Monday, August 29, 2005

Paul Graham makes republican mistake #1

The problem with wealthy entrepreneurs who got lucky is that they attribute their success and wealth to their skill, intelligence and risk taking ability, while a lot of their wealth actually comes from luck. But because they can't admit that (since that would be an admission that they do not deserve their wealth), they have to come up with justifications as to why the universe made them a multi-millionaire.

The problem with Paul's thesis is that I can think of many many ways you can reduce inequality without reducing risk-taking behavior. Here's an example: supposed you provide universal healthcare. A large proportion of U.S. bankruptcies are driven by medical bills due to lack of health insurance. Suddenly, anyone who wanted to start a business can do so without losing their healthcare. I'd argue that more people would start businesses and take more risks than a national policy where your healthcare is tied to your job, effectively locking you to that job if you don't have a lot of money and have one or more pre-existing conditions.

There's an obvious place to tax people if you truly believe Paul's thesis (which I don't buy into --- I've seen too many folks luck into wealth to think that wealth is in any form "deserved" by most people who make that kind of money): inter-generational transfers. In other words, we should tax inheritances heavily and severely. But of course, the Republicans we see in congress are the ones most enthusiastic about eliminating the estate tax.
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