Income / Hackers and Painters

August 2004 I read an excellent book by Paul Graham called "Hackers and Painters" that I would highly recommend to anyone with an interest in technology and programming from a fairly philosophical level. Graham has a web site, on which he expounds on many topics. Graham was one of the creators of "Viaweb", one of the first web applications, which ended up being sold to Yahoo for something like $50 million, of which he likely picked up something in the 10's of millions. He got his money by CREATING something, not "taking it away from somebody".

Every so often I end up going back to Chapter 7 of "Hackers" titled "Mind the Gap". A few of the quotes are just worth bringing over.

Like chess or painting or writing novels, making money is a very specialized skill. But for some reason we treat this skill differently. No one complains when a few people surpass all the rest at playing chess or writing novels, but when a few people make more money that the rest, we get editorials saying this is wrong.

I'd argue that the chief reason for this is that a majority of people don't understand what it means to have a growing economy, they believe that the wealth that Bill Gates gets is "taken from others", they simply don't understand the idea of "wealth creation".

Graham points out a potential reason for this being wired into people so strongly, and he calls it "The Daddy Model of Wealth". Because when we are young we don't create any wealth, everything we get is given to us by the powerful (parents), and the ONLY problem is "fair distribution", many people just carry that model over into adulthood.

In a free market, prices are determined by what buyers want ... It's lamentable that people prefer Reality TV and corndogs to Shakespeare and steamed vegetables, but unjust? That seems like saying that blue is heavy and up is circular.

Graham argues that the appearance of the word "unjust" here is proof of the "Daddy Model".

Will technology increase the gap between the rich and the poor? It will certainly increase the gap between the productive and the unproductive. That's the whole point of technology.

Technology should increase the gap in income, but it seems to decrease other gaps. A hundred years ago, the rich led a different kind of life from ordinary people. ... Now, thnaks to technology, the rich live more like the average person.

His point is that the rich and poor in the US do largely the same things, just at a different level of "branding". You can shop at Wal-Mart, Target, Nordstroms, or even higher up the cost/brand chain, but what you are getting is generally marginal differences in quality, and in many cases simple branding than in content. Extreme mass production has made DVD players available for $25 to $2,500 dollars. The $2,500 model doesn't really do anything different than the $25 model, it just does what it does with extreme quality. If you can afford that, then you might pay for it, but the guy with the $25 model will likely enjoy "Shrek" just as much, and what is more, the proof in the sameness is it is actually almost certain that the 100x difference in player cost consumers WILL watch the same thing.

Again, the fact that "Shrek" is preferred to "A Midsummer Nights Dream" may well be lamentable, but it has nothing to do with income disparity or technology. The cautionary thing is that if one refuses to allow wealth creators to keep a very significant amount of what they create, one can drastically slow the creation of new wealth, and then everyone suffers. Naturally, the people at the bottom suffer far worse than those at the top, so if actual outcome was the interest of people vs "justice meaning less disparity" the people that are ostensibly "for the poor" would largely be "for the rich" as well, they could be "pro-human", but by and large they are still in the "Johnny took too big a piece" mode of analysis, and logic isn't likely to have a lot of weight with them.

Most likely we will be in the mode of re-learning this painful lesson post-'08 through increased taxes and a sluggish economy. Already we seem to be seeing the signs of the market predicting that outcome.