before

Want to start a startup?  Get funded by
Y Combinator.

October 2014(This essay is derived from a guest lecture in Sam Altman's startup class at
Stanford.  It's intended for college students, but much of it is
applicable to potential founders at other ages.)One of the advantages of having kids is that when you have to give
advice, you can ask yourself "what would I tell my own kids?"  My
kids are little, but I can imagine what I'd tell them about startups
if they were in college, and that's what I'm going to tell you.Startups are very counterintuitive.  I'm not sure why.  Maybe it's
just because knowledge about them hasn't permeated our culture yet.
But whatever the reason, starting a startup is a task where you
can't always trust your instincts.It's like skiing in that way.  When you first try skiing and you
want to slow down, your instinct is to lean back.  But if you lean
back on skis you fly down the hill out of control.  So part of
learning to ski is learning to suppress that impulse.  Eventually
you get new habits, but at first it takes a conscious effort.  At
first there's a list of things you're trying to remember as you
start down the hill.Startups are as unnatural as skiing, so there's a similar list for
startups. Here I'm going to give you the first part of it — the things
to remember if you want to prepare yourself to start a startup.
CounterintuitiveThe first item on it is the fact I already mentioned: that startups
are so weird that if you trust your instincts, you'll make a lot
of mistakes.  If you know nothing more than this, you may at least
pause before making them.When I was running Y Combinator I used to joke that our function
was to tell founders things they would ignore.  It's really true.
Batch after batch, the YC partners warn founders about mistakes
they're about to make, and the founders ignore them, and then come
back a year later and say "I wish we'd listened."Why do the founders ignore the partners' advice?  Well, that's the
thing about counterintuitive ideas: they contradict your intuitions.
They seem wrong.  So of course your first impulse is to disregard
them.  And in fact my joking description is not merely the curse
of Y Combinator but part of its raison d'etre. If founders' instincts
already gave them the right answers, they wouldn't need us.  You
only need other people to give you advice that surprises you. That's
why there are a lot of ski instructors and not many running
instructors.
[1]You can, however, trust your instincts about people.  And in fact
one of the most common mistakes young founders make is not to
do that enough.  They get involved with people who seem impressive,
but about whom they feel some misgivings personally.  Later when
things blow up they say "I knew there was something off about him,
but I ignored it because he seemed so impressive."If you're thinking about getting involved with someone — as a
cofounder, an employee, an investor, or an acquirer — and you
have misgivings about them, trust your gut.  If someone seems
slippery, or bogus, or a jerk, don't ignore it.This is one case where it pays to be self-indulgent. Work with
people you genuinely like, and you've known long enough to be sure.
ExpertiseThe second counterintuitive point is that it's not that important
to know a lot about startups.  The way to succeed in a startup is
not to be an expert on startups, but to be an expert on your users
and the problem you're solving for them.
Mark Zuckerberg didn't succeed because he was an expert on startups.
He succeeded despite being a complete noob at startups, because he
understood his users really well.If you don't know anything about, say, how to raise an angel round,
don't feel bad on that account.  That sort of thing you can learn
when you need to, and forget after you've done it.In fact, I worry it's not merely unnecessary to learn in great
detail about the mechanics of startups, but possibly somewhat
dangerous.  If I met an undergrad who knew all about convertible
notes and employee agreements and (God forbid) class FF stock, I
wouldn't think "here is someone who is way ahead of their peers."
It would set off alarms.  Because another of the characteristic
mistakes of young founders is to go through the motions of starting
a startup.  They make up some plausible-sounding idea, raise money
at a good valuation, rent a cool office, hire a bunch of people.
From the outside that seems like what startups do.  But the next
step after rent a cool office and hire a bunch of people is: gradually
realize how completely fucked they are, because while imitating all
the outward forms of a startup they have neglected the one thing
that's actually essential: making something people want.
