[josinalvo]

I think PG's argument does not work in two points. He seems to say that

1. Reducing the potential payoff kills startups (and)

2. To reduce inequality, you have to reduce the payoff of startups

2 is false: there are many ways to reduce inequality that dont affect startups. Take inherited inequality: you can tax inheritance, you can make college more affordable (by, say, using the inheritance tax), you can tax only big companies, or real estate. All these things reduce inequality. If inequelity is bad, we might fight it in some places, and still tolerate the existence of "the next bill gates"

1. is weird. I dont know for you, but for me, there is a clear upper ceiling of incentive: I'd work hard for a million, but not so much for my eleventh million. I am not sure founders are just multiplying P(sucess) and payoff. (VCs might be, though)

[drblast]

I'm sure VC's are doing that calculus, but they're not chasing risk, they want to be the insurance company. They want to invest in enough risky things that the success of one or two of them is certain and more than covers the rest of the investments that didn't pan out.

The problem with this is that works great when you have a large number of relatively cheap startups all trying to be the next app fad. But that model fails miserably for anything that requires a large up-front investment that might not pay off. Nobody can afford to fund 100 Tesla's and hope that one works. The initial cost is too large and the investment payoff will never cover the rest anyway.

And that's why there aren't many Teslas and there are thousands of social apps. Is that the desirable outcome that we're trying to preserve using inequality?

Paul Graham is right in that if you tax wealthy people there will be less money for startups. But whether that's a good or bad thing considering the alternatives is another discussion.

There's a neglected factor here, and that's founder risk. If I have no money, I won't be able to start a startup unless someone else gives me some; it's too risky and I might starve quickly. But if my basic health and survival needs are met, there's a lot less risk. We don't consider health care and welfare as enabler for growth in the U.S. but maybe we should. How many college-grad founders would bootstrap companies if they didn't have to worry about how to keep the lights on, and there was a potential for a long term payoff of a few million dollars?

[jjoonathan]

> [VCs] want to be the insurance company

Wow, I never looked at it that way but it makes so much sense. I always wondered why supposedly pro-entrepreneurial factions so heavily cheered policy that would increase payouts while simultaneously slamming social policy that would decrease activation barriers when, to me, the latter seemed like it would be much more effective at achieving the goal of increasing entrepreneurship (what with the reduced transaction costs of bootstrapping and all).

Now I get it. Not only do they not care about entrepreneurship which they can't get a cut of, it threatens their business model.

[mc32]

I suppose you could gauge it against entrepreneurship rates in places where there is more 'social security', ie Scandinavia and other parts of western Europe.

[jjoonathan]

That's a neat idea, but it would be hard to control for confounding factors like network effects.