towards anything contrary their views that it has the effect of making them hardly skeptical in the first place. I'm not even talking about Stallman's form of skepticism, but what I deem "pop skepticism" that's permeated the mainstream narrative. If one is so skeptical that they are potentially missing out on critical new information, that's not actual skepticism. It's a stroke of the ego for someone too insecure to be wrong about anything. This is especially true when the evidence in front of them is sound and they refuse to consider it.
We are living in an intellectual decline. A true skeptic can't have any sort of controversial opinion without being socially burned at the stake.
PG is apropos for this forum, but beyond that he is plainly a good writer. I don't know who you consider 'amazing writers across our civilization' -- but whether it is Gracian or Scott Alexander, PG shares one thing with them, namely that his works will be quoted beyond the lifespan of his contemporary readers.
Alexander is a good writer, and I appreciate how he is able to tackle assumptions and challenge mainstream opinions, and does so systematically.
But he's writing 10 pages of what could be summed up in 10 bullet points.
The intellectual collateral is nice, but he's not really breaking new ground, and I'm not sure what he's going to share with the next generation of readers
It's impossible to know for certain, of course, but it seems highly unlikely that any of those writers will be quoted beyond the lifespan of contemporary readers (except potentially in scholarly books about rationalism/startups/etc). How many authors from the 1940s are still widely read, especially for essays/non-fiction?
Excepting the WWII memoirs (because I'm not sure how I want to count either Anne Frank, Elie Weisel or Winston Churchill in terms of "authors from the 1940s"), among authors whose nonfiction works are still read, there are a few names that do occur to me:
George Orwell, Friedrich Hayek, Simone de Beauvoir, John Maynard Keynes, Jean-Paul Sartre
For fiction there are obviously many more whose works have come through to frequent readership: Hemingway, Shirley Jackson, Albert Camus, C.S. Lewis, Antoine de Saint-Exupéry, Ayn Rand to name a few.
Lewis would be my example for nonfiction. Narnia is fun and all, but it's stuff like "The Inner Ring" (https://www.lewissociety.org/innerring/) where he really shines.
I agree (Planet Narnia also blew my mind), but I tried to make a judgement call over whether his non-fiction was "widely read" (I know very few people who have read any of it, relative to the number who have read the Narnia books).
Normally I wouldn't comment just to say the equivalent of +1, but I hadn't encountered "The Inner Ring" before, and it's great! Thanks for the recommendation.
He’s a good writer in that he’s able to convince people who know next to nothing about the subject matter that he is making good points. Neither history nor economics agree with his hand waving statements.
I don't think that merely being a good writer will allow him to be "quoted beyond the lifespan of his contemporary readers." I agree with OP that I really don't see anything special about his writings, compared even with contemporary writers on technology like RMS.
He's good at rhetoric. The writing is simple with one point per paragraph and requires a low reading age.
It has a single and consistently repeated/implied message without any deviations or uncertainties.
All of that makes it persuasive.
But factually it's mostly wrong.
I'm not going to through it point by point to pick all the inaccuracies about the continuing influence of inherited wealth on success, or the unrealistically rosy implication of small business riches.
I'll just suggest everyone should research for themselves the real survival rates for small businesses, the small business sectors with the best long-term viability, the age group most active in creating new businesses, and the number of tech startups that makes any return at all to investors.
Of all the things posted on this site, this is the comment that is the most wrong. If his writings are ever quoted again after his death, it will be meant as sarcasm.
Because he's famous (especially among the HN crowd), he's certainly smart, and it appeals to the bubble of internet startuppers that lurk in HN.
Paul, and to a similar or even larger extent Sam Altman, and others, seem detached from reality, in the sense of the common man.
Perhaps each one of us lives in a bubble of sort. His is immediately apparent to me, despite I kind of belong to the same crowd he preaches to.
I don't think his intent is evil nor bad. I think he genuinely enjoys writing and thinking about deep stuff, and I am grateful that he shares his thoughts with the world.
Its the same reason any tweet by Elon Musk saying stupid stuff get 300k likes instantly.. Its about who say and not about what is being said.
If you don't hack your mind from a philosophical perspective you wont stop this tribal hard-coded neural trigger of this automatic authority following.
This is the only thing that can save us from being that person in the 30's Germany photos raising their hands and chanting 'Sieg Heil'.
Remember that this is hardwired, but it worked somehow because we used to be packed in small communities where everyone knew each other.
Now the same "wiring" is being used the same way, but now with a virtual global tribe, where we actually don't really know the people that is being granted authority or why we are supposed to follow them, because we simply follow them giving everybody is also doing it.
Just observe yourself more often and question even the things you take for granted before doing it. You will see a lot of these things are actually unreasonable giving their actual context.
He's an important person to our field, and he's contributed quite a lot to it (including, for example, this forum). That does count for something.
However, to me if anything it really just confirms yet again that even great people can become thoroughly warped by wealth and fame.
His wealth tax piece was quintessentially unconvincing and self-serving, and many of his recent tweets and posts have done much more to pat himself and his peers on the back than to contribute convincing or useful analysis.
> I don't know, can someone explain why his work is so popular?
It's a prosperity gospel for nerds: you are the special chosen ones, therefore you deserve every blessing. Anyone who says otherwise is sinful and blind to the holy truth.
PG's recent articles have changed from what they used to be. Recently (last few years) there is a dramatic change towards defending riches, logical fallacies to explain why being rich is okay, a lot of focus on wealth and how to get it and why it's okay.
A lot less technically interesting than he used to post. I used to send Startup=Growth to everyone I knew. I think people are used to high-quality content from PG and so the upvotes fly - but honestly, recently, the quality isn't there. And often the content of his posts I now find quite offensive and wrong.
Not very interesting any more. Mostly wealth defenses and fallacies.
The political messaging has also changed from “people in poverty have specific material needs that we need money to fix” (war on poverty) to “actually, people having or making different amounts of money is inherently wrong” (war on inequality).
The war on poverty can be waged with a modest tax on the PGs of the world. The war on inequality is different. Venture capital always seeks to create wealth that will flow to some more than others; a very efficient way to fight inequality is to simply abolish venture capital. Along with anything else that facilitates creation of personal (rather than societal) wealth.
> actually, people having or making different amounts of money is inherently wrong” (war on inequality).
This is a misrepresentation though. There isn't anything inherently wrong with people having or making different amounts of money. The complaint, as I see it usually, is that the degree of inequality is unacceptable. That is, millionares aren't inherently unethical, heck people who make millions annually aren't inherently unethical. But people who make billions a week, might be.
That is, I can comfortably and easily donate enough each year to support a few working families. Bezos could match the Child Poverty Tax Credit to every child in poverty in the US each year and still turn a profit.
(For the math here, its ~$3000 * 11 million children, which comes out to ~35 billion, or half his income this year). And remember: he could do that every year and his wealth would increase.
The key issue is that personal wealth, after a point is wasted. Creation of vast personal wealth doesn't really serve society, so why should society encourage it? That, again, doesn't mean that no one should have any personal wealth, just that the ROI, after a point, should lessen.
How much do you really care after your second billion anyway?
> The key issue is that personal wealth, after a point is wasted. Creation of vast personal wealth doesn't really serve society ... How much do you really care after your second billion anyway?
What do you think the billionaires' billions are doing? Sitting in a bank account? I think the majority of their wealth is invested, i.e. it is funding industry, which is a good thing. If we assume for illustration that billionaires will spend $1B on things like private jets and invest the rest, then if we have $1T divided among 10 billionaires, we'll have $10B spent on jets and $990B invested, while if we have $1T divided among 1000 billionaires, we'll have $1T spent on jets and $0 invested. Given that, at least for the concern of "how it's being spent", it's actually best to have the megawealth concentrated among a relative few.
"Its invested" can mean a lot of things. And in general (as another user notes) the velocity of "invested" money is lower than the velocity of money spent. In other words, the 1T spent on jets is actually better for the economy.
Invested money is usually in things like the stock market, which doesn't directly support a company (buying a share of AMZN doesn't put money in Amazon's pocket, although it does, amusingly, make Bezos wealthier on paper). Angel investing might actually be better here from a velocity perspective, I don't actually know for sure.
So, let's take Jeff Bezos. Googling a bit, an article allegedly updated Mar 13 says he has 55.5M shares, which at AMZN's price of $3379 is $187 billion; I'm sure both multiplicands have changed but that's probably not far off from the truth. What bank accounts is the $187 billion sitting in? If he sold all his stock, where would that money come from? If he then spent it all on a fleet of private jets, how would that impact the economy?
And if we split Jeff Bezos into 1000 individuals, each of which had about $200 million, and each of which spent half of it on mansions and yachts and invested the rest... would that be an improvement?
Those few would, however, have proportionally much more power and are not going to use that power to threaten the structures which made them their money. I don't think it's by any measure a good idea to have a few billionaires set the course of society; deciding what gets invented and produced, what kinds of ventures get supported, what programs enabled. That is just autocracy with extra steps.
PG's articles are like a modern day Siddhartha. He illustrates the glories of growth and change initially, but by the end he illustrates the glories of stability and security.
This isn’t a surprise. The religion that formed here hanging off his every word subscribed to it to get rich, just like he started YC to get rich. Now he’s happily rich, barely even looks in the mirror at these adherents that he left behind, and is writing for his new friends who are also rich. It was always pointless snake oil but the Sand Hill Greed here made everyone overlook that because maybe, just maybe, the key to get into YC and skip the bread line was buried in the ninth paragraph of some polemic from a guy who figured out retail in Lisp and somehow convinced a greed-seeking generation of hackers that he had all the answers.
I’ll take my -4 for hitting close to home. The grayer I get — silencing unpopular ideas by making them grayer was his idea too — the more confident I’m right. We stopped telling you folks you were following someone who only cared about your impact on his RoI because that sort of unwashed heathen isn’t welcome here. Paul Graham, YC, and this creation of his on which we speak now has done more to distort and destroy any foundation of computing remotely paying attention to making the world better than almost anything before it, and while I’m happy to see people finally figuring out that it just might be bullshit, it’s a bit too late.
Whether you believe that or not is up to you, but back then there was no guarantee it would work. To look with hindsight and say it was just greed is easy for you to hurl, but not at all what it looked like at the beginning.
More generally, I know many many people (maybe literally tons by weight?) who continue to work long after they don't need to, usually because they're just deeply interested in the domain. I've seen this up close with my father, who continues to farm at 70, and with some founders who keep founding despite having more money than they will ever need. So when someone in that situation says they work on a thing because it is interesting to them, I generally believe them.
How does one get to make more than three comments a day? Maybe that's why some people create new accounts, because they've filled their daily quota on the other ones.
I appreciate your well-defended and reasoned argument. I learned a lot from your countless examples of what I got wrong and given that I’ve missed the mark on earning your vote, I’ll be sure to factor your feedback into my future comments.
They come definitely from a privileged niche point of view although they usually have some really interesting insights. For instance this one article about how suburbs are created and that kids in the past were at their parents' workplaces and learned how they work. [1] Or another article about quality of discussion, ranging from collaboration to ad hominem. Still I hesitate to share them outside of the typical startup crowd because parts of them might offend people. [2]
Sure being rich is ok. As long as they make mortals better off which is not what is happening now. Rather majority of the people are getting worse for wear in the process.
It is funny to read pg's take on wealth tax, given that Piketty has produced massive scholarly literature suggesting the exact opposite of what pg writes.
If the pg's wealth tax blog was supposed to counter Piketty's work, it is comically pedestrian.
I agree. To me, the post reads a bit like this: "Back then, we did not have as much inequality, but the super-rich did not deserve their wealth. Now, we have more inequality, but the super-rich [like PG himself] really deserve it, because they are innovators." The post does not cover the arguably more important questions like "Are the working and middle classes better off?", "Was there less innovation back then or were lesser paid innovators just as innovative?", and "Can we have as much or even more innovation with less inequality?".
Yep, I think there’s a lazy argument that tends to get made to justify the status quo, namely that inequality is necessary for innovation.
Of course it is, otherwise why take risks?
But this does not justify the 1000x inequality that we have today separating CEOs from laborers and 10000x separating founders from laborers.
What if those numbers were 100x and 5000x? Might we see even more innovation, and stronger communities?
The payoffs figures of today are also used to justify truly stupid risks. There are ponzi scheme type people who would rather masquerade at being a founder 10 times over in search of getting lucky once, screwing over investors and laborers in the process. Maybe if the disparity weren’t so eye popping, the same people would go into other fields instead.
> "Back then, we did not have as much inequality, but the super-rich did not deserve their wealth. Now, we have more inequality, but the super-rich [like PG himself] really deserve it, because they are innovators."
Indeed. Or to elaborate a little:
"Back then, we did not have as much inequality, but the super-rich did not deserve their wealth. Now, we have substantially more inequality and compounding human misery, and I am super-rich.
Because I am unable to identify any specific moment in my life when I made unethical decisions personally it is not possible for me to understand a view of the world that sees my current existence as the product of an unjust system."
