Monday, December 25, 2006

Mind the gap.

See the Paul Graham essay (www.paulgraham.com/gap.html) of the same name.

I like this essay. It made me mad at first, but then I caught on and it made me feel good. I got giddy realizing that I'd been wrong all these years, and my problem wasn't figuring out what I wanted to be when I grew up, or finding the right job, or figuring out how to be extroverted and fearless enough to go out and talk people into working with me, but my problem was just relaxing and giving myself permission to grab whatever it was that I wanted and needed in life. Honestly, and through hard work, sure, but grabbing need not inspire guilt.

If there is no shortage of wealth, then I can have as much as I want, and I don't have to worry where it comes from. If I don't happen to create my quota then someone else will just make more, because wealth is not found or given but created. So easy.

Mr. Graham has opened my eyes: "making money is a very specialized skill...but when a few people make more money than the rest, we get editorials saying this is wrong.... What causes people to react so strongly?

"(1) the misleading model of wealth we learn as children

"(2) the disreputable way in which, till recently, most fortunes were accumulated

"(3) and the worry that great variations in income are somehow bad for society."

Because we're given money as children, and do not earn or manufacture it, we grow up with a distorted view, he says. In the past, fortunes were created largely by taking what others had and saying, in effect, "It's mine now, just come and try to take it back and I'll kill all the rest of you too."

And now that the world has become so technologically intense, some of us can be ever so much more productive than others, and we get fantastically rich because of it, and the poorest among us are fantastically richer than the poorest of the past, and both the poor and rich alike are now all pretty much the same. We eat the same foods, buy the same goods, live in houses with central heating, drive cars, and so on.

So what's the big deal then? Why should anyone get upset because Mr. Bill Gates owns something in the neighborhood of $60 billion, and the average person with a median sort of income makes somewhere in the neighborhood of $50,000 a year. Does it matter that an average person would have to work 1,200,000 years to equal that wealth?

Yes.

One of the current political arguments is about inheritance of wealth. Some refer to taxation of inheritance as a tax on dying. I understand that there is something called an estate tax and something called an inheritance tax, and that the former kicks in upon death, and the latter upon descent of value to one's heirs. And that isn't the issue.

Neither is the amount, or the cutoff value.

What is relevant is that we live in one world and that wealth is not infinite, and neither can it be created on the fly. Sorry, Mr. Graham. Such taxes exist because wealth is dangerous. Hardship we can handle. It brings us together and coaxes the best out of us. Not so with being wealthy, especially if we inherit it. It sours us. That's why we tax inheritance.

I know all too little about economics, but one of the things I do know is that there are various kinds of industries, and the wealth-producing industries are those like mining, fishing, hunting, agriculture, in which value is either directly removed from the belly of the earth itself, or free natural processes are harvested. Without sunshine, air and water, agriculture would be pointless, and agriculture would be pointless if a farmer had to produce light, heat, air and water to feed crops and livestock. What gives farming a shot at profitability is the availability of energy, substances, and processes that are there for the taking.

Yes, farmers may have to pay for the use of irrigation water, or pay to pump it from the ground, but they don't have to create hydrogen and oxygen, combine them, capture the resulting water, and apply it to their plants. No farmer has to create plants or animals from piles of minerals, and invent metabolic pathways that consume water, air, and nutrients, and then provide nourishment. It takes smarts, care, hard work and luck, but the basics are there for use by anyone, for free.

All industries except for a very few just transform that wealth which is created, and since wealth, fundamentally, is material, it is limited. Don't confuse energy with immateriality. Energy equivalent to matter. It is also limited. The universe at large may contain more matter and energy than humanity can even comprehend, let alone use, but right here where we live there are limits.

"Materially and socially, technology seems to be decreasing the gap between the rich and the poor, not increasing it. If Lenin walked around the offices of a company like Yahoo or Intel or Cisco, he'd think communism had won.... Everything would seem exactly as he'd predicted, until he looked at their bank accounts. Oops," says Mr Graham.

But it's just not so. Technology and politics are increasing the gap between rich and poor. It may be true in the past that the nobility lived far better than the other 98% of the population, and that a simple peasant could never have dreamed of becoming king. A peasant may have dreamed of having enough bread to eat, but no more.

