This is an undeveloped thought, in response to an essay by Paul Graham, in which he takes on the idea that enormous variations in wealth are a social evil. First, an excerpt:

Variation in wealth can be a sign of variation in productivity. (In a society of one, they’re identical.) And that is almost certainly a good thing: if your society has no variation in productivity, it’s probably not because everyone is Thomas Edison. It’s probably because you have no Thomas Edisons. In a low-tech society you don’t see much variation in productivity. If you have a tribe of nomads collecting sticks for a fire, how much more productive is the best stick gatherer going to be than the worst? A factor of two? Whereas when you hand people a complex tool like a computer, the variation in what they can do with it is enormous.

I agree that technology has the ability to magnify differences in productivity. It’s the unwavering fact behind catchphrases like “the digital divide.” There are individual technologists and business folks who have brought the world innovations that have created enormous good to the whole of society. Life-extending pharmaceuticals are a good (and entirely unquantifiable) example. But what material rewards should accrue to those individuals?

Graham conflates the production of value with reward by material wealth. High variations in wealth may currently result from high variations in value production, but that does not mean that we must have the former to enable the latter.

Before we go on, a comment: If you genuinely believe that what you create comes from nothing, that you are a one-man island, and that you have the moral right to whatever the market will allow you to grab or rent-seek, read no further. We don’t have much to talk about. If, on the other hand, you view whole societies to be the human unit that should be optimized (e.g. if you think in terms of economics, sociology, or utilitarianism), then read on.

The key question that Graham poses to himself (but never brings back to his inital thesis) is this: “What motivates the super-producers in our society?” This question is key because his conflation of production and the rewards that enable it depends on the assumption that value production scales linearly with material reward.

In my opinion, there are diminishing returns on the rewards that we lavish on individuals. You can give a guy a $60k salary, and he may be willing to work twice as hard as someone who gets half as much. But double that and I doubt you’ll squeeze again twice as much value out of him. Maybe you’ll find a different guy at that higher salary who will be twice as productive. But at a certain point –let’s just make it $10M a year to be conservative– I’m pretty sure that the most highly-qualified people will give their 100% regardless of how much additional money you throw at them. Anything wealth beyond a certain point is basically just luck and/or greed.

In essence, we’ve paid too much to have our superproducers. If you presume that there’s a social contract, then you could say that we’ve negotiated pretty poorly.

There’s another argument here that I haven’t sussed out: Does being a megarich superproducer enable more superproduction? Maybe we reward captains of industry not just for their individual production, but also for their investment acumen. Investment that somehow would not happen if we had a different way of distributing excess funds. I doubt it, but I’m open to be convinced. . .

Related Posts:

• One-Fifth of Human Genes Have Been Patented, Study Reveals (October, 2005)
• to whom does our identifying data belong? (October, 2005)
• The winds of change are blowing us towards the sunny side… (November, 2005)
• Nightlife as a measure of development (July, 2006)
• HASA (June, 2008)

This entry was posted on Wednesday, October 26th, 2005 at 12:42 pm and is filed under economics, politics, profit, technology. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.