It also didn't discuss that it seems more so that there is a new technology which is enabling a shift on riches, but it's likely that the next phase is one of inherited wealth again. Unless he believes that the children of those new fortunes won't inherit anything or will keep being surpassed in riches by the next generation startups. But I'm not so sure, I think it's just a cycle, refresh most company from a non tech based one to a tech one, and once that's done, it'll go back to consolidation and inheritance, until the next big technology.
Moreover, people seem to continuously forget the fact that half of all wealth in the United States is inherited by the top 5% wealthiest households, not 'earned' via value creation.
In general, I tend to agree with Rawls that this notion of 'deserving' is irrelevant to the question of how we ought to distribute goods/welfare in society.
Add to that that tech companies concentrate wealth line never before. Airbnb takes a cut of transactions not only around the US but across the world. Not everyone works in the Bay Area, but how many of the founders, early employees, and VCs do? The ones who really make massive wealth? Not 100%, but most. Same with Stripe, the same with Facebook, Google, etc. we’re pulling tremendous wealth into a small area, with technology that can scale tremendously large businesses with fewer people.
This isn’t to say that, for example, wealth from finance companies doesn’t centralize in New York and London. That’s bad too. It’s not to say that good things don’t come from these companies (though Facebook seems to be a net negative for humanity.)
But this level of wealth concentration and inequality is detrimental to the fabric of a society. We’re not better off, we’re not more innovative, we’re not healthier or more cohesive or happier when this happens.
> But this level of wealth concentration and inequality is detrimental to the fabric of a society. We’re not better off, we’re not more innovative, we’re not healthier or more cohesive or happier when this happens.
I agree 100%, but you're ignoring the other factor that is detrimental to society: social factors. Notably, the divorce rate and single-parent rate among poor and working class Americans of all races has skyrocketed. Now, top earners will often tell you that there's nothing wrong with divorce or single-parenthood, but observe what they're actually doing themselves! Their low divorce and single-parent rates have remained steady over the past few decades, even as everyone else's is plummeting [1].
In addition, the middle and working class are losing their social support networks. Church attendance is down, union membership is down, and volunteer organization participation is down among those groups. In contrast, most top earners have large and robust social networks.
I could go on and on about other social issues. Yes, wealth and income inequality is a big problem, but it's only one aspect of the decline of America's middle and working class (excluding the upper-middle class, which has continued to rise). We need to stress and incentivize social factors as well. The non-wealth and non-upper-middle-class should emulate what the top earners do in their social lives, not what they say.
I still strongly support a wealth tax, and higher income taxes, as long as they're distributed directly to our citizens and not used to build additional government bureaucracy.
Finances are generally a big cause of divorces. Have you considered that upper-class couples have low divorce rates because they have money? Rather than they are upper-class because they don't get divorced.
Don't get me wrong, divorce is a massive destroyer of wealth. But happy couples don't generally get divorced. And financial stability is a big contributor to happiness.
Could also be the tail wagging the dog. People arrested for say being drunk in public are gonna be broke, because they don’t have mansions to drink in.
Could be that the cultural problems you’re describing follow whole towns being hollowed out as all wealth is transferred to winner take all cities, as free trade knocks out industries with no help nor replacement.
undoubtedly, i think theres a sweet spot for letting people gain rewards from their own hard work/talent/value creation, but i think as a society we are moving into the dangerous territory where that balance is totally skewed in one direction.
First off, I really like your username! I'm sure you had a particular robotic animal in mind when you chose it.
Secondly, a gain from one's own rewards is supposed to be in one direction. A person is entitled to the fruits of his labor. Not anyone else. There are only a few people at the top of any profession or activity. But this fact seems to be ignored for some "utopian" dream where the guilt or coercion of the successful compels, via self-abnegation, some "compensation" to the masses for the latter's lack of success. That the best are merely cogs to keep churning to the rhythms and dictates of his fellow man and of his government. That the best see no value in their own work or selves without others as their chief barometer.
However, I don't see it argued that Usain Bolt should slow down so that he doesn't ruin the Olympic Sprint for the rest of his competitors. I don't see it argued that intelligent students should stop going to Harvard/Stanford/{take your pick} because such academic success makes everyone else look mediocre by comparison. Why should it be any different in Silicon Valley? Why should one accept inefficiency or inadequacy? It benefits no one to either become or accept a prize that is lesser in value than the sum of one's actions. Except perhaps for martyrs and masochists.
Hey fellow zoids fan, first of all i never said people creating value shouldn't be rewarded, i think they should be rewarded extremely well but at the end of the day, no individual can survive without a society, this is a fact. What we need is a more balanced society where people can start at some base level and can gain based on their contributions. As for your Usain Bolt analogy, for me its more like Usain Bolt is a great runner so he gets 99.9% of sponsorships but theres some kid in Uganda with even more potential, yet he becomes a farmer because he can't find a sponsorship. There are talented people all over the world, a good society affords them the opportunity to realize their potential, something which i don't think is possible with uncontrolled winner take all in the economic marketplace.
I wasn't really picking on the point, I was just noting that Airbnb seems like an increadibly bad example.
Also, using hyperbolic language like
> But this level of wealth concentration and inequality is detrimental to the fabric of a society. We’re not better off, we’re not more innovative, we’re not healthier or more cohesive or happier when this happens.
is definitly a dog whistle and not simply "noticing some consequences".
I think the problem here is the consolidation of an entire industry around a single Silicon Valley company. In any other time in history this would be called a monopoly, and that is a problem.
If AirBnB was just an aggregator, say a cooperative standard where hotels and guesthouses could post their services and the profits of AirBnB would go back to the industry, that would be fine. But it is not, the profits go to shareholders and Silicon valley executives. And that is the problem.
There are competitors- VRBO, for example. AirBnB have a significant share, but hardly a monopoly.
If Airbnb were just an aggregator, it'd be pretty worthless. For myself and my wife, finding superhosts on Airbnb is one of the indicators we use to feel comfortable that we probably aren't getting ripped off.
The relatively simple interface for scheduling, requesting changes, paying, seeing up front what taxes and surcharges will be applied etc. are all things the hotel industry has had decades to implement, and they didn't.
In fact, they still haven't. If hotels and guesthouses formed such a cooperative with all the same features, I would use it- especially if they didn't add on their own service charge like Airbnb.
The boom of renting rooms and houses may have come with its downsides, but from the consumer point of view, AirBnB has been a godsend for those of us who don't like hotels, travel with pets, and go to out-of-the-way places that don't otherwise tend to attract a lot of online presence.
Could you point out where my comment implied that they shouldn't be allowed to do business? I didn't mean to (and don't believe that) so it would be helpful to see how I could adjust the way I communicate this.
They should be allowed! It's just that maybe we need to adjust our society to this reality.
I think the language of the post was rather hyperbolic; I have quoted this line a few times now:
> But this level of wealth concentration and inequality is detrimental to the fabric of a society. We’re not better off, we’re not more innovative, we’re not healthier or more cohesive or happier when this happens.
When you give Airbnb as an example, I fixated on them mostly because it doesn't jive with the rest of your point.
So Airbnb is part of a group of companies in one geographic area that happen to be successful. Why does it matter? Should we choose to not do business with them, for the sake of geographical monetary equity? Whether group fiat or government breaking them up, it is the same result.
Sorry if all of this came off as too aggressive. It is monday, and I have had too much coffee already :/
Really don't get where you're coming from, that quote is two paragraphs after the mention of many other companies, where he's clearly implying the concentration of wealth in the hands of the founders and investors is the detriment.
> "Of course the Gini coefficient is increasing" translated means "income inequality is not a problem".
The book "The Great Leveler" https://www.goodreads.com/book/show/31951505-the-great-level... is probably the most comprehensive dive into history of inequality, and arrives at a fairly unexciting conclusion that periods of great inequality are correlated with significant economic growth (usually related to advances in automation, which tend not to be universally distributed) whereas periods of equality can generally be attributed to stagnation.
there are some very real counterexamples. It's hard to argue that the US did not undergo both decreasing inequality and growth between 1860 and 1900. Decreasing inequality (well a good chunk of the population was no longer chattel slavery, if nothing else), and the US went from "utterly destroyed by a civil war" to "nascent superpower"
Growth from whom and stagnation for whom? If during this "stagnation", the level of societal wealth remains the same, but inequality decreases, that indicates massive utility gains due to decreasing marginal utility of wealth.
Moreover, inequality now is extremely high, and growth is decelerating. China has less wealth inequality than the United States, yet is growing substantially faster.
> Moreover, inequality now is extremely high, and growth is decelerating. China has less wealth inequality than the United States, yet is growing substantially faster.
Growth is a second derivative. Income inequality is a function of first derivatives. You can't directly compare the two. If I had to guess, China's wealth inequality in China is growing at a much faster rate than that of the US.
Hmmm. The traditional (1960's) view (Kuznet's "Inverted U") is that starting from low-tech societies where everyone has more or less the same, inequality rises with the advent of technology, then falls again as democracy and the welfare state kick in.
Thomas Piketty in his magnum opus Capital in the Twenty-First Century argues that the rise in inequality is inevitable (his famous r > g) and only interrupted by wars, depression, hyper inflation, and similar catastrophes that destroy a lot of wealth. That's rather more exciting than stagnation.
Branko Milanović’s more recent (2016) Global Inequality: A New Approach for the Age of Globalization (which originated the famous elephant graph [2]) notes that 1) inequality has risen recently within nations, but decreased among nations; 2) the Kuznet inverted-U needs to be replaced by Kuznet waves; 3) there does not seem to be an efficiency-equity trade-off in the long-term 4) social mobility seems to be falling (such that accidents of birth basically determine your station in life again, as in previous centuries).
> periods of great inequality are correlated with significant economic growth (usually related to advances in automation, which tend not to be universally distributed) whereas periods of equality can generally be attributed to stagnation.
Here, Milanović distinguishes "malign" equalisers, which reduce both inequality and average income (namely the ones noted by Piketty: wars, epidemics, depression, etc.), and "benign" ones: widespread education, greater social transfers, and progressive taxation. [3]
That would seem to indicate that Goodhart's Law is in effect and not much more. At least, not until you demonstrate an analysis of quality of life during those same periods.
It definitely takes a bias toward "wealth accumulation is good" to present the following as good news:
> "The reason the percentage of heirs has decreased is not that fewer people are inheriting great fortunes, but that more people are making them."
It's likely that many of the inheritances of 1982 were the echo of the corrupt and monopolistic industrialism in the 19th century. Is it a bad thing that the great individual fortunes that were built a century earlier couldn't be amassed in the 20th? Have we returned to a 19th-century environment now, with technology taking the place of railroads and telegraphs? On that note...
> "the major sectors of the economy were either organized as government-backed cartels or dominated by a few oligopolistic corporations."
Unless I see a FAANG company go out of business, soon, and as abruptly as it appeared, I'm inclined to think we're entering a new oligopolistic era. Just because these companies were recently startups doesn't mean they aren't entrenched now.
(As an aside regarding the wealth tax, that actually would have worked to reduce the number of heirs at the top of the list in 1982 had it been enacted some time earlier.)
--"I'm inclined to think we're entering a new oligopolistic era. Just because these companies were recently start-ups doesn't mean they aren't entrenched"
Your comment is on start to end, just to add, these "companies", are nothing more then dystopian mirrors to the public, their fronts(all individuals in the public eye, greatest example of a nobody(Leon Musk)) are just second rate actors. The virtualization of "finance", it's moral justification, nothing more is at stake.
Real power, ...dwells in the shadows. This goes from the White House, to Hollywood, over Silicon Valley to Mar o Lago in the Swamp State.
The measure of a dollar between a billionaire, and a homeless dweller as to the price of a loaf of bread is meaningless. What counts is the grab for the hard assets, power, control, that probably starts at multiple billions. A second measure of any meaning is the time line power and influence can be stretched. A professional politician is seriously handicapped there, hence the proof of the above as to what is "wealth".
Think the implicit meaning here is that Gini coefficient is often used only as an indicator of income inequality, not wealth inequality, despite it being usable for both. Usually one has to specify "wealth Gini coefficient", as most default to income otherwise.
However, this essay is specifically about wealth so at most I'd criticize this use as somewhat ambiguous instead of assuming that PG meant income Gini and therefore confuses income with wealth.
Having read a fair bit of discussion of inequality, I think that in any popular discussion if you see the phrase "gini coefficient" unqualified, you should presume it to be discussing income, even if the rest of the discussion was about wealth.
He’s a man of his youth; when you could start a garage band and have a modicum of success, then carry it forward with sound fiscal choices. Concepts like inflation, and buying power are lost on someone of PG’s wealth.
He’s completely detached from the modern reality: content and options are ubiquitous relative to PG’s golden years.
It’s the same with Marc Andreesen and his call to build; hey Marc why not build a progressive tax system that enabled your generation and your parents to explore as they chose instead of suggesting we all just rally behind a billionaires blog post?
These guys are visible because they “won” an ephemeral challenge most people aren’t even aware of.
It’s stunning how smart folks seem oblivious to the extent which relativity commands reality.