GameWe saw this happen so often that we made up a name for it: playing
house.  Eventually I realized why it was happening.  The reason
young founders go through the motions of starting a startup is
because that's what they've been trained to do for their whole lives
up to that point.  Think about what you have to do to get into
college, for example.  Extracurricular activities, check.  Even in
college classes most of the work is as artificial as running laps.I'm not attacking the educational system for being this way. There
will always be a certain amount of fakeness in the work you do when
you're being taught something, and if you measure their performance
it's inevitable that people will exploit the difference to the point
where much of what you're measuring is artifacts of the fakeness.I confess I did it myself in college. I found that in a lot of
classes there might only be 20 or 30 ideas that were the right shape
to make good exam questions.  The way I studied for exams in these
classes was not (except incidentally) to master the material taught
in the class, but to make a list of potential exam questions and
work out the answers in advance. When I walked into the final, the
main thing I'd be feeling was curiosity about which of my questions
would turn up on the exam.  It was like a game.It's not surprising that after being trained for their whole lives
to play such games, young founders' first impulse on starting a
startup is to try to figure out the tricks for winning at this new
game. Since fundraising appears to be the measure of success for
startups (another classic noob mistake), they always want to know what the
tricks are for convincing investors.  We tell them the best way to
convince investors is to make a startup
that's actually doing well, meaning growing fast, and then simply
tell investors so.  Then they want to know what the tricks are for
growing fast.  And we have to tell them the best way to do that is
simply to make something people want.So many of the conversations YC partners have with young founders
begin with the founder asking "How do we..." and the partner replying
"Just..."Why do the founders always make things so complicated?  The reason,
I realized, is that they're looking for the trick.So this is the third counterintuitive thing to remember about
startups: starting a startup is where gaming the system stops
working.  Gaming the system may continue to work if you go to work
for a big company. Depending on how broken the company is, you can
succeed by sucking up to the right people, giving the impression
of productivity, and so on.
[2]
But that doesn't work with startups.
There is no boss to trick, only users, and all users care about is
whether your product does what they want. Startups are as impersonal
as physics.  You have to make something people want, and you prosper
only to the extent you do.The dangerous thing is, faking does work to some degree on investors.
If you're super good at sounding like you know what you're talking
about, you can fool investors for at least one and perhaps even two
rounds of funding.  But it's not in your interest to.  The company
is ultimately doomed.  All you're doing is wasting your own time
riding it down.So stop looking for the trick. There are tricks in startups, as
there are in any domain, but they are an order of magnitude less
important than solving the real problem. A founder who knows nothing
about fundraising but has made something users love will have an
easier time raising money than one who knows every trick in the
book but has a flat usage graph. And more importantly, the founder
who has made something users love is the one who will go on to
succeed after raising the money.Though in a sense it's bad news in that you're deprived of one of
your most powerful weapons, I think it's exciting that gaming the
system stops working when you start a startup.  It's exciting that
there even exist parts of the world where you win by doing good
work.  Imagine how depressing the world would be if it were all
like school and big companies, where you either have to spend a lot
of time on bullshit things or lose to people who do.
[3]
I would
have been delighted if I'd realized in college that there were parts
of the real world where gaming the system mattered less than others,
and a few where it hardly mattered at all.  But there are, and this
variation is one of the most important things to consider when
you're thinking about your future.  How do you win in each type of
work, and what would you like to win by doing?
[4]
All-ConsumingThat brings us to our fourth counterintuitive point: startups are
all-consuming.  If you start a startup, it will take over your life
to a degree you cannot imagine.  And if your startup succeeds, it
will take over your life for a long time: for several years at the
very least, maybe for a decade, maybe for the rest of your working
life.  So there is a real opportunity cost here.Larry Page may seem to have an enviable life, but there are aspects
of it that are unenviable.  Basically at 25 he started running as
fast as he could and it must seem to him that he hasn't stopped to
catch his breath since.  Every day new shit happens in the Google
empire that only the CEO can deal with, and he, as CEO, has to deal
with it.  If he goes on vacation for even a week, a whole week's
backlog of shit accumulates.  And he has to bear this uncomplainingly,
partly because as the company's daddy he can never show fear or
weakness, and partly because billionaires get less than zero sympathy
if they talk about having difficult lives.  Which has the strange
side effect that the difficulty of being a successful startup founder
is concealed from almost everyone except those who've done it.Y Combinator has now funded several companies that can be called
big successes, and in every single case the founders say the same
thing.  It never gets any easier.  The nature of the problems change.
You're worrying about construction delays at your London office
instead of the broken air conditioner in your studio apartment.
But the total volume of worry never decreases; if anything it
increases.Starting a successful startup is similar to having kids in that
it's like a button you push that changes your life irrevocably.
