Thinking About Thinking

This may be a post that I regret, we’ll see.  So, I have had an ongoing debate with my pastor and some of my closest friends who often cite the disparity between rich and poor in America as one of the great inequities that needs to be resolved through policy and charity. I think it is an important topic because sentiment against “the rich getting richer while the poor are getting poorer” (whether entirely true or not) is often the rallying cry for many key policy initiatives that have wide ranging economic impact – income taxes, capital gains tax, corporate taxes, charitable deductions, estate taxes, etc.

Let me first say that I don’t have a completely researched view on this topic, and so I’m writing this post as much to pressure test some very high level sentiments I have.  Let me also say that I fully recognize that being a venture capitalist, most of my daily life is not spent among the poor.  But, hopefully those who spend far more time among the poor than I do can appreciate that I do spend much of my day around folks in the supply chain of innovation – which is a critical element to job growth in this country.  For example, I just heard this week that 0.2% of GDP is invested by VCs, but 20% of GDP is produced by once VC-backed companies.

With that being said, let me raise some of my high level thoughts on the disparity between rich and poor in America (be nice if you completely disagree, I’m here to share and learn at the same time):

1. I don’t really understand the objection between there being a disparity, even a big disparity, between rich and poor.  “Rich” and “poor” are two words that are meant to describe opposite extremes along the spectrum of wealth.  In the same way, tall and short are meant to describe opposite extremes along the spectrum of height.  Dark and light are the same for color.  Wide and narrow are the same for width.  East and west are the same for coasts.  There will always be a great disparity between rich and poor because the two words are meant to connote great disparity.  When you pick two terms meant to describe opposite extremes, I don’t completely understand why we object to the fact that they are in fact…opposite extremes.
2. It doesn’t seem to me that the disparity between the rich and the poor is the best litmus test for the equity of an economy.  The one that makes more sense to me than the disparity of the extremes is the size of middle.  For example, depending on what source you trust, between 100–300 million people have come out of poverty in China in the current generation due to the opening of their economy.  It has to be considered a great economic achievement.  Alongside the opening of the Chinese economy, I’m sure the upper class in China has also created more wealth for themselves.  So, while the disparity between rich and poor has probably grown materially in China, doesn’t that bely the more important metric that the middle class is getting much bigger because hundreds of millions of previously poor people are getting wealthier?
3. The math seems stacked against the rich.  If you are poor and start making money, eventually you will no longer be “poor”.  But, if you are rich, and you make more money, you will still be considered rich.  There’s no cap on how rich a rich person can be, but there is a cap on how poor a poor person can be and still qualify.  In this sense, due to the unlimited upside of the rich, they have unlimited downside on the disparity metric.
4. I like to think that in general, the rich get rich for a reason, and usually that reason is a good thing for the economy and ultimately for all classes.  I like to think that reason has something to do with being a part of producing something that has value to others.  I also like to think that in the process of producing that valuable something, they are creating jobs for others which benefits many tiers of society both directly and indirectly.  I say I like to think because I’m not sure, but it seems to make sense to me.
5. Finally, I have never heard my friends or pastor who have strong feelings about this issue clearly articulate exactly how much disparity between rich and poor they do find acceptable.  I’m almost beginning to believe that they don’t articulate an acceptable disparity because they think that the disparity in and of itself somehow violates a fundamental sense of equity.  So, I guess what I’d ask those who also take great issue with the disparity between rich and poor – what exactly are you looking for and what consequences are you prepared to accept to get there?

In a circuitous way, this does get back to being a VC.  My father once told me that the best thing you can do for someone is to give them a job – because if they have a job, they can put food on the table.  It’s simple wisdom – which is the best kind.  It therefore strikes me that one major reason the poor are poor is because they’re not making a sufficient wage or a wage at all.  One major reason they aren’t making a sufficient wage or a wage at all is because of the absence or paucity of employment.  So, it seems to me that a very effective way to mitigate poverty is to create more jobs.  That’s one of the reasons I love being a VC because in some small (maybe big) way, I do feel like what we do helps to create jobs – and hopefully in some way that helps to create wealth for all of society.

I guess the reason I raised this topic to begin with is I worry that by focusing on the disparity metric and driving policies around mitigating that metric, we are in fact just lowering the wealth creation opportunity for everyone including the poor themselves.  I’d rather focus on policies that enhance the wealth creation opportunity for everyone, than ones that are intended to bring one segment down to theoretically bring another segment up.  I’m just not sure it really works that way.