Y Combinator founder Paul Graham published an essay over the weekend in which he argues economic inequality is a good thing, or at least that it's a necessary evil of promoting entrepreneurship.  A lot of people think he is wrong.

Graham argues that the highly wealthy don't necessarily take their money from the poor, citing startup founders as an example of people who create wealth. "Yes, there are a lot of people who get rich through rent-seeking of various forms, and a lot who get rich by playing games that though not crooked are zero-sum," he writes. "But there are also a significant number who get rich by creating wealth."

He frames critiques of economic inequality as attacks on an ecosystem that allows the startups to thrive: "You can't end economic inequality without preventing people from getting rich, and you can't do that without preventing them from starting startups."

Within hours, Graham's essay elicited a slew of responses calling his points (a) wrong and (b) poorly argued. These counterpoints aren't just coming from sociologists, but also from fellow venture capitalists and members of the startup community.

"Yes, income inequality exists, and, yes, it's a natural consequence of capitalism and other forms of government are decidedly worse than capitalism because they inefficiently create and allocate resources. But the celebratory nature of today's conversation felt tone deaf and seemed to ignore the rules that get bent in favor of those with resources or born into privilege," writes Upfront Ventures partner Mark Suster in an essay titled "Why I don't celebrate income inequality." 

Suster argues that unequal access to education and special tax breaks for startup founders and venture capitalists make for an unfair system that paves special access for a few to the tip-top echelons of income, deferring to those high-earners disproportionate influence over politics.

QVentures Partner Rick Webb writes that Graham's argument was based on a virtually non-existent conflict. "Literally no one in America, save for a very few on the fringe, is talking about eliminating inequality," writes Webb. They're talking about reducing income inequality by establishing a progressive income tax, he clarifies.

University of Toronto economist Joshua Gans counters that Graham's "notion that entrepreneurship and inequality go hand in hand is I suspect a myth. There is no theoretical reason for this to be the case, certainly no moral reason, and, if I had to guess, it isn't empirically true."

Inc. has reached out to Graham for a comment and will update if he responds. The investor wrote on Twitter that many of his critics were attacking him, rather than his ideas, which he says "implies I didn't leave much to refute." 

 

Published on: Jan 4, 2016