> A French critic cleverly wrote that "with Autumn Sonata Bergman does Bergman." It is witty but unfortunate. For me, that is. I think it is only too true that Bergman (Ingmar, that is) did a Bergman.... I love and admire the filmmaker Tarkovsky and believe him to be one of the greatest of all time. My admiration for Fellini is limitless. But I also feel that Tarkovsky began to make Tarkovsky films and that Fellini began to make Fellini films. -- Ingmar Bergman
And PG does PG. It's a classic pseudo-contrarian, startup rally cry, PG post. Which isn't to say it's worth getting annoyed at it. It's simply on brand.
Can I ask a related question? Why all the focus on income/wealth "inequality"? Shouldn't we be looking at the absolute baseline quality of life? Hasn't it been increasing dramatically despite increasing inequality? Due to technological advances, hasn't the baseline quality of healthcare, education, sanitation, nutrition, shelter, comfort, convenience, etc. significantly improved from the 60s or the 80s? If so, why begrudge the rich, especially those who have driven this advancement, their fleets of yachts?
1. Humans are humans, and they pretty much always judge their success by comparing themselves to others. Or, rather, humans are primates. Take a look at the famous study of the monkey that got cucumber while the other monkey got tastier grapes.
2. Income inequality in and of itself can be a problem because the mega wealthy can essentially buy laws that benefit themselves. There have been many studies that show that politicians are much more responsive to the desires of the rich than the desires of the average person.
3. In any economy, limited resources always go to those on the top of the wealth graph, regardless of cost to produce. So while you may be able to say everyone's standard of living is better, that's cold comfort to someone who won't be able to buy a house in their lifetime because limited land supply goes to the richest.
> pretty much always judge their success by comparing themselves to others
Yes but that doesn't mean this comparison has moral standing. Also this behaviour is pretty low-level, neurologically, and we can train our higher executive functions to override and disregard it. I would argue that should be the expectation.
> can essentially buy laws that benefit themselves
Again - so what? As long as everyone's lives are improving on every metric, who cares that the wealthy mess with the tax laws or enact regulatory capture.
> that's cold comfort to someone who won't be able to buy a house in their lifetime because limited land supply goes to the richest.
No, the person (and all other people) should derive their comfort from the gratitude for being able to live in a modern, extremely comfortable world.
Edit: to rephrase, isn't the problem here the expectation/belief that you should have/are entitled to a detached house?
For many people in the US, over the past couple of decades:
1. Housing has become much more unaffordable.
2. Higher education has become much more unaffordable.
3. Retirement income has become much less guaranteed.
4. Employment is much less stable than it used to be.
Just look at the coming eviction tidal wave that will happen after the eviction moratoriums in the US end. Telling people "But look at all the other modern comforts you have now!" will smack as "Let them eat cake" when someone gets kicked out of their house, while the rich got much richer over the past year.
That's hardly surprising though is it? The number of people in the US has almost doubled since 1960, and urban population density has increased much more than that. Any expecation that everyone will be able to afford a detached house in any proximity to a metropolis is clearly unreasonable.
> Higher education has become much more unaffordable.
Again, the admissions rate hasn't really kept up with the population has it? Also there's a labour shortage in lots of skilled trades, construction and agricultural labour; and a labour surplus in finance and law. Do you think it's reasonable that everyone expects to attend higher education?
> Retirement income has become much less guaranteed.
I'm not sure how you'd measure retirement income "guaranteedness". Also see "Pension Timebomb" for how actually guaranteed those pensions are.
> Employment is much less stable than it used to be
Do you have a source for this? Ideally one that controls for people changing employment to advance their careers? This is much more common these days for the reasons outlined in the article.
Yes, after being evicted from a place you cannot afford, or after any other trying circumstance, telling people to focus on what they can be grateful for instead of what to be angry about is exactly the right thing to do. What business is it of yours or anyone elses how much money someone else has? Who cares if they have more or less than last year? How is that related to you personally being unable to affort rent due to being unemployed during a pandemic?
Because there are people being left behind. Productivity per person has increased massively over the last half century, yet income per worker has been stagnant unless you break into a few specific contexts. This doesn't appear to be a necessary part of innovation as PG and others claim, but rather is a reflection of concentrated wealth's ability to restructure the market and even the legal system to better serve those concentrated interests. This is the pernicious problem we have to fight. It is in no way somehow exogenously necessary for people to have half billion dollar yachts in order to advance the life of the typical human. "Markets measure merit" is a lie told by those best positioned to control markets to manufacture their own "merit."
>Why all the focus on income/wealth "inequality". Shouldn't we be looking at the absolute baseline quality of life? Hasn't it been increasing dramatically despite increasing inequality? Due to technological advances, hasn't the baseline quality of healthcare, education, sanitation, nutrition, shelter, comfort, convenience, etc. significantly improved from the 60s or the 80s?
If people are feeling more volatility, and that it can all slip out from under them at any time, then all that baseline quality improvement is not worth much. Also, just like many other animals, we are playing a game rooted in the mechanics of mating involving social hierarchy and various tribal mechanics that are key to securing desired resources and reducing the aforementioned volatility. I do not imagine vast gaps in income/wealth/security help the tribe as a whole in this game.
Do you think this feeling is reflected in actual risk though? If so, how would you quantify it? If not, shouldn't we expect/teach people not to feel so volatile and be more grateful and content?
Yes, the easiest way to see it is in the lack of income security and wage stagnation for the vast majority. You have to hustle, your employer may not be around for your working lifespan, or they might be obviated by cheaper labor from overseas and/or technology and automation.
Edit: Another example is health insurance is tied to your employer in the US. It costs anywhere from $400 per child per month to $1k per month per adult, with a $17k out of pocket annual maximum. Imagine you've scraped together some savings for a house or a business or kids' education, and a wage earner becomes ill or injured, and can't work. Now you have giant expenses coming your way at your most vulnerable, and government help from Medicaid (for subpar quality healthcare) doesn't kick in until after you've exhausted all your assets, so you are at risk of getting sent back to square 1.
Doesn't the article point out that this is pretty much the normal condition of life, with a brief interlude from the 50s into the 80s? Yes, life is unpredictable, bad things happen for no reason. This is a moral condition we all have to accustom ourselves to. I'd speculate that the pain our society seems to be going through now represents a correction towards the normal condition, and that we should adjust our expectations accordingly.
The gist of your original comment was that life has been getting better for everyone. But if you also claim people need to adjust their expectations downward, then some things are not getting better for everyone.
I know that people from the 50s to the 80s didn't have internet, healthcare technology, medicines, smartphones, etc like today. But obviously there is something to be said for the stability or utility of knowing that your children will most likely have a better future than you did, and the demise of this fact (or belief) is causing friction in society.
> stability or utility of knowing that your children will most likely have a better future than you did
Depends on how you qualify "better". By the listed measures, this is still the case. By available land/population this is clearly not. Do we have any reason to believe our children will not have better healthcare, nutrition, access to information, etc than we do?
If we don't, then what justification is there for agitation?
>healthcare, education, sanitation, nutrition, shelter, comfort, convenience, etc.
In the US, you can trace all of these back to wages, especially since healthcare is tied to your employer in the US, and you can look up any a variety of data to show that wages stagnated decades ago, length of tenure at employers decreased, increased participation in "gig" economy and service industry which don't offer benefits (i.e. loss in wages), consolidation of growing economies in fewer areas of US resulting in cost of land rising disproportionally to income, etc.
> Do we have any reason to believe our children will not have better healthcare, nutrition, access to information, etc than we do?
I don't know who "we" is here, but it's reality for people who spent 20 to 30 years at a manufacturing facility that was then outsourced and who now live in a town with no significant business, whose kids' only hope is to use college to boost themselves into an in demand career, but that involves moving to a HCOL area where they now have to sink a significant amount of money into their land purchase (house) to establish themselves, away from the rest of their family.
>If we don't, then what justification is there for agitation?
I don't know what other sources of information you want, but I know pretty much everyone in my parents' generation got married, had kids, raised families, and now the number of people that are coupled up is around half in my family and friends, and those with kids by mid 30s is even lower, maybe a third.
There's shortages of healthcare providers in rural areas because no one wants to live there, there's more and more competition for in demand areas as everyone tries to get in before they can't afford it.
This is all volatility. This didn't happen when everywhere was growing, but this happens when you have a divergence, and you're either on the upswing or the downswing.
> In the US, you can trace all of these back to wages
This seems to disregard the trememdous advances in all the fields of healthcare made in the last 40 years. Treatments are readily available for diseases which were previously death sentences. Treatments that were prohibitively expensive in 1980 are cheaply available today. Once we factor this into our analysis I don't think anything has stagnated.
> whose kids' only hope is to use college to boost themselves into an in demand career
What about trade school? There's a shortage of construction labour and skilled trades throught the country.
> have to sink a significant amount of money into their land purchase (house) to establish themselves, away from the rest of their family
I don't recally anyone being forced to buy houses. Plenty of folks raise families in apartments. I myself was raised in one. Yes when you live in a metropolis you can't afford as much space. And?
> and now the number of people that are coupled up is around half in my family and friends, and those with kids by mid 30s is even lower, maybe a third.
And how much of this would you attribute to people making different choices and having different priorities? How would you control for people's willingness to be poorer and still have children?
Social status is by comparison, that's why. I assume the vast majority of people would choose to be in the aristocracy somewhere in 1300 Europe, compared to middle class today. Even if objectively the middle class has better quality of life.
Why on earth would you assume that? Middle Ages aristocracy lived comparatively miserable lives - no daily hot shower, no climate control, nothing resembling health care, no running water or sanitation, no access to information, no international supply chain for food or products (eat only what your community can preserve for the winter). I would wager that any of those aristocrats would gladly amputate their limbs to live as an average person today.
Interesting to think of, let's say, one of our society's upper class given the opportunity to be a 'regular' person X years from now. Rejuvenation, instant cure for any illness, pain or wound, immersion into world spanning super intelligence, gratification of any physical or emotional desire, personal host of robotic servants, etc. The price is that they would be regular, that is, devoid of superior wealth or power. Would they take it?
>At the end, there's a massive claim that isn't fully stated but implied. "Of course the Gini coefficient is increasing" translated means "income inequality is not a problem".
To me, the implied message simply reads as "Startups and private equity is the number way to make money in 2021. Come do business with us."
> Firstly, Gini coefficient is based on income, not wealth.
The Gini coefficient can be applied to any statistical distribution, including wealth.
From Wiki:
> The Gini index or Gini ratio, is a measure of statistical dispersion intended to represent the income inequality or wealth inequality within a nation or any other group of people
it's hilarious to me how so many talking heads think the solution to guilt is more speech instead of praxis. you feel guilty about all of your wealth? give large sums of it away. charity works wonders for the guilty conscience (speaking from experience here). but that's unthinkable so they just go on engaging in this kind of sophistry. lays bare that they're not actually trying to cure their guilt but justify themselves.
I'm not sure what marxism has to do with this (I don't think Marx wrote about charity) and although I'm not a native speaker I'm pretty good at syntax/semantics:
>the solution to guilt is more speech instead of praxis
vs
>the solution to guilt is more speech instead of practice
In English, the usual terms are theory and practice. Praxis is a synonym of practice, but it is rare and formal (for the marxist connection, see https://en.wikipedia.org/wiki/Praxis_School).
At any rate, what you wanted to say is maybe best expressed as "the solution to guilt is more speech instead of action."
I'm well aware of both the colloquial use of practice and "marxist praxis". I was simply implying that, as written, my statement didn't intersect marxism in any way and therefore couldn't have been misunderstood as such without willful misunderstanding.
Note that there are other uses of the word that also themselves don't intersect marxism in any way
>Praxis (from Ancient Greek: πρᾶξις, romanized: praxis) is the process by which a theory, lesson, or skill is enacted, embodied, or realized. "Praxis" may also refer to the act of engaging, applying, exercising, realizing, or practicing ideas.
is exactly what I intended (since I believe pg, and others I was implicating, pontificate but don't do much).
I feel a certain degree of guilt over my (relatively low, even in Canada) developer salary. I didn't do anything to deserve my comfortable life. I can't imagine how people with billions sleep at night.
Thanks for posting the PG wealth tax article. It is a highly flawed analysis.
First wealth appreciates over time. So if your wealth appreciates at 15% / year, and the govt. taxes it at 1%, the net effect is growth rate is slowed to 14%. With these assumptions, someone starting with $1mm in wealth ends up with $2.6 billion after 60 years!
Second - PG ignores that most wealth tax proposals have a high minimum wealth - in the $50mm range. So there is no early compounding of the tax. Adding this into the model, the wealthy founder ends up with $3.3 billion after 60 years.
With no wealth tax, this hypothetical founder ends up with $4.3 billion. So, yes the government has taxed a total of ~ 25% over 60 years, but the founder ends up quite wealthy.
> At the end, there's a massive claim that isn't fully stated but implied. "Of course the Gini coefficient is increasing" translated means "income inequality is not a problem".
Now, I can't speak to whether or not pg's implication here was intended and unsaid, or not intended: it is likely intentionally ambiguous.