And while it's truly wonderful having kids, there are a lot of
things that are easier to do before you have them than after.  Many
of which will make you a better parent when you do have kids. And
since you can delay pushing the button for a while, most people in
rich countries do.Yet when it comes to startups, a lot of people seem to think they're
supposed to start them while they're still in college.  Are you
crazy?  And what are the universities thinking?  They go out of
their way to ensure their students are well supplied with contraceptives,
and yet they're setting up entrepreneurship programs and startup
incubators left and right.To be fair, the universities have their hand forced here.  A lot
of incoming students are interested in startups.  Universities are,
at least de facto, expected to prepare them for their careers.  So
students who want to start startups hope universities can teach
them about startups.  And whether universities can do this or not,
there's some pressure to claim they can, lest they lose applicants
to other universities that do.Can universities teach students about startups?  Yes and no.  They
can teach students about startups, but as I explained before, this
is not what you need to know.  What you need to learn about are the
needs of your own users, and you can't do that until you actually
start the company.
[5]
So starting a startup is intrinsically
something you can only really learn by doing it.  And it's impossible
to do that in college, for the reason I just explained: startups
take over your life.  You can't start a startup for real as a
student, because if you start a startup for real you're not a student
anymore. You may be nominally a student for a bit, but you won't even
be that for long.
[6]Given this dichotomy, which of the two paths should you take?  Be
a real student and not start a startup, or start a real startup and
not be a student?  I can answer that one for you. Do not start a
startup in college.  How to start a startup is just a subset of a
bigger problem you're trying to solve: how to have a good life.
And though starting a startup can be part of a good life for a lot
of ambitious people, age 20 is not the optimal time to do it.
Starting a startup is like a brutally fast depth-first search.  Most
people should still be searching breadth-first at 20.You can do things in your early 20s that you can't do as well before
or after, like plunge deeply into projects on a whim and travel
super cheaply with no sense of a deadline.  For unambitious people,
this sort of thing is the dreaded "failure to launch," but for the
ambitious ones it can be an incomparably valuable sort of exploration.
If you start a startup at 20 and you're sufficiently successful,
you'll never get to do it.
[7]Mark Zuckerberg will never get to bum around a foreign country.  He
can do other things most people can't, like charter jets to fly him
to foreign countries. But success has taken a lot of the serendipity
out of his life. Facebook is running him as much as he's running
Facebook. And while it can be very cool to be in the grip of a
project you consider your life's work, there are advantages to
serendipity too, especially early in life.  Among other things it
gives you more options to choose your life's work from.There's not even a tradeoff here. You're not sacrificing anything
if you forgo starting a startup at 20, because you're more likely
to succeed if you wait.  In the unlikely case that you're 20 and
one of your side projects takes off like Facebook did, you'll face
a choice of running with it or not, and it may be reasonable to run
with it.  But the usual way startups take off is for the founders
to make them take off, and it's gratuitously
stupid to do that at 20.
TryShould you do it at any age?  I realize I've made startups sound
pretty hard.  If I haven't, let me try again: starting a startup
is really hard.  What if it's too hard?  How can you tell if you're
up to this challenge?The answer is the fifth counterintuitive point: you can't tell. Your
life so far may have given you some idea what your prospects might
be if you tried to become a mathematician, or a professional football
player.  But unless you've had a very strange life you haven't done
much that was like being a startup founder.
Starting a startup will change you a lot.  So what you're trying
to estimate is not just what you are, but what you could grow into,
and who can do that?For the past 9 years it was my job to predict whether people would
have what it took to start successful startups.  It was easy to
tell how smart they were, and most people reading this will be over
that threshold.  The hard part was predicting how tough and ambitious they would become.  There
may be no one who has more experience at trying to predict that,
so I can tell you how much an expert can know about it, and the
answer is: not much.  I learned to keep a completely open mind about
which of the startups in each batch would turn out to be the stars.The founders sometimes think they know. Some arrive feeling sure
they will ace Y Combinator just as they've aced every one of the (few,
artificial, easy) tests they've faced in life so far.  Others arrive
wondering how they got in, and hoping YC doesn't discover whatever
mistake caused it to accept them.  But there is little correlation
between founders' initial attitudes and how well their companies
do.I've read that the same is true in the military — that the
swaggering recruits are no more likely to turn out to be really
tough than the quiet ones. And probably for the same reason: that
the tests involved are so different from the ones in their previous
lives.If you're absolutely terrified of starting a startup, you probably
shouldn't do it.  But if you're merely unsure whether you're up to
it, the only way to find out is to try.  Just not now.
