A big-shot venture capitalist says we need inequality. What do economists say?
By Jim Tankersley January 14



SAN FRANCISCO – There is an apartment for rent in a renovated former warehouse here, across the street from the Caltrain commuter rail station. It has two bedrooms and two bathrooms and nearly 700 square feet of space. It comes furnished. It is, the online advertisement proclaims, a "perfect place" for someone, like so many young startup employees today, who works in Silicon Valley but lives in the city. It could be yours for $8,525 a month.

Rents get more bearable in farther flung parts of the city, and in bedroom communities down the Peninsula, but only slightly. A deluge of cash has soaked the engineers and executives of the Bay Area, pushing up home prices and leaving San Francisco with levels of income inequality typically seen in developing nations.

Paul Graham, a venture capitalist and one of the founders of the startup incubator Y Combinator, would have you believe this rising inequality is a good thing. Or, at very worst, the inevitable consequence of a good thing. "You can't prevent great variations in wealth without preventing people from getting rich," he wrote in an essay that went viral online last week, "and you can't do that without preventing them from starting startups."

Graham's piece happened to light up the Internet just as thousands of economists descended on San Francisco for the annual conference of the American Economic Association. The drizzly three days of the gathering featured what appears to have been the largest focus on inequality in the organization's history. The 70 inequality-themed papers presented here wove a nest of new research demonstrating how and why inequality has increased, and what side effects appear to have accompanied it.

Taken together, they make the case that Graham -- and others who wave off inequality as inconsequential -- has misread what's happened in the American economy. They suggest that everyone should worry about the drivers and consequences of inequality -- even venture capitalists....

More at: https://www.washingtonpost.com/news/wonk/wp/2016/01/14/what-silicon-valley-doesnt-understand-about-inequality/