One thing I can speak to though is that it seems common now to read something as if the thing it implies is the thing the author actually intended to communicate. We should be quite careful with this sort of assumption. Sometimes it's a safe one, other times it is not.
It would be very interesting to re-order the list by the amount of liquid wealth that each person owns, not including fake founder stock wealth that can't be e.g. theoretically sold overnight to avert a world disaster -- very different from someone with an actual pile of cash or bonds or gold.
Consider someone's effective wealth as the amount of liquid USD they could hypothetically produce in a 24 hour period by selling all of their assets, including market dynamics, and then tell me who the top 100 richest people are.
> people like me are creating a lot of value, please acknowledge it. Also there are no downsides to this accumulation of wealth
That is an overstatement of the article, but the article is actually defending the rise in inequality as a nature of the world today with no guilt (of participation) about it.
Reminds me of the call girls in H2G2 who specialize in sociology telling executives that it is okay to be rich and they earned every dollar in a dystopian war field (HanDod city?).
It is extremely important for a creator to truly believe that "they built all this value" (non zero sum value and that is often true) and not merely built an efficient transfer mechanism into their pocket. This in contrast to something like Warren Buffet's "lottery of birth" statements.
He is right about something though, the rules are the same as before.
"Welcome all. Everyone can play, the winners get to keep playing, the rich can play longer even if they lose - those who play longest, win big. Just remember there are no second acts in american life".
The winner-take-all only benefits those who can actually spread their investments around ,so that the investors can spread their money, but the workers can't spread their time around 10 possible jobs.
Also, picking oil and 1982 feels odd considering half the "gas crisis of the 70s" highlighted why oil is critical.
If I said medical tech would boom in the next five years, with vaccines for HIV and bespoke immune therapy for cancers, that would not be a bad bet because of the usual "events leading up to".
> But at the moment at least, there is definitely something they share in common that distinguishes them. What retailer starts AWS? What car maker is run by someone who also has a rocket company?
So your justification for how you're classify Amazon is something the company does (good) but your justification for how you're classifying Tesla is other things the CEO owns? Very sloppy, Paul. Very lazy.
There's also the unstated implication that "anyone can do it if they work hard for it" - basically saying it used to be you had to be born into a wealthy family to be one of the richest people in the world and now you can be the richest person in the world based on merit alone (thus rich people are inherently meritorious).
Somehow all of those explanations seem to gloss over the fact that you generally need to be born into a wealthy family in order to have the cushion to take the risks that allow you to collect billions. As an example, Paul Graham would have been far less likely to attend Cornell and Harvard if his father had a blue collar factory job instead of being a nuclear physicist. Almost none of the 'bootstrap billionaires' of the tech world come from less than an upper middle-class background, but like PG they are quite fond of suggesting that their success was entirely due to 'merit'.
pg has been touting the statistics he's pulling out in here for a while on Twitter. I think he read these somewhere and started digging a bit more into it, constructed a narrative, and wrote an essay.
I don’t think PG is necessarily saying that income inequality is not a problem. This is disingenuous on your part. Saying “of course the Gini coefficient is increasing” does not necessarily translate to “income inequality is not a problem.” Rather, what he is to my mind correctly pointing out is that the entire situation regarding wealth accumulation, distribution, and class mobility is perhaps more nuanced than we typically understand it to be. Indeed, he points out that it is in fact easier in some major ways, which is a wonderful thing to realize. This does not necessarily mean that income inequality does not exist or is not a problem. There may still be ways in which it is. Instead, it is good to acknowledge that the ability to build wealth through starting businesses is, in his particular lens, better than it has ever been.
Further, I think it is disingenuous to compact PGs meaning to “‘people like me are creating a lot of value, please acknowledge it. Also there are no downsides to this accumulation of wealth.’ ... it just seems like a desperate play to keep his wealth intact.” So much of the time argument betrays the arguer and rather demonstrates a perverse inclination to emotions such as jealousy rather than reasoned indifference. Why is he desperate in this case? Is he afraid of people taking his money away from him? Are there people actively attempting to do so? Is this not a natural human inclination? Is this something that only affects the wealthy? Do not all of us to a certain degree wisely protect what we have earned? It has indeed gone out of fashion to point out that the rewards of benefitting society are equal to the benefit ie what society is willing to pay for those benefits (if not less so, due to the existence of taxes). We should first admit that society is made of industrious and lucky individuals by varying degrees, admit this, and then stave away jealousy at the success of those more industrious and lucky than you or me - for success coming to the industrious and lucky remains just despite the existence of those who pursue lives of industry and are not as lucky. It is out of fashion to point out the simple and bare fact that ambition to improve the world is amplified in the environment where it is incentivized: if this be done through the respect garnered as a result of benefitting the world, that is great; if this be done as a result of rewarding the creator of those benefits commensurate to the benefits given, that is great also. In either case, the results are amplified; with both cases the results are amplified still further by the addition of the incentives. Yes, indeed the numbers by certain statistical methods appear disproportionate within studies of income inequality. Yet, simply because these figures impress upon us a knee-jerk reaction to decry the accumulation of great wealth by the few as unfair, does not make it so; it does not necessarily mean that something is wrong that these results should be allowed to occur. So long as the majority of we who inhabit the economy are not actively oppressed by the creators of great wealth, so long as our freedoms are not taken away, no reasoned argument can point to why the accumulation of great wealth is a damaging thing. Indeed, if it results from the great mutual benefit to society, this is in fact a very good thing. So long as the accumulators of such great wealth are not oppressing the majority of participants of the economy, the accumulation of great wealth ought to be a sign of the great benefits that the accumulators are providing to society, as it is society, as has now been remarked a number of times in this comment, that is paying for it. Indeed, if we continue to demonize wealth creators and go on to pass reforms that remove incentives to wealth creation, we would only de-incentivize the creation of future benefits to ourselves as members of society. Further, with certain reforms that constitute graded barriers to success, the freedom of economic mobility then being lessened, the entire economy and state as a whole is then oppressed by degrees - the oppression is then rather achieved by those who have sought to fix the “problem”. I’m not saying that income inequality does not exist - I’m saying that in this particular form the fact that there are disparities in income is not unfair, and that results from the just distribution of benefit to society that society is happy to pay for is not necessarily unjust by statistical analysis of income data alone.
> It just seems like a desperate play to keep his wealth intact.
To me this dismissal reads as a little blithe. Is it true that, now more than in the past, the rich are getting rich by innovating? I don't see you engaging with that argument.
Clearly people who create successful businesses add value. Clearly Jeff Bezos has added a lot of value. That doesn't mean he shouldn't be taxed but I constantly see people talking about Bezos as if he's an evil capitalist oppressor who has stolen his wealth from virtuous laborers. To me it seems obvious that Bezos' personal wealth is a drop in the bucket compared to the value he's added to the world (hundreds of thousands of jobs, changed the way we buy things).
It's totally fine to be in favor of higher taxes but it shouldn't be because you hate rich people or you think they are greedy parasites. Unfortunately I see a lot of that going around.
Is income inequality a problem? In my opinion, the real problem would more accurately be defined as peoples inability to afford their basic needs: housing, food, and to a degree healthcare. Some might argue to throw education/training into the mix as well, and I wouldn't fight that too much as long as people remember more affordable options like community/technical colleges. Many who argue income inequality is a problem tend to imply that it means people can't afford their basic needs. I agree if people can't afford basic needs that's a problem. But my neighbor simply having 10000000x more "wealth" than me isn't a problem. Great for them.
Where things become a problem is when people can't afford their needs. But lets be honest about what needs really are. Housing/shelter's needs demand a space for someone to stay dry/warm, with a toilet and running water (to keep things sanitary). We don't "need" a 3500 sq ft mansion even if you are a family of 16. Though the trend year after year, is we're spending more and more money on bigger and bigger homes for smaller and smaller family sizes (see https://www.aei.org/carpe-diem/new-us-homes-today-are-1000-s...), which subsequently cost more and more money to heat/cool. Not to mention the fact that more people are getting mortgages for larger and larger and longer and longer amounts... there are even mentions of > 30 year mortgages on the horizon... while mortgages help you get into a home, the typical 30 year mortgage today results in you paying ~1.5x+ over the cost of the actual home (300k home costs ~450-550k depending on interest rates). Not too long ago, many people built their own homes, mortgage free. Yea, they weren't fancy homes. Typically a box with a roof. But they lived within their means.
Back in the day more people heated homes "for free" using wood they chopped themselves back in the day. And few had AC (none did if you go back far enough). Back in the day people didn't have a microwave, toaster oven, toaster, oven, stove top, panini press, smoker, bbq, coffee maker, etc all in their one home. Depending on how far back you go, they had none of these things and still survived.
Back in the day you didn't "need" the latest iPhone every 12-24 months, or the biggest TV. You didn't need a new car every X years. You didn't "need" an international vacation every few years.
The point I'm trying to make is our spending habits can take on some amount of blame (how much can be argued)... especially when you consider the demand impact of everyone willing to overspend and go into debt on items they don't truly "need". Take a look at the FIRE community (financial independence, early retirement) and you'll see real life examples of people who scale back their living to their needs + a few wants, on small amounts of income and how they're able to still put money aside every month. The community tends to highlight those that can save 50%+ of their income on a 6 figure salary... but there are plenty of examples of people saving on small amounts of income.
With all that being said, I'd agree income to house cost ratio isn't great in a lot of areas in the country, and is trending in the wrong direction. That's a problem. Healthcare's rising costs isn't great--that's a problem. But also keep in mind people are living longer now than ever before (https://www.statista.com/statistics/1040079/life-expectancy-...), and I'd assume the longer people live the more expensive their healthcare becomes... so while this is a problem, I think it's false to say it was "solved" decades ago. Educational costs are skyrocketing too--that could be argued a problem. But there's also more of us spending more money going into more debt to get all of these things, driving the demand up for each of them. Massive corporations using anti-competitive practices to crush small up and coming competition is a problem. Companies failing to pay out a decent salary is a problem.
I think there are things that need to be addressed when it comes to peoples ability to cover basic needs + some ideal wants. However I have yet to hear a convincing argument that my neighbor getting filthly rich somehow leads to my inability to afford my basic needs.
These takes freak people out because we want to think of anti-inequality as a virtuous, prosocial belief. But a commitment to hold down inequality is a commitment to prevent the creation of value.
I don’t think it’s controversial to skim the top of the creation of value / rise in inequality to fund services that people need. But as long as a founder’s share of his value creation is greater than the share accruing to the homeless person down the street, his enterprise is still promoting inequality. From an inequality frame, even with a 99% tax rate it ought to be stopped. There are more than 99 other Americans; the founder’s share is still outsized.
No one is qualifying their discussion of inequality with “produced by inherited wealth.” If they did, it’d be a lot more palatable. About half the inequality discourse I see targets founders. The other half targets workers whose salaries are too high, whose children are too well prepared for college.
So, "start your own company". Or, trickle down wealth from VCs.
To be honest, a lot of people don't WANT to run a business. Business ventures are expensive in terms of time and money. I wish there was a quicker, more passive answer to "how people get rich now" than "invest in VTSAX and let it compound". A lot of people want the money to do the work for them.
> In 1982, 84% of the richest 100 people got rich by inheritance, extracting natural resources, or doing real estate deals. Is that really better than a world in which the richest people get rich by starting tech companies?
Google, Facebook, Amazon are extracting human resources. More precisely they are exploiting it.
Which one is better? Doesn't matter. Once something is exploited it will disappear.
The post we actually need. I want to know about innovations in this space. Who has a disruptive way to bring fulfillment to lives at scale, using blockchain or whatever other buzzwords you need to attract investment. Because that's what's actually worth investing in. If you're starting a company to get rich, you're missing out on life.
> In 1982, 84% of the richest 100 people got rich by inheritance, extracting natural resources, or doing real estate deals. Is that really better than a world in which the richest people get rich by starting tech companies?
Data is a natural resource and is being extracted. It is not better. It has nominal differences and doesn't cause as much pollution.
I don’t think I can take seriously the claim that people did not start companies in mid-20th century America, because of high taxes. I’m thinking of the whole Fairchild diaspora, Intel, Microsoft, Apple just in the computer industry, then there’s Wal-mart etc. all of these predate Reagan’s low-tax philosophy.
>In 1982, 84% of the richest 100 people got rich by inheritance, extracting natural resources, or doing real estate deals. Is that really better than a world in which the richest people get rich by starting tech companies
I'm not sure. I feel like the tech companies are just valued where they are currently based on "extracting natural resources" from willing investors and our privacy and sense of well-being. We need another downturn like in 2000 before we know what is worth what. Internet companies were worth a lot in 2000 too. Turns out a lot of those valuations were bunk.
It's a bit disingenuous to say 1/4 are getting rich from investing. They are getting rich because of the leverage embedded in the standard 2-and-20 payment agreement where the hedge fund managers get 2% of assets under management and 20% of profits above some threshold. Plenty of not particularly good hedge fund managers get really rich because they can convince wealthy institutions to give them money.
