I haven’t written extensively on Tyler Cowen’s wonderful essay on “The Inequality That Matters” in the new issue of The American Interest. I’ll just note that I think it’s excellent, and well worth your time. The best part of the essay, for me, wasn’t the intelligent and thoughtful discussion of how the financial sector shapes the broader landscape, though it was certainly quite awesome, but rather the section on “threshold earners”:
A threshold earner is someone who seeks to earn a certain amount of money and no more. If wages go up, that person will respond by seeking less work or by working less hard or less often. That person simply wants to “get by” in terms of absolute earning power in order to experience other gains in the form of leisure—whether spending time with friends and family, walking in the woods and so on. Luck aside, that person’s income will never rise much above the threshold.
It’s not obvious what causes the percentage of threshold earners to rise or fall, but it seems reasonable to suppose that the more single-occupancy households there are, the more threshold earners there will be, since a major incentive for earning money is to use it to take care of other people with whom one lives. For a variety of reasons, single-occupancy households in the United States are at an all-time high. There are also a growing number of late odyssey years graduate students who try to cover their own expenses but otherwise devote their time to study. If the percentage of threshold earners rises for whatever reasons, however, the aggregate gap between them and the more financially ambitious will widen. There is nothing morally or practically wrong with an increase in inequality from a source such as that.
Tyler has hit upon a very useful way of talking about an interrelated, hard-to-disentangle set of phenomena: the rise of “post-materialist” values in educated and affluent societies, how changing birthrates change social norms in durable ways, the weakening hold of traditional social stigma in a highly mobile society, etc. (Indeed, we’re mobile both in the sense that we change our physical locations and in the sense that we have more freedom to change our “social” locations by, for example, immersing ourselves in online worlds, etc. No, I don’t necessarily recommend this approach to life, particularly if it also involves consuming fatally large doses of aspertame.) He continues with the upshot:
The funny thing is this: For years, many cultural critics in and of the United States have been telling us that Americans should behave more like threshold earners. We should be less harried, more interested in nurturing friendships, and more interested in the non-commercial sphere of life. That may well be good advice. Many studies suggest that above a certain level more money brings only marginal increments of happiness. What isn’t so widely advertised is that those same critics have basically been telling us, without realizing it, that we should be acting in such a manner as to increase measured income inequality. Not only is high inequality an inevitable concomitant of human diversity, but growing income inequality may be, too, if lots of us take the kind of advice that will make us happier.
This clearly reflects the pattern of wage dispersion among my friends, particularly those who attended elite secondary schools and colleges and universities. I know many “threshold earners,” including both high and low earners who could earn much more if they chose to make the necessary sacrifices. But they are satisficers. Children tend to shake up the equation, as Tyler anticipates, but not always.
The idea of the “threshold earner” came to mind as I read Michael Arrington’s post on “the rise of the gentleman hacker,” who might be understood as souped-up threshold earners, who’ve already climbed various entrepreneurial mountains.
What does a person do after becoming fabulously wealthy?
Sometimes the type A pirate personality that got them to where they are just doesn’t stop. They move on to a new challenge, and try for an even bigger win. They keep working, keep creating.
These are not threshold earners, suffice it to say.
But I’m hearing more and more about people who are simply setting up an office somewhere close to their multi-million dollar home in Silicon Valley or San Francisco, hiring a handful of hackers, and just building stuff to see what happens.
In many ways it’s analogous to the gentleman farmer – someone who farms, sorta, but doesn’t really worry about profit because they are independently wealthy.
It doesn’t take much capital. You already have a name that will attract developers, or you pull them out of their old jobs working for you. A million dollars or so will get you an office and a handful of hackers, and keep them well paid for more than a year. Get someone really young who wants responsibility and they may even work for next to nothing in exchange for big equity stakes in their projects – sort of a modified Y Combinator model.
Then, you build. Whatever you want, for no other reason than you feel like it.
My guess is that these “gentleman hackers” will have a large and growing impact on U.S. and global society, mostly to the good. This is one of many reasons why I’m relatively sanguine about extreme upper-tail inequality. I see nothing wrong with the U.S. having a somewhat bigger share of the global rich than the Cayman Islands, Hong Kong, Singapore, or China, particularly because I think that there are many spillover benefits to housing more than one agglomeration of rich eccentrics. And I can’t for the life of me see how housing a somewhat smaller share of the global rich will mean that fewer Americans will spend their prime-age years in prison.