IdeasSo if you want to start a startup one day, what should you do in
college?  There are only two things you need initially: an idea and
cofounders.  And the m.o. for getting both is the same.  Which leads
to our sixth and last counterintuitive point: that the way to get
startup ideas is not to try to think of startup ideas.I've written a whole essay on this,
so I won't repeat it all here.  But the short version is that if
you make a conscious effort to think of startup ideas, the ideas
you come up with will not merely be bad, but bad and plausible-sounding,
meaning you'll waste a lot of time on them before realizing they're
bad.The way to come up with good startup ideas is to take a step back.
Instead of making a conscious effort to think of startup ideas,
turn your mind into the type that startup ideas form in without any
conscious effort.  In fact, so unconsciously that you don't even
realize at first that they're startup ideas.This is not only possible, it's how Apple, Yahoo, Google, and
Facebook all got started.  None of these companies were even meant
to be companies at first.  They were all just side projects.  The
best startups almost have to start as side projects, because great
ideas tend to be such outliers that your conscious mind would reject
them as ideas for companies.Ok, so how do you turn your mind into the type that startup ideas
form in unconsciously?  (1) Learn a lot about things that matter,
then (2) work on problems that interest you (3) with people you
like and respect.  The third part, incidentally, is how you get
cofounders at the same time as the idea.The first time I wrote that paragraph, instead of "learn a lot about
things that matter," I wrote "become good at some technology." But
that prescription, though sufficient, is too narrow.  What was
special about Brian Chesky and Joe Gebbia was not that they were
experts in technology.  They were good at design, and perhaps even
more importantly, they were good at organizing groups and making
projects happen.  So you don't have to work on technology per se,
so long as you work on problems demanding enough to stretch you.What kind of problems are those?  That is very hard to answer in
the general case.  History is full of examples of young people who
were working on important problems that no
one else at the time thought were important, and in particular
that their parents didn't think were important.  On the other hand,
history is even fuller of examples of parents who thought their
kids were wasting their time and who were right.  So how do you
know when you're working on real stuff?
[8]I know how I know.  Real problems are interesting, and I am
self-indulgent in the sense that I always want to work on interesting
things, even if no one else cares about them (in fact, especially
if no one else cares about them), and find it very hard to make
myself work on boring things, even if they're supposed to be
important.My life is full of case after case where I worked on something just
because it seemed interesting, and it turned out later to be useful
in some worldly way.  Y
Combinator itself was something I only did because it seemed
interesting. So I seem to have some sort of internal compass that
helps me out.  But I don't know what other people have in their
heads. Maybe if I think more about this I can come up with heuristics
for recognizing genuinely interesting problems, but for the moment
the best I can offer is the hopelessly question-begging advice that
if you have a taste for genuinely interesting problems, indulging
it energetically is the best way to prepare yourself for a startup.
And indeed, probably also the best way to live.
[9]But although I can't explain in the general case what counts as an
interesting problem, I can tell you about a large subset of them.
If you think of technology as something that's spreading like a
sort of fractal stain, every moving point on the edge represents
an interesting problem.  So one guaranteed way to turn your mind
into the type that has good startup ideas is to get yourself to the
leading edge of some technology — to cause yourself, as Paul
Buchheit put it, to "live in the future." When you reach that point,
ideas that will seem to other people uncannily prescient will seem
obvious to you.  You may not realize they're startup ideas, but
you'll know they're something that ought to exist.For example, back at Harvard in the mid 90s a fellow grad student
of my friends Robert and Trevor wrote his own voice over IP software.
He didn't mean it to be a startup, and he never tried to turn it
into one.  He just wanted to talk to his girlfriend in Taiwan without
paying for long distance calls, and since he was an expert on
networks it seemed obvious to him that the way to do it was turn
the sound into packets and ship it over the Internet. He never did
any more with his software than talk to his girlfriend, but this
is exactly the way the best startups get started.So strangely enough the optimal thing to do in college if you want
to be a successful startup founder is not some sort of new, vocational
version of college focused on "entrepreneurship." It's the classic
version of college as education for its own sake. If you want to
start a startup after college, what you should do in college is
learn powerful things.  And if you have genuine intellectual
curiosity, that's what you'll naturally tend to do if you just
follow your own inclinations.