The VC industry is the same way. Most funds' returns are poor, though there are obvious exceptions, just as there are in the hedge fund industry.
Edit: the leverage is that the GPs (general partners) usually only put up 5% max of the total assets under management (the rest comes from the LPs (limited partners), the pension funds, endowments, high-net worth individuals, etc. invested in the fund) but get 20% of the profits.
One implicit idea here is that companies are now also different kinds of things now - they are much smaller and leaner while also making a lot more money - that gives them a very different character to the large, dense and slow moving corporations of a few decades ago (and maybe a lot less accountability too).
Perhaps these big shifts warrant a renewed discussion about the role of new large and lean mega companies in society. Market success can't be the only metric we use to measure the societal value of a company. If it were, tech domination would be the name of the game and companies would devolve into creating software that manipulates users for more revenue in whatever way possible/necessary. On a resource constrained planet, that would be absolute madness.
> If you only look back as far as the mid 20th century, it seems like people getting rich by starting their own companies is a recent phenomenon. But if you look back further, you realize it's actually the default. So what we should expect in the future is more of the same.
First, he pointed to one other point in time. Maybe this is true (although I doubt it), but the argument would benefit from many more data points if you're going to establish that 'startups are the default'.
Secondly, of course future here isn't disambiguated so it's hard to argue with. But past performance is only a guess for future prediction. Given the rise of populism globally, I think we're in for some big big changes at the societal level.
This reminds me of a graph of breweries in America over the last 100+ years.
I think the line started around 3k or 4k breweries across America around 1900, reached an all-time low in the 1970-1990s and now were back up to where we started.
Of course, the story here is refrigeration. When refrigeration was not common place, you needed a lot of breweries near consumption.
I'm also thankful for the variety of beer options we have today.
>Of course, the story here is refrigeration. When refrigeration was not common place, you needed a lot of breweries near consumption.
Uh beer doesn't have to be refrigerated? England has a long history of drinking warm beer. Hell, they even hopped it up to ship it all the way to india (months!) without it spoiling.
But the industry has slowly been going the way the tech industry has for some time now. AB InBev and friends have been buying up the big breweries left and right.
“ But the main reason it's easier to start a startup now is that it's cheaper. Technology has driven down the cost of both building products and acquiring customers.
The decreasing cost of starting a startup has in turn changed the balance of power between founders and investors. Back when starting a startup meant building a factory, you needed investors' permission to do it at all. But now investors need founders more than founders need investors, and that, combined with the increasing amount of venture capital available, has driven up valuations. [8]”
This is true for software companies, but not for materials companies that have to build stuff out of atoms. (e.g. cheaper to move electrons than atoms).
Is it possible that we just don’t know about people inheriting great wealth nowadays? Is there a world registry of wealth somewhere to track this stuff or does Forbes just search public information sources? Maybe the richest people are secretive.
Top 100 richest people etc is an outlier by definition. Chasing that phantom isn't going to get one anywhere. For those seeking to build meaningful wealth (think ~10M etc and not billions) it's better to be grounded and focus on the simple more predictable things one can control and build systems for good side income, passive income, do the np brainers like 401K, Roth IRAs etc. But unfortunately one can only read about the Bill Gates of the world and there is hardly anything written about the guys in 10M range that have 3 Valeros and 2 subways and a motel.
You can't look at the richest 100 people and say anything at all that's useful to regular people or even super smart tech folks, because they're outliers of the largest magnitude.
At any given moment, this is the income/wealth level of the medium social media account owner. Naturally, as those with fewer means come online, this limit decreases.
The purpose of this limit is to define the level of income/wealth, above which one will have to send an inordinate amount of time trying convincing everyone below the limit that it is not one's fault that the rest are currently below the limit. Everyone below that limit will be angry.
Once everyone in the world is online this limit will be defined as 0.
> Of the 73 new fortunes in 2020, 56 derive from founders' or early employees' equity (52 founders, 2 early employees, and 2 wives of founders)
0 husbands of founders
An observation. Maybe it ought to say spouse to avoid the meaty bait of several different flavors that supports this reality. As at least 1 of these is an ex-spouse it also brushes against divorce expectations in various jurisdictions, where the unpaid contributions toward the union fit an O(log n) level of efficacy instead of linear O(n).
> You would think, after having been on the side of labor in its fight with capital for almost two centuries, that the far left would be happy that labor has finally prevailed. But none of them seem to be. You can almost hear them saying "No, no, not that way."
As always, completely removed from reality, ivory tower bullcrap. Only a subset of the workforce has the luxury to be able to start a company. It is cheaper now and for good reason. There's not a whole lot of demand.
These late period Paul Graham essays are so wildly out of touch. It's like he hasn't had a conversation with a normal person in 15 years. He seems obsessed with pointing out that it's slightly easier to get rich now, while ignoring the fact that it's drastically easier to become poor.
>>> Indeed, we should expect both the number and wealth of founders to grow, because every decade it gets easier to start a startup.
In my view, this isn't guaranteed. I don't think there's any inherent reason why the "tech" industry can't consolidate itself into a few huge "gatekeeper" companies, and make it harder to start startups that are actually successful.
At any moment, we could be at the beginning of an era, or at the end of one.
From the headline, I had guessed this article would be about how people become millionaires rather than billionaires, but that would be a whole different article.
As someone who was an adult during the Carter and Reagan administrations Jimmy Carter started the deregulation debate and he set in motion money to study the idea. He was definitely in support of it, but faced significant opposition in his own party
But it was Reagan who actually executed on it. The unions and a significant amount of Democrats opposed both of them. Some jobs were lost but consumers greatly benefited.
And real income growth has precipitously declined in the same period, and that is not some statistical artifact, but a widely acknowledged econometric fact.
"This trend has been running for a long time. IBM, founded in 1896, took 45 years to reach a billion 2020 dollars in revenue. Hewlett-Packard, founded in 1939, took 25 years. Microsoft, founded in 1975, took 13 years. Now the norm for fast-growing companies is 7 or 8 years."
Shouldn't inflation be taken into account here? A speed increase is still apparent, but at a slower rate overall.
I like reading PG's essays, but...I read a book on pretty much the same phenomenon ("Capital in the Twenty-First Century" by Thomas Piketty) a few months ago. It took a lot longer to cover the same ground, but it also covered it a lot better, and a lot more persuasively. Not unsurprisingly, it is also a lot less sanguine about the impact of recent wealth trends.
> The central thesis of the book is that inequality is not an accident, but rather a feature of capitalism, and can only be reversed through state interventionism.
> The book thus argues that, unless capitalism is reformed, the very democratic order will be threatened.
I think one of the most disturbing things about how people get rich in technology startups today is that they get chosen by rich vcs to become successful.
Let’s say there are a few different teams of people working on some promising space that requires a new solution, vcs basically decide the winner by injecting massive amounts of capital into them and make the rest fail.
An interesting exercise is to go through the wikipedia lists of the richest people in different countries. Follow the links for the the top 5 or 10 individuals listed, and see how they made their fortune. It's a rather high-entropy information dump - you can infer a lot about different parts of the world, from not much reading.
By the way, confounding income with wealth is as bad as confounding market cap of a company and GDP of a country, e.g. GDP of India vs Apple's market cap [0].
He doesn’t address another possibility. That the inherited wealth, as evidenced by DuPont heirs, was carried over from earlier era that lacked the progressive taxation structure of the 50s and 60s that may have prevented accumulation of wealth. That was largely dismantled in the 80’s and 90’.
Note that the Forbes list doesn't necessarily reflect how people are getting rich at the moment, but how people in the more recent past have gotten rich. The catalyzing events that launch the fortunes of the wealthiest were already happening a while ago
Okay yeah, but that's like "Forbes 400" level rich, which is almost nobody. What about "acquire $10M by 50 years old" level of wealth? To me, that seems like a much more interesting story because it captures many more people.
Every thread about money comes with some "if you don't want it, give it to me!", "I wish I had money", "If I had money I'd pay for my wife's college debt!!!", "I dream of a million dollars", just like every internet thread that hints of a woman posting gets some "no woman has ever spoken to me before, can I see your tits?" drooling.
I didn't phrase it like your example comments. Isn't it at least important to let other losers like me know they are not alone? Otherwise you end up with biased representation that everyone on here has made millions and are successful company owners.
I enjoyed reading this. We are in a tech growth phase where the cloud, SaaS and AI are eating up both businesses and antiquated business processes (aka digital transformation). Find a niche and help them evolve.
Wow, its nice to see something I've strategized for years articulated well. While I would like a larger dataset, and mostly focus on the non-billionares in my more reasonable target wealth, it generally matches my analysis.
"Roughly 3/4 by starting companies and 1/4 by investing."
Some people have given me a hard time for not being too attached to companies, especially startups, but one of the things I've learned by seeing the internals of hundreds of companies, both as a contractor and as an employee, is that there are so many lessons to be learned at the business level if you learn how to pay attention and think about those problems. I found that as a sysadmin I was around these kinds of discussions a lot, but that other sysadmins just tuned most of it out. Instead I exploited the fact that so many C's viewed me as a "janitor", and soaked up the knowledge about what to do right and what not to do... and I continue to do so.
Now, I finally got my foot in the door in finance, and my two main strategies match (starting a business and investing).
"There were no fund managers among the 100 richest Americans in 1982. Hedge funds and private equity firms existed in 1982, but none of their founders were rich enough yet to make it into the top 100. Two things changed: fund managers discovered new ways to generate high returns, and more investors were willing to trust them with their money."
This is because put options weren't even a thing until, what, 1977, and more complicated options weren't removed from the moratorium until 1980. It was a very new field even for the existing hedge fund managers.
"of the 73 new fortunes in 2020, 4 were due to real estate and only 2 to oil."
Again, this is a very limited dataset, especially as someone who has been inside at least one oil boom, with family in the industry. I've seen quite a few many-millionares created by oil, they just don't show up in the forbes lists. They are still extremely wealthy, of course it's very sad to see so many of them piss it all away on hookers drugs trucks and houses, only to end up destitute when the bust cycle hits... (and a little infuriating)
The real crux is in defining the word "rich" it seems. To me, building up enough that I can retire early and live off my investements without penny pinching to much is "rich". I only need a few mil for that, and it's achieveable. To others, especially with high expenses because they live in places like SV/NY, their required "rich" is many more millions.
Mr Graham writes "You would think, after having been on the side of labor in its fight with capital for almost two centuries, that the far left would be happy that labor has finally prevailed. "
Unfortunately Mr. Graham has an outdated view about the "far left". I recommend anyone interested in what a modern "far left" looks like learn about Richard Wolff and the Democracy at Work movement. A startup in a garage where everyone is an owner building great stuff is pretty much it.
Wouldn’t that just be “the left” with “the far left” reserved for MAP (minor attracted persons gag), ANTIFA, weather underground, etc type organizations that have their hopes invested in the left but see no support from the actual party.
That's why I put "far left" in quotes. What is "just left" to many might seem to be the "far left" to Mr. Graham. But I'm just speculating what he meant by "far left" and could be wrong. He doesn't elaborate on the term.
he does elaborate, he said "after having been on the side of labor in its fight with capital for almost two centuries" whereby he describes the aspect of the left he is talking about. He is a pro capital-ist, and he's referring to the part of the left that is anti capitalist. There is a lot of the left that is not anti capitalist
I'm confused by this conversation. What's important about the semantics around the words vs my criticism around that his view is outdated? Nobody seems to comment about the substance around my original post.
Paul Graham seems to think labor is now winning since it is able to get capital to do startups much easier than in the past. But nobody on the left is criticizing this. The left criticizes the organization of these companies as they grow bigger. Anti-capitalism is the criticism that only a small group of people end up owning everything and making all the important decisions. The criticism is the anti-democratic nature of how most corporations function.
either i responded to the wrong comment, or you edited your comment. What I was responding to was a statement that (paraphrasal) "he does not elaborate on what he means when he says 'quote' " and I was pointing out that he does elaborate in the quote itself.
The way that the Gini coeffient could be reduced in the face of start-up wealth is via the introduction of progressive taxation. That, Mr. Graham is how it could be.
> The tech companies behind the top 100 fortunes also form a well-differentiated group in the sense that they're all companies that venture capitalists would readily invest in, and the others mostly not. And there's a reason why: these are mostly companies that win by having better technology, rather than just a CEO who's really driven and good at making deals.
I'm sorry, but this is utter bullshit, told to one's self to feel better about the real facts on the ground. What we're seeing in "tech," over and over, is NOT an effort to come up with "better technology," but the play to capitalize on some particular niche, and then MONOPOLIZE it. This is key.
It's not good enough to provide nice co-working spaces; the goal is to own every rentable building in a city. It's not good enough to provide a ride sharing solution; the goal is to run taxis out of business, and own the ONLY ride share in town. It's not good enough to run a respectable social media site; you have to be the only one that people use for a particular purpose.
VC's are NOT looking for the next big idea; they're looking for the next MONOPOLY. That's where all the money is going. It's what our government and society has now optimized for. Other companies (like the latest $20B Microsoft gobble) are scrambling to own a monopoly vertical workflow stack of their own, but it's all the same idea in play.
