As the pendulum of wealth swings heavily toward Silicon Valley, Y Combinator founder Paul Graham is happy to push it even higher. Rather, the talk of ending ending economic inequality — or the growing separation between the rich and the poor, but mostly the rich getting richer — makes Graham scared, for society and for startups.
In a new essay, Graham defends startups because they generate new wealth rather than take from the existing pie. Instead, people should be focused on ending poverty, not ending income inequality.
Graham obviously has a vested financial interest to think this way. As he states in the opening, he is a “manufacturer of economic inequality.” He co-founded Y Combinator, an elite startup school that has churned out some of the most valuable companies in tech, like Airbnb, Dropbox, and Stripe. Each successful company continues to breed more wealth, whether it’s VCs who made big bucks, founders who cashed out, or early employees who made the right bet and worked hard to build a billion dollar company.
“So when I hear people saying that economic inequality is bad and should be eliminated, I feel rather like a wild animal overhearing a conversation between hunters,” Graham writes. “But the thing that strikes me most about the conversations I overhear is how confused they are. They don’t even seem clear whether they want to kill me or not.”
So what are people getting so wrong that to address economic inequality would be to kill startups?
To Graham, it’s that the rich get rich by taking money from the poor. Calling it the most naïve fallacy, Graham argues that most people think about economic inequality as a pie. Rather, his view is that the rich are getting richer in multiple ways and the poor are getting poorer in multiple ways, too.
Startups, and therefore Graham himself, have added a new way to get rich that isn’t through crooked businesses or bribing government officials. It’s now easier than ever to start a company, and, should it be successful, became rich faster.
“I’m all for shutting down the crooked ways to get rich. But that won’t eliminate economic inequality, because as long as you leave open the option of getting rich by creating wealth, people who want to get rich will do that instead,” Graham writes.
If you buy his argument that this is not taking money away from the poor, but rather growing how large of a pie wealth can be, then it would be hard to end income inequality without killing the innovation that is creating more of this wealth in the first place.
“You can’t end economic inequality without preventing people from getting rich, and you can’t do that without preventing them from starting startups,” Graham said.
If we’re not preventing people from getting rich, Graham says we need to focus on ending poverty, rather than focusing on ending economic inequality, regardless of if it damages wealth in the process. The real problem, he says, is when you conflate the two.
“Poverty and economic inequality are not identical. When the city is turning off your water because you can’t pay the bill, it doesn’t make any difference what Larry Page’s net worth is compared to yours. He might only be a few times richer than you, and it would still be just as much of a problem that your water was getting turned off,” Graham writes.
NOW WATCH: Tech Insider videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.