But in that far distant past, almost everyone was pretty much at the same level, the other 98% of them. They may have been abjectly poor compared to even our common homeless street alcoholics, and diseased, and ignorant, but there was no real gap. Everyone was like them, except for a few exotics in feathers and brocades, who lived in high palaces and kept armies. Those few were seen as gods, not as rich humans.

Those clever youths mingling freely in bright offices of technology companies did not create the world. And we cannot compare them only one to another. There never was, is not, and never will be the self-made-man. We depend on each other. We are better now at extracting and shaping the things we can harvest from the earth, and make a much wider variety of things from out common raw materials. Because of our education (from knowledge slowly built up over the last 4.5 million years of human existence) we have learned about new raw materials. We no longer seek only to mine silver, gold, copper, coal, iron and lead. We now make from sand machines that think. But the sand is still free. We take it and use it but no matter how clever we might be, we still can't afford to make it.

But even beyond that, there is the use of the rest of the world's people as raw material. Those bright young happy people in offices are not the whole story. We should not compare them one to another, but to the rest of the world's peoples.

If a factory in Mexico can make shirts cheaper than one in Cincinnati, then it's off to Mexico with the factory and our jobs. Then to India from Mexico, and then to China from India, and to Vietnam, Laos, Malaysia, and who knows where. Anywhere people are paid less for more work is good for our cubicle dwellers. Cheaper goods means that they keep more of the money they make, and through taxes apply subsidies for our own industries, so they and we get wealthier and wealthier. Some of us. Not all of us.

Some of our own, lots of our own in fact, are going down with the ship as well. It isn't just the farmers of India who are paid so little for their crops that they can't afford to eat. Even though the grain they produce is sold to Australia and Europe as cattle feed, and even though some is repurchased and imported back again into India to serve as emergency rations for the poorest. Even in this country the price paid farmers keeps dropping while retail prices hold steady. And many Americans scratch through food banks now, seeking enough to just get through the month.

It doesn't matter much that as Palagummi Sainath has said, India ranks eighth in the world in the number of billionaires (as figured in U.S. dollars, no less). India is getting both richer and poorer at the same time, as the gap between the richest and the poorest widens. As it is in this country, which has the biggest gap among all "developed" nations. And we can feel it.

We're long past the time when one income could support a family. Like it or not, many women if given the choice would prefer to work at home raising their children. It happens that women are really good at that, and it can be really good for children. But few can do it, because even with a woman and her husband working, they still have trouble getting by these days.

No, wealth doesn't come out of the air. It doesn't materialize when smart, educated, driven people apply themselves. That's needed, but wealth grows exceedingly slowly if it has to be created. Only when wealth is taken, as Mr Graham has said happened in the past, does the graph take a sharp upward jump.

And we are more and more rapidly taking from the poorest of the world to benefit the richest. We are taking resources and labor from the poorest of the world and using them for our benefit, and not giving back. We are dealing with the lowest bidder, the one who does not provide clean water, enough food, medical care, education, and who does not enforce even the most basic labor laws. And that's one reason why we are getting richer.

Some of us.

I simply don't agree with Mr Graham that "in a modern society, increasing variation in income is a sign of health". I believe that the opposite is true. Wealth creates both economic and political power, and the wealthy use power to become even wealthier and more powerful. That is the way it is today, and that is the way it has always been. We are too weak to control our lust for wealth and power. It is the human disease.

That is why the United States has a constitution.

If you want a truly healthy and happy society, one full of rich competition and growth in the arts, sciences and in business, you need to have an egalitarian one. One that has learned from the sad mistakes of human history. One that is wise enough to know that unchecked capitalism is as dangerous as unregulated military power.

If wealth is good, and a gap in wealth is better, and increasingly better as it grows wider, then power is also good, and a disparity in power is better, and absolute power is best. Either route will lead to an intense concentration of wealth, political power, religious power, police power, and military power. Dictatorship. The ultimate monopoly. It always happens. That is not what I want for the United States, or for the world as a whole.

Mr Graham ignores the story of Europe, a subcontinent that has learned the hard way. The European Union has a larger population than the United States. It is wealthier than the United States. Its people are better educated and happier. They all have health care, and don't worry about their pensions. They have high taxes and they pay them willingly. They know what the alternative is. They know what they're getting for the money. Several countries, including France, even have higher productivity than the United States. Bite that.