We're heading directly for the cyberpunk, citizens-of-multinational-corporations future that people have been writing about for decades.
>That's why founders sometimes get so rich so young now.
It is true. Sometimes young people get really rich while they are really young. Sometimes you can toss a coin 30 times and you can get all heads. I don't see why deceptively call it "sometimes" when in reality saying almost never would be heck of a lot truer.
>You could get rich from starting your own company in 1890 and in 2020, but in 1960 it was not really a viable option. You couldn't break through the oligopolies to get at the markets.
I am guessing by PG's definition having an internet connection is "getting at the market". To create a startup at 2021 in tech sphere you need to have a ridiculously unique skill-set. I haven't heard of any recent succesful start-ups that just does writes to DB and renders something on the screen. If there was such a low-hanging fruit big companies would simply copy the best features overnight and make you obsolete.
When tons of people are getting at a market it means lots of competition which means you need to further reduce the competition space by using geography, connections or wealth.
Tl;dr: You almost never get rich from starting a company.
> In 1892, the New York Herald Tribune compiled a list of all the millionaires in America. They found 4047 of them. How many had inherited their wealth then? Only about 20% — less than the proportion of heirs today. And when you investigate the sources of the new fortunes, 1892 looks even more like today. Hugh Rockoff found that "many of the richest ... gained their initial edge from the new technology of mass production."
I agree with PG, 1892 is a lot like today. And just like today it was characterized by the formation of huge monopolies that consolidated control of new technologies, as well as rampant inequality and exploitation of workers[1]. The reaction among those that didn't get to benefit from the excesses of this era is also notable - Communism - and not the kind where hipsters complain on the internet but rather the kind where people were willing to violently overthrow governments.
I used to really enjoy PG's articles, but these days he seems to be trying to publicly talk himself into something he already believes.
His conclusions jumped out at me:
> You would think, after having been on the side of labor in its fight with capital for almost two centuries, that the far left would be happy that labor has finally prevailed. But none of them seem to be. You can almost hear them saying "No, no, not that way."
There may be some assumptions under which this makes sense, but they are not expressed in the article.
The power of labor in terms of pay, working conditions, political influence, or any measure I can think of is at a 50-year low in the US. And since labor makes up the vast majority of jobs, it's not just the "far left" who needs to be concerned about them.
Being able to raise money from a capitalist (venture or otherwise) who will then own part of the enterprise is pretty much the definition of capitalism. It's a good thing, but the success of capitalism is not automatically a victory for labor.
"Working security at Rite Aid for $6.55 an hour is just not cutting it the way it used to. But I'm not worried, because last night, as I was standing there staring at the rows of shampoo bottles and disposable razors, the answer hit me: I should start some sort of huge corporation!"
It's hard to take this article seriously. People get rich now from companies because multiples have been artificially pushed higher by low interest rates.
If that weren't the case, the top 100 would still likely be dominated by heirs.
All that's changed is the Fed is manipulating the market more now than before, and that's benefiting growth stocks and fund managers of growth stocks... among other things.
The games we've played with money have pushed valuations to a point of being nearly meaningless. There are people who own a billion dollars of stock/crypto, and then there are people who own multiple yachts, multiple mansions, sports teams, factories, etc.
The thing that bothers me the most about paper wealth is that not all of it can be exited. The economy may say that there are 500 new billionaires, but if all 500 of them try to buy a fleet of yachts at the same time, their divestment would crash (rug pull) their entire wealth.
Anyone who already owns a fleet of yachts is in a completely different category from someone who owns nominally the same value in paper.
Exactly. At the end of the day there is only so much stuff to go around and we're pretty much at the limit of what people actually want. If a billionaire wakes up twice as rich tomorrow is he immediately going to buy a bigger mansion? Another car? Another yacht? More expensive food? Realistically he's unlikely to really want anything else. Billionaires have essentially infinite wealth. They can have whatever they want. But if one of them one day decided what they really want is a B52 bomber or an entire neighbourhood I think the limits of that wealth would become apparent.
I think what we're seeing is the limits of possibility. There are more billionaires than ever because they're all essentially at the limit. People like me are rich. I own a car with leather seats and air conditioning. I have my own home cinema. What do they have that I don't? A bigger car? A better home cinema? Who cares?
A billionaire (or a sufficiently wealthy millionaire), along with their family, has practically unlimited agency. You don't. Their wealth is also self perpetuating.
A billionaire can spend 1% of their wealth hiring well compensated professionals to manage their wealth and keep it growing. Just the fact a billionaire has their wealth means they have access to influence and opportunities you will never have.
Even someone with a mere hundred million in wealth only needs a 1% yearly return to have a million dollars a year. Even that paltry amount would allow them to live better than anyone you or I know.
The ability to do whatever they want whenever they want. If they want to see a live show in another country, they can get front row seats and be there. If they want to talk to the President, they can. If they want a new law that benefits their business, they can make a few calls and get that done.
> People get rich now from companies because multiples have been artificially pushed higher by low interest rates.
No — this is not correct. In reality, multiples are driven by the company's growth rate, minus the prevailing interest rate. And while it's true that interest rates are historically low, the growth rates of today's successful companies are high enough that increasing the interest rate (from ~0% to, say, 5%) wouldn't really have a big effect on valuations.
As an example, note that Slack's 2020 revenue was around $1B, which represents an approximately 94% YoY increase over its 2019 revenue [1]. At 0% interest rates, that gets them a (very roughly) 10x valuation multiple. At a moderate-high 5% interest rate, their real growth rate drops to 94% - 5% = 89% YoY. One can argue that this should drop their multiple from 10x to maybe something like 9x. That drop is not nothing, but the reality is that it represents little more than a rounding error on the founder's wealth.
PG's point is that growth rate is by far the dominant factor in valuations. He correctly ignores interest rates in the essay because (barring out-of-band hyperinflation) their magnitude is too small to have a material effect on the conclusion.
>If that weren't the case, the top 100 would still likely be dominated by heirs.
Do you believe that because you think that heirs are likely to hold their wealth in cash, bonds or in other assets that haven't been "artificially pushed higher by lower interest rates?"
It seems to me that if wealth of any kind is invested well, it's likely to generate exactly those same higher returns; the source of the wealth is kinda irrelevant, no?
Heirs will probably be diversified. Their returns will be about average. Founders will win bigger and lose bigger, so when you only look at the top top top winners, those outliers will be outlierier. Wider variance means higher highs and lower lows.
If you look at nominal interest rates, yeah. Real interest rates haven't been particularly lower post-1980 than pre-1980. Sure, high interest rates pre-1980 built wealth passively, but periods of high inflation also destroyed wealth passively.
I think that has less to do with technology and more to do with how much simpler it is to ship things out of about 100 distribution centers than it is to sell products from a few thousand brick-and-mortar stores.
The Fed funds rate was 21.5% in June 1982. Negative real rates in 2020. Equity models that discount future earnings to a risk-free rate are going to spit out significantly different numbers in each regime.
True, low interest rates push multiples higher. That's one factor increasing valuations, and it's a factor PG didn't mention.
> If that weren't the case, the top 100 would still likely be dominated by heirs.
Baloney. A (relatively) large number of people would still be getting really rich from startups. They might not be getting quite as rich - say, less rich by a factor of 2 or 4.
> All that's changed is the Fed is manipulating the market more now than before, and that's benefiting growth stocks and fund managers of growth stocks... among other things.
Yes, that has changed. No, that is not all that has changed. Far from it.
> In 1892, the New York Herald Tribune compiled a list of all the millionaires in America. They found 4047 of them. How many had inherited their wealth then? Only about 20%... So it's not 2020 that's the anomaly here, but 1982.
This is an oversimplification. Go back 100 more years to 1782 and I bet you'd find the dominant paradigm is inherited wealth. Go back another 100 years and it's still inherited wealth. I'd assume that below a certain tribal size you stop seeing much inherited wealth, and so the starting point for groups of humans is more like a meritocracy, where the strongest tribe member gets to keep the most stuff, but "inherited wealth dominates" is probably the default mode for most of what we'd recognize as "civilization".
More generally it's extremely dubious to attempt to extrapolate a historical trend from the datapoints 1892,1992, 2020, especially given that your first two datapoints are different; if you saw a consistent trend going backwards in time you'd be more justified in extrapolating from that.
A more nuanced model would be to think in terms of cycles; this is a very well-established concept in both history and economics. Technological paradigm shifts allow innovators to overturn the status quo. Over time power accumulates, monopolies form, big companies figure out how to exploit the new technology, the winners of the cycle entrench, and opportunities for upwards mobility decreases again. The industrial age is one such paradigm shift. The "information age" is another. Inside the latter, you can make the case for smaller cycles of innovation that still have large economic consequences, like mainframe computing, desktop computing, and cloud computing. Each of these paradigm shifts minted new titans of industry.
When a new paradigm arises, the cycle repeats again. We see this with the railroad barons and other industrial innovators, the progenitors of a generation of inherited wealth. We'll probably see this again with the Zuckerberg lineage. It seems entirely possible to me that in 20 years' time, there are essentially no new tech multi-billionaires, and instead the big-5 tech companies just buy any startup that grows big enough to be a potential competitor. This would mint plenty of tech millionaires, but leave the "100 richest" unchanged. Of course, anti-trust laws exist, and so this outcome is far from a certainty. But it would at least be consistent with how previous paradigm shifts have played out.
A potential counter-argument to this line of reasoning would be to look at the cycle period and argue that the troughs of ossification/consolidation between cycles are shortening, and we should expect the existing dominant companies to get unseated by whoever comes up with the next paradigm shift. This is a very interesting subject for discussion; I'd just note that it is a much more nuanced argument than Graham's point, which is essentially claiming historical homogeneity prior to 1892 and using that to imply that things will stay the same as they are now going forwards.
I find this essay frustrating for a number of reasons, but the biggest one is that it feels like a rehash of his "Inequality and Risk" essay from 2005 - except this one is less direct and buries the lede until the end ("Of course the Gini coefficient is increasing").
Because here's the thing that's wrong with most of the thinking in this essay and in the last one: measuring the success of your economic system based on outliers tells us very little about whether that's a good economic system. For the majority of people in a given country, whether the wealth of the top .001% is inherited or built through some sort of ability to scale doesn't matter, it's still a bad system. If ten thousand people try to do something and only the one that succeeds gains anything from it, we are looking at a non-viable economic system for 99.99% of people.
And I see this all the time now, in all places. It's like when people say "Look, this guy makes huge amounts of money from Twitch/Youtube/Patreon (with the older standards being music/hollywood and pg's focus being startups). These are winner-take-all systems. That's why there's people without inherited wealth at the top of the charts - they won, and somewhere out there are tens of thousands of people that lost. This doesn't mean those people are destitute or homeless, mind you; people that "lose" in the software ecosystem go work for the winners, and things sort-of work out (its worth noting that things don't work out as well in other spaces). But consider - if I have a half a dozen people that start companies in the same space, and 5 of them drop for various reasons - bad marketing, bad design, bad customer support, whatever - does the guy who wins really deserve to be not just 10x, or 100x richer, but 1000000x richer? Is this a just system? Is it even an effective one? Are we really incapable of imagining an economic structure where people don't lose motivation to do great work without the possible reward of billions of dollars?
There's further complaints to be made - looking back only to the industrial revolution to consider 1982 the anomaly, when since the dawn of civilization inheritance has been the standard form of wealth transfer; the social impact of high inequality and how the massively wealthy have a tendency to warp society around them (this was at least examined to some degree in the other essay); and so on.
The future I see from pg's inequality essays is one of increased separation: one in which rather than having an accountant or travel agent in every town, these services are provided by a single company that serves to funnel that money from hundreds of thousands of local areas across the world to a single business, probably somewhere in SV - and a few hundred thousand middle class jobs disappear into the void. And as our technology increases in capability, it happens again, and again, until we're largely left with a few groups - the founders and funders that own everything; the few remaining high-skill jobs that make and manage the systems for huge winner-take-all tech companies; and the rest, which spend their lives doing work directed and optimized by computers until a point is reached where that work can be automated cost-effectively. I'm not sure that's a world I look forward to.
I think there’s a different reason, companies just aren’t paying enough. Wages, even at 150-200k just really aren’t that much. 200k now is a lot less than 200k in 2010. The younger generation intuitively knows this. I don’t know anyone jockeying to climb the corporate ladder, and my social circle spans Stanford grads to no college degree at all. People are starting businesses because working for a corporation day in and out is slavery, you never make enough money to escape the debt of your mortgage. Sure, some FAANG employees do, but the number is small, and with a family, 300k compensation still doesn’t cut it, you will be working forever.
People are getting “rich” from startups because they’re actually capturing the value of their labor, which I argue, used to happen at corporations.
How many consultants & I-bankers do you know? You sound like you come from a remarkably entrepreneurial subset of the world.
Where I come from, everyone wants to make MD/Partner, ether in law, finance, or consulting. More generally, MBA applications to top schools have been rising for years.
