Grumpy Economist: More inequality

Paul Graham Add interesting ideas Regarding the issue of inequality, please see Forbes Top 100 enough Inequality may be the rise in inequality (especially wealth) since the 1970s. The level of inequality at that time was too small, but now it is not too great. Contrary to usual politics, change is not always a problem, but sometimes it gets better. how is it? continue reading.

In contrast to the mantra of inheriting wealth, today’s super-rich Americans have largely gained success from the middle class by starting new companies. They did not inherit wealth. The rich have not become richer. They were replaced by (mythical) upstarts.

In 1982, the most common source of wealth was inheritance. Among the 100 richest people, 60 are inherited from their ancestors. DuPont alone has ten heirs. By 2020, the number of heirs has been reduced by half, accounting for only 27 of the 100 largest wealth.

Why is the percentage of heirs falling? It’s not because the inheritance tax has increased. In fact, they dropped significantly during this period. The reason for the decline in the proportion of heirs is not the decrease in the number of people who inherit wealth, but the increase in people who inherit the wealth.

How do people create these new wealth? The establishment of a company accounted for about 3/4, and investment accounted for about 1/4. Of the 73 new wealth in 2020, 56 come from the rights of founders or early employees (52 founders, 2 early employees and 2 founders’ wives), and 17 come from managed investment funds.

Now, the main source of new wealth is starting a company, and when you look at the data, you also see huge changes. ….

In 1982, there were two major new sources of wealth: oil and real estate. Of the 40 new wealth in 1982, at least 24 were mainly attributable to oil or real estate. There are only a few now: out of the 73 new wealth in 2020, 4 will be brought about by real estate, and only 2 will be brought about by oil.

By 2020, the biggest source of new wealth will be companies sometimes referred to as “tech” companies. Of these 73 new wealth, about 30 come from such companies. These are most common among the rich. Among the top 10 wealth in 2020, 8 are of this type.

The top 100 technology companies also form a differentiated group… These companies are mostly companies that have won by having better technology, not just CEOs who are really driving and good at closing deals.

…The rise of technology companies represents a qualitative change. The oil and real estate tycoons of Forbes 400 companies in 1982 did not win by making better technology. They won by being truly enterprising and good at closing deals… Indeed, the way to get rich is so old that it predates the Industrial Revolution. Usually, in the 16th and 17th centuries, courtiers who became wealthy in the (nominal) service of the European royal family were indeed very motivated and good at making deals.

Those who do not seem to have a deeper bikini coefficient can regard the 1982 world as a good old day, because those who became rich were not so rich. However, if you delve into their ways of getting rich, the old days will not be so good. In 1982, 84% of the 100 richest people got rich through inheritance, exploitation of natural resources or real estate transactions. Is this really better than the world where the richest people in the world get rich by starting high-tech companies?

The level of inequality between 1950 and 1970 was low (not easy to measure, according to reports). In that era of justices of the peace (not), people had insufficient memory of the dominance of genetic wealth. This is actually a historical aberration.

In 1892, the “New York Herald Tribune” compiled a list of all American millionaires. They found 4,047. So, how many people inherited their wealth? Only about 20%-less than the percentage of heirs today. When you investigate the origins of new wealth, 1892 will be more like today. Hugh Rockoff discovered that “many of the wealthiest people…get the first advantage from the new technology of mass production.”

So it’s not 2020 that is the anomaly here, but 1982…

As Michael Lind wrote, by the end of World War II, “the main sectors of the economy were either organized by government-backed cartels or dominated by a few oligopolistic companies.”

In 1960, most people who started startups today would go to work for one of them. You can get rich by setting up your own company in 1890 and 2020, but in 1960, this was not a viable option. You cannot break through the oligopoly market. Therefore, the prestigious path in 1960 was not to start your own company, but to move forward on the ladder of existing companies.

I hope that the good times of happiness and equality in 1980 didn’t look so good at first. The post continues, and I encourage you to read it. In the final analysis, technology has broken through the oligopoly of the three giants, requiring less capital, easier access to financing, and the company can grow faster.

IBM was founded in 1896, and it took 45 years to reach billions of dollars in revenue in 2020. Hewlett-Packard was founded in 1939 and lasted 25 years. Microsoft was founded in 1975 and lasted 13 years. Now, the standard for fast-growing companies is 7 or 8 years.

His bottom line

Now, starting and growing a company is easier than ever. This means that more people start their own businesses, those who do get better conditions from investors, and the resulting companies become more valuable. Once you understand how these mechanisms work, and start-ups have been suppressed for most of the 20th century, you don’t have to resort to the country’s vague right turn under Reagan’s leadership to explain Why the Gini coefficient of the United States keeps increasing. Of course, the Gini coefficient is increasing. As more and more people start more valuable companies, how is that possible?


Thoughts. We should not consider more or less inequality, but should consider moderate inequality, or the root causes of inequality in productivity and rent-seeking. Or, better yet, is inequality a symptom of health or disease in the economy. Take Paul’s surface impression of the American economy as the standard. What is a better economy and society? A few large oligarchs work closely with the government, and they are in charge of everything-think General Motors, Ford, IBM, AT&T, and defense contractors-are it difficult to start new, fast-growing innovative companies? Or is it a world in which Bill Gates and Steve Jobs can build new companies, deliver fabulous products, and get rich crazy in the process?

Let us admit the objections. If you measure the wealth of oligarchs hiding abroad, Russia has a lot of inequality. The same is Cuba. In France, the allegory of inequality exists in an ancient inherited wealth that has grown faster than labor income, so the descendants of the nobility in the 1700s now have everything. Perhaps the contemporary American allegory is the idea that the descendants of Southern plantation owners have all the wealth today. Some people may complain that inequality is not a problem in itself, but if it is, it is a symptom of the problem.

But looking at who got rich in the United States and how they got there, you can only say that these are all fables.

What frustrates me is that for so many questions, the answer is always “less” inequality and “more” redistribution. What is sufficient inequality? When do you know when to get there? It’s definitely not zero. Regarding income inequality, it is just the fact that people earn more money as they age, and then retire and make less money, which means wage inequality.And there must be some Reward those who take risks, start new companies and provide good service to the rest of us. Their other goals are equally frustratingly unquantifiable and unmeasured. Always more.

At the same time, polite Alec Stapp on Twitter, This is the response to the survey question (at least in 2014): “Although some people are rich and some are poor, most people live better in a free market economy.”

I am very happy that it is still conducting a 70/25 poll in the United States. Interestingly, Vietnam (96/3), China (76/16) and Nigeria (74/17) defeated us on this issue! Now, they are not asking about democracy, but about the free market. Nevertheless, it is gratifying that the lesson of history is a resistance to ideology.

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