Limiting the power of wealth is more effective than limiting wealth
==Level of Certainty: Rephrasing Graham’s argument here, haven’t reflected on if it’s true.==
- Related: Domain - Economics, Inequality, Poverty is a result of inequal distribution.
- Source: Inequality and Risk by Paul Graham
Getting rid of economic equality means taking money away from the rich
There are two ideas of decreasing economic equality: Giving money to the poor or taking money from the rich. Ultimately that’s the same thing because if you give money to the poor, you have to take it from somewhere.
Another way would be to increase productivity of the poor. Turns out that also makes the rich richer too.
Taking away money from the rich means decreasing the incentive for risk
People take risks in order to find financial security: To get rich. Risks and rewards have to be proportional to one another. No one would take a great risk without the chance of a great rewards.
Decreasing the incentive for risk, means decreasing the founding of start-ups
Start-ups are intrinsically risky. In limiting the possible amount of wealth, the reward, you get from investing in a start-up, the risk, investors are unlikely to invest. Even more, founders are unlikely to found. If there is no chance of getting a big reward, founders will stick to stable jobs.
The circle of innovation
In Origin Story a related concept is described.
graph TB
A(Innovation <br> aka. cheap energy)
B(Steep gradients of wealth and power)
C(Competition)
A-->B-->C-->A
Decreasing the founding of start-ups means less innovation
It turns out that those stable jobs for big companies don’t produce a lot of innovation. Small start-ups are powerhouses for innovation. Remark: This is where I track least with his argument. I’d like to see some statistics to back this claim up.
Little innovation means getting exploited
With less start-ups a country’s growth slows. When you are behind on innovation, other countries will out-innovate you. That means that the only things you have to offer are raw materials and cheap labour. As a return to that, you will get exploited is what Paul Graham supposes.
If we limit the power of wealth, we don’t need to limit wealth
The connection between power and wealth flourishes in secret. What we need is transparency. Expose all transactions and you will greatly limit the power of wealth.