Europeans know that too much difference between the two ends of the economic spectrum creates problems for everyone. It isn't a personal moral failure to be poor, it's a social moral failure. It makes sense to share. An educated population can adapt and innovate. It can be more creative and peaceful. A healthy population need not fear epidemics bred and spread through a diseased underclass.

Toward the end of his essay, Mr Graham says a couple of interesting things.

"If I had a choice of living in a society where I was materially much better off than I am now, but was among the poorest, or in one where I was the richest, but much worse off than I am now, I'd take the first option.... It's absolute poverty you want to avoid, not relative poverty."

This is of course just the opposite of reality. Poverty is poverty. Being poor in a rich society is a little better than being poor in a poor society, but not much. The poor always suffer more. It doesn't matter whether they drive old cars or walk shoeless . The status of poverty is the crime, and the poor live shorter, less happy and less healthy lives because of it. Period.

And if Mr Graham lived as a rich man in a poor society, he would be much better off. If it bothered him too much, he could use his wealth to do good. This is rare, but some have done it. Without modern medicine and sanitation he might die relatively young, but maybe not. Many premodern societies were full of the elderly. It was the first five years of life that were the most dangerous. After that, if you didn't have to work too hard, if you were rich, you probably had it made. And the rich get a big boost just from being rich, and from being powerful. That's why they lived into old age.

Mr Graham's final comment is "You need rich people in your society not so much because in spending their money they create jobs, but because of what they have to do to get rich. I'm not talking about the trickle-down effect here. I'm not saying that if you let Henry Ford get rich, he'll hire you as a waiter at his next party. I'm saying that he'll make you a tractor to replace your horse."

Um, yes he is. It's right in there. "In spending their money they create jobs" is a standard line of the wealthy, even though he says it isn't so. Every wealthy person believes in an absolute, innate right to their own wealth: because I am wealthy I am good, and because I am wealthy I create jobs all around me, and so I deserve to be even wealthier, because I am blessed. If I were not blessed, I would be poor too.

But try to find a person who actually manufactured a significant portion of his or her wealth. It doesn't happen. My wealth comes from getting someone else's wealth. It's that old economic thing again. Money does grow on trees, and in oil wells, but hardly anyone gets it there. It's too much work. It's much easier and more fun to get it from someone else. Just to pick on Bill Gates again (well heck, everyone knows who he is), he didn't create wealth. He accumulated money from you and me for a long time. What he has now was once ours, and we willingly gave it to him.

Therefore he is now rich. Not a self-made man, but one that you and I made.

Will you pray for him? Or for Rupert Murdoch? Or for Warren Buffett? Larry Ellison? Do you sob with joy when you think of what Donald Trump has done for the world? How do these people compare to Albert Schweitzer, Mohandas Gandhi, Martin Luther King, Jr., or the Dalai Lama? How about Jesus?

Rich men, were they? Self-made millionaires? Do you admire them because of that? Or because they gave? Who's powerful now?

What really does matter? What is the value of a rich man, except to excite our own greed? Is there even a single thing to admire about a rich man? Isn't wealth a measure not of how much one has, but of how much one gives?

Mr Graham would not want to live as a poor man in a rich society. The basis of his essay has an opposing thrust. He is an entrepreneur. He values accumulating and winning. To be happy as a poor man means that he is not an entrepreneur. But he is.

If free enterprise is followed to its limit, and the accumulation of wealth is worshipped above all else, well, it leads somewhere we've heard of. It was called the Dark Ages. There is no such thing as a free lunch. We can't all be rich, and unfortunately, being rich still means that someone is rich and someone else can't be. It will always be that way, by definition. If we were all tall, then none of us would be. If we were all fat, then no one would be. Get the picture?

Think back a few years when IBM owned about half the software in the world, Microsoft owned nearly all of the rest, and a few other companies held title to what was left.

Compare that to now. Because of a few crackpots who insisted on sharing software freely, things have changed radically. Ownership, secrecy and lawsuits are no longer the keys to success. First called the "Free Software" movement, now sometimes also called the "Open Source" movement this change has revolutionized the world.

Almost everyone who wants to get into software now has a shot at it, and not only is free to take the source code and bend it into new shapes, but often can get it all free of cost.

This is progress. This we can celebrate. No one has to win or lose. We can share and rise together.