Besides, if 10x the median individual income isn't enough outside of SF/NYC, you got bigger problems.
I used to work in investment research in NYC. So I know those types, but the vibe was the same. Maybe I’ve been lucky, but a lot of people I know actually have had startup success. I know a few people that ended up making over 25 million by 30. None of them made it in law or finance, and none of them ever wanted to continue their finance career.
10x the median income just isn’t that much. If you have three kids, money is still tight. I’m arguing that we are all making less and that startups are making people rich because they’re actually getting paid what they produced.
Just as a counterpoint - if you believe that the median person is about to get screwed (either by civil disorder, famine, inflation, corporate restructuring, housing shortages, rentier landlords, conscription, etc.), then it's worth paying a premium not to be the median person. Judging from social & news media these days, the median person believes that the median person is about to get screwed.
The "live like the median person, bank 86% of your income, and retire in 4 years" strategy works well in times of abundance, where the median person has a decent life. Once people start expecting shortages - where the median person ends up dead, or unable to complete life milestones they desire like having kids - it becomes less feasible. I've seen a large shift in expectations over the last 1-10 years (depending on how far down the income distribution you were), where more and more people are realizing that bad things might be on the verge of happening.
The lowest state median income in the US is Mississippi at $45,000. I can't possibly imagine how someone mismanages their finances so much that $450,000 is not enough to raise a family on.
All you have to do is live beyond your means. Buy that $4M house in the cozy neighborhood, add in some private schooling for your kids, throw in a half dozen vacations, and add a few expensive cars that you buy new every year.
"...because they’re actually getting paid what they produced."
Do they really though? That's really the owners getting paid that, not all the workers. And a lot of that is really valued on the potential rather than what was actually produced to that point.
"10x the median income just isn’t that much. If you have three kids, money is still tight."
That's about $400k, right? That seems like an insane amount of money (I'm not in the Bay area).
It is an insane amount of money even in the Bay Area. It's more than enough to support a large family living a very comfortable lifestyle while also saving significantly for retirement. I'm not sure what the grandparent poster is on about.
Everyone argues about this but for most people in tech - $400k/yr does not give you a "very comfortable" lifestyle. You cannot afford a $2m home. A $2m home isn't even that comfortable in the peninsula. (Varies on location but it'll probably be under 2000sqft, still 3-4 bedroom, 4000-8000sqft lot, 2-car garage if you're fortunate, will likely require $200k+ in renovation/repairs on move in, nothing lavish) Good luck trying to get one anyway - you're going to be beat by cash offers anyway.
If you extend your reach to very far out areas - you can get a better home and your dollar goes further but you're sacrificing on commute and then you don't have a very comfortable lifestyle because you're commuting really far.
A very comfortable lifestyle for most people in tech would be: two luxury cars (bmw/mercedes/porsche/modelsx), good public schools, safe and pleasant to look at neighborhood to purchase a home in, short commute distance (<30 min), and the usual lake tahoe trips, one-two vacations abroad a year, plus the usual smaller vacations, etc. You're not doing that on $400k/yr in SV. If both partners make $400k/yr then sure. I'm skipping out on the nanny, private school, prepared meals, and so forth because I think that's going above and beyond.
People I know who are at $400k/yr (household) are not buying homes in the peninsula or - just generally - close to work.
> 2000sqft, still 3-4 bedroom, 4000-8000sqft lot, 2-car garage if you're fortunate
In what way is this not "comfortable"? What is your definition of "comfortable"?
Like, I grew up in a 3BR, 2 car garage house that was <2000 SqFt. It was absolutely "comfortable". I had friends who were lower income who had smaller houses who were comfortable.
You're describing an inflated, luxury lifestyle. You even sort of admit it when you say "very comfortable lifestyle for most people in tech". That's not "very comfortable", that's "very comfortable for people who are already very comfortable". I feel like this is a sort of keeping up with the joneses thing: comfortable implies "more comfortable than the median person in your social circle, where your social circle is all tech people with 400K a year or more household incomes".
Like another way of putting this is that a 400K income should allow you to afford a nice 3-BR rental and kids and save money. If you don't have kids, 400K allows you to keep a luxury apartment in SF and another one in the south bay, you know, if you want to do that.
> You're describing an inflated, luxury lifestyle.
Exactly. I consider a "comfortable" lifestyle to be a 3BR house in a safe neighborhood, 2 reliable cars, 2 week+ domestic vacations/year, plus saving enough to give a nice cushion in case of emergencies / retirement.
I'm terrible with budgeting / saving and I was doing this working for a startup on a $120k/year salary. Granted, this was 10 years ago and housing has appreciated significantly since then, but still. $200k would be more than enough to enjoy this sort of comfortable lifestyle.
Sorry, $200k isn't enough. You won't get the house. I know because I've applied. No landlord is renting out homes to single income in the peninsula at $200k/yr. $400k at FAANG - yes (they're all afraid of people losing their jobs at startups and lots of FAANG out there to rent them homes up). But, again, we're talking about "very comfortable" - not comfortable. Not okay. Not "I managed". Very comfortable - something people actually want, not just live with.
And I don't put renting in the "very comfortable" category. Nor do I put "reliable" cars or domestic vacations. Safe neighborhood? It's expensive - $2m expensive.
Do you have any real insight to the CURRENT housing market in the SF Bay Area? Housing is the big cost. It's more expensive to have a garage for a Porsche than the Porsche itself. I can literally go out tomorrow and buy a 911 but CANNOT afford to put it in a garage. That's how fucking ridiculous it is.
> Sorry, $200k isn't enough. You won't get the house. I know because I've applied. No landlord is renting out homes to single income in the peninsula at $200k/yr.
Yes they are. I know people who've gotten them. You can find a 3br/2bath single family home with a garage, for less than 5K/mo in SF, Redwood City, Palo Alto, and tons in Sunnyvale and Mountain View.
> I can literally go out tomorrow and buy a 911 but CANNOT afford to put it in a garage.
The 911 costs more than a year's rent on said 3/2 SFH with a garage. For many, it's more than 2 years rent. Yes, if you want to own a $100k car, you'll have to sacrifice in other parts of your life.
In Palo Alto? Bullshit. Unless it's a 1000sqft POS, there is no way you're finding a home in PA for $5000/month that is 3bed/2bath with a garage. Prove it.
You're all ignoring the general sentiment anyway. Not like it matters. Cherrypick all you want. Beating a dead horse. People are so dumb here about COL - acting as if $200k is truly enough to "very comfortably" live here. Ask any engineer in SV if they want to just stay at $200k/yr household income (and they don't own a home and they don't have wealth) for the rest of their life and they'll say no.
> Ask any engineer in SV if they want to just stay at $200k/yr household income (and they don't own a home and they don't have wealth) for the rest of their life and they'll say no.
Yes, because people want to be more than simply comfortable.
I'm just curious, why do people choose to put themselves in that environment? I'm mean, based o the cost of living one could move to practically anywhere else (excluding about five areas) in the US and have this "very comfortable" lifestyle on $100k-150k.
Because you aren’t surrounded by peers. Some of us have lived in other areas and don’t want to go back for good reasons. People in other areas have jobs. People in SV have careers. Many more reasons to list. Average education among my peers is obscenely high (a bachelors is seen as being undereducated - masters is average with PhD being very common).
The area isn’t that bad except for COL. Once you’re rich, it isn’t that bad. So, just get rich. That’s the basics of it. It sucks but at least there is a solution for those that are ambitious enough. Can’t fix bad weather or jobs.
There are some companies on the east coast that want mostly PhDs. I have a Masters, but that's really nothing. I feel like degrees don't really mean much. They just show you put in your time (and money) and have at least half a brain. I've also seen highly educated people who aren't very good at independent thought.
"People in other areas have jobs. People in SV have careers."
This seems a little over generalized and even pompous. There are plenty of people who have careers in other areas. Just as a single example, how about the financial developers in NYC, like at Jane Street? There are plenty of people who leave SV too.
People here keep nitpicking about the generality of statements I'm making. They're not getting the general vibe and the general vibe is the point. Just because you can cherrypick some data that says there are people with careers or people with PhDs in some other area does not mean that it is like SV. Surely you understand that?
Who the fuck would move here when homes are $2-3m? People who are dedicated. That's the difference. People talk about leaving the bay area to slow down or give up careers. They don't talk about leaving the bay area to start the next big thing. (Regardless of all the BS you see about X cheap-ass company moving to Y city)
I think it's more about people who want some sort of status or virtue signaling. There are plenty of successful start ups in other cities like Seattle, NYC, NOVA, Austin, etc.
I think the reason people are "nitpicking" is because the majority of people don't live in SV. So if anything, talking about dev salary and saying $400k is barely enough, one would have to cherry pick data from SV to justify that statement.
I'm not sure how you figure that 400k/yr (dual-income) doesn't let you buy a 2m house, putting aside the question of why you'd want to - there are multiple listings under 1.5m in "safe neighborhoods" less than a 20 minute drive away from MTV, and yes, they have 2-car garages.
You're probably looking at a TCO of ~11k/month (mortgage, tax, & maintenance, and it's really more like 9.5-10k/mo after the mortgage interest tax deduction), which is arguably an unwisely large % of your ~20k post-tax take-home, assuming you're putting away a substantial amount into 401ks, but you're left with 9-10k/month, which means you can put easily waste whatever you want on luxury cars (as if you can't be "very comfortable" leasing a new Japanese sedan for under $300/month instead of lighting money on fire for the pleasure of driving less reliable vehicles).
But, I mean, you _could_ if you really wanted to. And still have enough money to travel internationally twice a year. And outsource whatever percentage of your cooking you want to takeout. I'm glad you agree that a full-time nanny would be stretching the definition of "very comfortable", and private schools seem superfluous if you're buying expensive real estate, since part of what it buys you is a spot in the local public school, and if you don't want that you can relatively trivially arbitrage it away by buying a cheaper house in a different zip code.
Is it possible that those people are making the arguably sensible decision to rent instead of buying, because the price to rent ratio in the Bay is truly absurd, and not everybody cares enough about "ownership" to spend an extra 20-30k/yr on it? That doesn't mean that they couldn't make the finances work if they had to, they just have... different priorities. Like putting an extra 20-30k/yr into the market.
The majority of people in tech do not work in Silicon Valley or even US tech hubs for that part. Friendly reminder entire continents across either side of the US coast by with less than 15% of that number and would live extremely comfortable lives with just the 100k that often gets tossed around here.
I don't see your comment as a valid response to the parent. They were not talking about developing countries. They were talking about in the US. They even pointed out that most devs do not live in the SV area (in response to your statement about most people in tech...). The majority of the people in tech in the US do not live in SV and the median salary for a dev is about $100k-110k.
15% of 400k. Your initial comment clearly said "400k is not enough to live very comfortably". That's what 15% is in response to.
You might want to take your own advice and re-read, since I wasn't talking about developing countries either. Or should we consider Western EU, Northern EU, East Asia all as developing countries?
It's a surprise you try to defend such a bold claim, "most of tech", by kneejerking a reaction which suggests you realize there is more than the US, while your comment doesn't reflect that at all. It would suit you well to have some modesty and reflect on it.
"Do they really though? That's really the owners getting paid that, not all the workers. And a lot of that is really valued on the potential rather than what was actually produced to that point."
I believe the OP is talking about the owners of the startups.
But in that case, the question still stands. Sure they started the company, but they didn't build it alone. There are usually people involved with little to no equity. It's similar to how there are CEOs making millions per year, when that money is really made through the sales of the products of the workers. So they aren't just being compensated for what they produced, but for what everyone in the company produced.
Cost of living has gone absolutely through the roof, and shows no signs of stopping. That's, least in the northeast, the main reason $400k sounds rich but for a family of 4, with a $5k/mo mortgage, child care, etc. it really isn't.
I'm in the northeast, make under $100k, and support my family. $400k is in the top 10% of earners. $5k per month is about a $1M mortgage, which is on the high side, right?
> 10x the median income just isn’t that much. If you have three kids, money is still tight. I’m arguing that we are all making less and that startups are making people rich because they’re actually getting paid what they produced.
The tradeoff here is that if you have 3 kids, you can't afford to work at or start a startup, because your income today will be less than at a BigCo. The number of startups that will pay you 10x the median income, today, is pretty low (they're all already unicorns, which means your upside is somewhat limited) and you need to be fairly senior anyway.
Get out of your bubble. There's a whole world outside of Bay Area/NYC, where $150-200k/y is still a batshit crazy amount of money and $1M can last you happily ever after, even with kids. Accumulating $1-2M NW is totally within reach for most employees at US FAANGs after a decade or so of work.
I'll partly agree. I live in a HCOL city, and $200k is way more than enough, even with a kid. But $1M with a safe withdrawal rate of 3.5% gets you $35k/yr, which won't leave you "happily ever after" anywhere in the US with kids, particularly with healthcare concerns. Of course, one could move abroad, but that's not always feasible.
Agreed and I'd go so far to say just 5 years at FAANG (assuming you join at a mid-level eng, not L3/L4 fresh university hire) would get you into the $1-2M NW.
"working for a corporation day in and out is slavery"
Corporations are the boogeyman de jour but from personal experience, landlords / restrictive zoning / "anti gentrification" activists are the primary cause of my angst. I make more money now than I ever thought I would, but a truly staggering amount of it goes directly into my landlord's pocket.
Zoning doesnt matter unfortunately, prices go up in line with maximum possible mortgage amounts.
Real-estate prices have no bearing on 'value' of the land or materials. The buyer is convinced that he will get that money back and then some from the next sucker to buy it off him. It a pyramid scheme, detached from real economy.
In this particular economy, absolutely - where else is your money going to go?
However, part of the way we got here is specifically due to neighborhood segregation and zoning laws. People don't like their housing going down in value, so they protest anything that might cause it to do so. Whether or not upzoning would actually harm property values is not material: the fact that people believe it to do so is enough to get them to protest increases in the housing supply. This means that every local government is blocking housing supply and working to keep prices high, which makes housing an artificially safe investment, and thus encourages infinite speculation.
This will continue until we break the idea that home ownership = retirement plan and that dense housing = cheap housing = crime. Once that happens, then it makes far less sense to speculate on real estate and we can start unwinding this long con. The reason why maximum mortgage amounts are so high is that banks can't lose - if the the debtor pays off their investment in full, then the bank wins; and if they default, then the bank repossesses a house that is likely worth more than the principal of the loan, so they win. There's no default risk - if that were to return, then banks would be more skeptical of who they lend to, and that would put start quenching demand.
infinitely rising house prices are impossible, so a housing market where everyone expects them to do that is a pyramid scheme, someone will be left holding the bag
Well they bought the place in 2005 for about 1/3 of what the current Redfin estimate is, so probably very little?
And even if that were not the case, with real estate climbing 8% or more per year, they are still in line for a huge payday if / when they choose to sell.
Well that depends - if the real estate market holds and they pay for all the appropriate upkeeps. What about the situation where real estate properties go down and it's difficult to find renters or pay for upkeep on the property. Also - rental real estate doesn't rise in the same way the single family homes do.
The landlord is the scourge narrative bugs me. There are for sure a bunch of terrible land lords especially the huge soulless companies but there are a lot of little family operations that don't try and gouge their tenants.
Not sure what the point you're attempting to make with those hypotheticals is? What if winning the lottery came with a bunch of pitfalls?
I don't begrudging the ppl who bought houses for their good fortune. I resent when those people block new development in the name of maintaining "historical character" or whatever other invented excuse to keep their own property values high.
Interest, capital expenditures, maintenance, insurance, potential lawsuits (hopefully not), time spent managing the properties. Don't disagree with you - it pays off the principal also goes towards other things. For some people not owning, having to take care of a property or put significant amounts of capital into a property is an asset. Not everyone for sure, but some people. For example myself until my late 30s was a happy renter - would I prefer the money going elsewhere? Yes. Would I have been able to afford the same lifestyle in the city? Absolutely not.
People are getting rich from startups because they’re actually capturing the value of their labor
That's not a positive, isn't it? Back in the mid-1990s there were entry-level jobs with a career trajectory, you could drop out of college, join a school district as computer herder, move to a hosting company and get into systems programming and then go to work for Google and Facebook. (Hi Rachel!)
That doesn't exist any longer, nowadays everyone goes and grinds leetcode for months to prepare for interviews.
Back in the mid-1990s I paid more for rent than I did for tuition. And the rent was affordable working part time as a code monkey.
If you can manage to max out your 401k contributions from college graduation all the way until retirement, it would be hard not to have at least $4-5 million.
Is that even reasonable right now, for someone that graduates today? I have no idea. But it doesn’t seem like something that would be restricted to tech workers in the Bay Area. It might even be harder to do in the Bay Area than in Des Moines.
Because the corporations have discovered a way to give people a fake feeling of growth, meaning and belonging, while de-facto keeping them as lowest-bidder replaceable cogs. There are many stories of people feeling betrayed by the corporate machine when their interests stopped being aligned with the corporate ones. There are numerous people boasting about a new sexy title or a recognition certificate they got from their employer, who at the same time shrug if you ask them about their property ownership or retirement plans. A lot of "pro-employee" and "pro-feeling" agendas boil down to making people more comfortable owning less and getting paid less.
Even with a 1M income you can't catch up. Their 10M grow at 10% per year, which gives 1M in the first year alone, while you can put only 0.5M after taxes. In 20 years it will take 50M to be in the top 1%.
Well, the thing is you generally can't make $150k in a place where a few years of that salary will sustain you for years. If you are making $150k per year you are living in a place where you can live comfortably, but you'll still need to work every year for a long time.
$150k is not even enough to buy a small home near your workplace in a lot of cities. Janitors had better living conditions 50 years ago than $150k earners do today
It's utterly amazing to me how far up the wealth pyramid you can go and find people saying "Me? No, no, no, I'm not wealthy - it's the people above me who are the wealthy ones."
But that is the government inflation, which is considered by some to be fake. Shadowstats [1] says inflation would be about 5%/year if we use the same methodology as in 1990, which gives about 60% over 10 years, i.e. you'd have to make 320k now. I'm just eyeballing the chart but if we use the 1980 method (~7% a year) it's almost 100% (i.e. you'd have to make 400k now).
For another example, Dow Jones with dividends reinvested gives a 180% increase, i.e. you'd have to make 560k. Of course this is not really inflation, but it gives a sense of how much you're missing out on vs. asset owners (please correct me if this is massively wrong).
It's not conspiracy, but an observation that hamburgers, cars, houses and yachts inflate at different rates. The gov inflation concerns hamburgers, but someone's making 200k really needs housing and that inflates much faster.
House prices are simply bonds tied to rent value and interest rate and affected by certain demographic trends. The all-told carrying costs of a mortgage right now are actually lower than they were 30 years ago, considering inflation (the principal might be higher and you don't get the tailwind of dropping rates to rebalance and whatnot, but it doesn't change the fact that houses are technically more affordable, not less).
Edit: Here's a graph of housing prices when adjusted for inflation & mortgage rates: https://realestatedecoded.com/the-shocking-truth-about-house...
(although the down-payment is more unaffordable, yes, but you can generally buy things with as low as 3.5% down)
https://accept.inc/ converts your mortgage approval into an all-cash offer. (Edit: looks like that's only for Colorado)
The craziness going on right now is due to several factors: (1) all time low supply due to pandemic restrictions/fears; (2) Work from home transforming housing values (single family homes a lot more appealing if you only work from the office occasionally); (3) Millennials aging into the housing market and boomers holding on to their properties (see 1) - also a lot of stock is now owned by investment companies / pension funds past 2008; (4) Housing is the safest way to take a leveraged short on the US dollar (which a lot of people fearing inflation want to do); (5) Capital flight from other countries like China (though that was more of a factor pre-pandemic) - real-estate is the only industry where anti money laundering provisions are severely watered down / non-existent.
Both of those are good and reasonable rules to describe the world, and something that is very intuitive. That is why a lot of people find government inflation stats suspect - even if they are measured correctly!
Unfortunately, for the last few years I have noticed more and more people no longer take government inflation data very seriously. Here are two (I am sure there are more) reasons why:
Housing, Health and Education.. these very basic needs have consistently outstripped official inflation numbers. Specifically on the US coasts. Correct me if I am wrong, but I believe the cost of housing is completely left out of that inflation number. Which in my opinion is kind of silly.
The formula for the index used considers substitutions. So for example, let's say Wool gets expensive, they expect you to substitute it for acrylic. If beef gets expensive, they expect you to substitute it for chicken or turkey, and so on. This isn't the reality people _feel_. For example, I for one, would realize I am no longer able to afford wool socks, and have to make do with acrylic socks. In essence, feeling poorer than I did before.
That's not really how substitutions work. Substitutions work by replacing what people used to buy with what people buy now.
Now your criticism remains valid, to a slightly lesser extent, because if everyone gets poorer and trades wool for acrylic socks, they get replaced in the basket. Not to artificially depress inflation, but to reflect what everyone (now poorer) actually buys.
The issue is, obviously you need substitutions. The finance example is going to be horses, so let's go with that. Nobody buys or rents horses anymore. They are exclusively the domain of recreation. So having them in the index would be lunacy.
One measure people use is the "big mac inflation index", a PPP index. That one would tell you that inflation between 2010 to 2020 is about 76%, or indeed 5.8% per year average.
But that's how the FED chairman Powell (and all those before) will dress it up these days.
CPI and inflation metrics generally do account for housing costs [1], but the problem is inflation in housing is not evenly distributed. If you live in a coastal city or tech hub, your housing costs have likely risen much faster than the national average. I've found it difficult to get realistic measures of city-level inflation data without trying to construct my own index from various data sources.
Sure, rice, jeans and dollar store trinkets have only become 20% more expensive. The real estate, healthcare and education tell a completely different story though.
At the same time, differing costs of living reflect differing values.
The reason the Bay Area is so much more expensive than Tulsa, Oklahoma is because many people would much prefer to live in the Bay. Adjusting completely for COL ignores the reality that living in the Bay is, to some extent, a luxury.
I think some of this depends on the area. Even in an average area, a $200k salary with a family could give the option for early retirement.
I make less than $100k and support my family in an average area. It does feel like I'll work until I die. If I were making double that, it would be a huge difference.
Yeah, also making under 100k if I made 200k even for a year it would absolutely let me pay for my wife's college out of pocket rather than co-signing on debt, and then let me either buff my retirement IRA or pay down a chunk the mortgage...
I know, right? Even $100-120k would make a huge difference. I see people talk about maxing out their 401k, but who has $20k per year to save? I mean, I've done everything right - good grades, stay out of trouble, got an ok job, worked hard (not so much now after being screwed multiple times, went to night school for a masters, 9 years in, and still a not very successful intermediate developer. Kind of depressing.
I disagree. Sure I am not able to just give up work entirely but those sort of figures you mention lead to a very comfortable standard of living, even supporting my entire family on one salary.
I guess it is about expectations about what you think you should have. I don't have a Tesla for instance.
> Wages, even at 150-200k just really aren’t that much
Imagine thinking 150-200K isn't that much while there are millions of minimum-wage workers trying to survive on under $30K. (EDIT: And in some states, only $15K!)
To be fair though mid-career engineers and PMs are now making incredible amounts of money even outside of FAANG. Equity has been a huge part of upside for high growth companies, and has motivated a lot of smart people to work at larger companies.
No FAANG company even made the list for Entry Level on the Levels.fyi 2020 list: https://levels.fyi/2020/
To solve the wide-screen, narrow text problem, I once threw together a demo with a hacked up Chromium/WebKit to create a flowing, multi column view mode that created a long virtual scroll surface and scrolled it like newspaper columns: https://vimeo.com/59463521.
It wasn't super intuitive, but wish a modern browser had this.
I'm kinda sure I saw a pre-chromium Opera browser build do this back in like 2010 or so (maybe it was just a mockup), but like you say, it's not super intuitive. And the scrolling feels weird when you have 2-3 columns moving.
I've generally gone with Philips 40-43 inch displays. I'm on my third one because of office moves etc. They keep changing the models, but they only have one in this size at a time.
Edit: The one I'm currently using is still on sale: BDM4350UC.
I'm using an LG 43UD79-B 43" monitor and enjoying it as well. I don't like swiping between workspaces so having lots of extra space around the main viewing area makes it easy to see and access lots of paned or overlapping windows.
For gaming I use the center 2560x1440 area 1:1 pixel mode--only does 30/59/60 Hz so not for the serious.
This guy’s rant against liberals/ode to tech startups is illiterate and contradicted by his own notations. There’s practically a second separate essay down there explaining how he ‘creatively’ interprets data to mean what he wants it to mean. If you have to do that, you’ve written something really quite sloppy.
Paul Graham is a charlatan. He has no great insights into the way the world works that aren't fatally colored by his own self-sense of success. In large part, the purpose of articles of this ilk is little more than to seek self-justification for the status quo, so you can sleep better at night. If that's what you seek, then this is the charlatan for you.
- Interest rates are at all time lows, borrowing is cheap
- The Fed's balance sheet is at an all-time high. The economy is flush with cash, particularly the investor / VC class
- This excess cash creates an (arguably artificial) wealth effect and drives an appetite for risk
- Large unicorn startups that are perpetual money losers continue to operate only because they are effectively subsidized by regular capital raises. Look no further than all the Silicon Valley darlings such as Uber, Netflix, AirBnb, Tesla, and so on. All of them would cease to exist without continued capital injection from secondary share offerings or VC raises
- These companies achieve growth and put pressure on the competition by offering their services below the real cost that would be needed to achieve profit, hence driving huge share price growth
- This share price growth attracts new investment from the momentum-chasing crowd, increasing appetite for subsequent secondaries, and then the cycle repeats
I don't mean to be cynical, but it's hard to see this ending well for some of the nouveau riche. Tech has been a great avenue to riches by offering real innovation in some cases, but the article's error-by-omission really gives the wrong impression.