[10]The component of entrepreneurship that really matters is domain
expertise.  The way to become Larry Page was to become an expert
on search. And the way to become an expert on search was to be
driven by genuine curiosity, not some ulterior motive.At its best, starting a startup is merely an ulterior motive for
curiosity.  And you'll do it best if you introduce the ulterior
motive toward the end of the process.So here is the ultimate advice for young would-be startup founders,
boiled down to two words: just learn.
Notes[1]
Some founders listen more than others, and this tends to be a
predictor of success. One of the things I
remember about the Airbnbs during YC is how intently they listened.[2]
In fact, this is one of the reasons startups are possible.  If
big companies weren't plagued by internal inefficiencies, they'd
be proportionately more effective, leaving less room for startups.[3]
In a startup you have to spend a lot of time on schleps, but this sort of work is merely
unglamorous, not bogus.[4]
What should you do if your true calling is gaming the system?
Management consulting.[5]
The company may not be incorporated, but if you start to get
significant numbers of users, you've started it, whether you realize
it yet or not.[6]
It shouldn't be that surprising that colleges can't teach
students how to be good startup founders, because they can't teach
them how to be good employees either.The way universities "teach" students how to be employees is to
hand off the task to companies via internship programs.  But you
couldn't do the equivalent thing for startups, because by definition
if the students did well they would never come back.[7]
Charles Darwin was 22 when he received an invitation to travel
aboard the HMS Beagle as a naturalist.  It was only because he was
otherwise unoccupied, to a degree that alarmed his family, that he
could accept it. And yet if he hadn't we probably would not know
his name.[8]
Parents can sometimes be especially conservative in this
department.  There are some whose definition of important problems
includes only those on the critical path to med school.[9]
I did manage to think of a heuristic for detecting whether you
have a taste for interesting ideas: whether you find known boring
ideas intolerable.  Could you endure studying literary theory, or
working in middle management at a large company?[10]
In fact, if your goal is to start a startup, you can stick
even more closely to the ideal of a liberal education than past
generations have. Back when students focused mainly on getting a
job after college, they thought at least a little about how the
courses they took might look to an employer.  And perhaps even
worse, they might shy away from taking a difficult class lest they
get a low grade, which would harm their all-important GPA.  Good
news: users don't care what your GPA
was.  And I've never heard of investors caring either.  Y Combinator
certainly never asks what classes you took in college or what grades
you got in them.
Thanks to Sam Altman, Paul Buchheit, John Collison, Patrick
Collison, Jessica Livingston, Robert Morris, Geoff Ralston, and
Fred Wilson for reading drafts of this.


bias

October 2015This will come as a surprise to a lot of people, but in some cases
it's possible to detect bias in a selection process without knowing
anything about the applicant pool.  Which is exciting because among
other things it means third parties can use this technique to detect
bias whether those doing the selecting want them to or not.You can use this technique whenever (a) you have at least
a random sample of the applicants that were selected, (b) their
subsequent performance is measured, and (c) the groups of
applicants you're comparing have roughly equal distribution of ability.How does it work?  Think about what it means to be biased.  What
it means for a selection process to be biased against applicants
of type x is that it's harder for them to make it through.  Which
means applicants of type x have to be better to get selected than
applicants not of type x.
[1]
Which means applicants of type x
who do make it through the selection process will outperform other
successful applicants.  And if the performance of all the successful
applicants is measured, you'll know if they do.Of course, the test you use to measure performance must be a valid
one.  And in particular it must not be invalidated by the bias you're
trying to measure.
But there are some domains where performance can be measured, and
in those detecting bias is straightforward. Want to know if the
selection process was biased against some type of applicant?  Check
whether they outperform the others.  This is not just a heuristic
for detecting bias.  It's what bias means.For example, many suspect that venture capital firms are biased
against female founders. This would be easy to detect: among their
portfolio companies, do startups with female founders outperform
those without?  A couple months ago, one VC firm (almost certainly
unintentionally) published a study showing bias of this type. First
Round Capital found that among its portfolio companies, startups
with female founders outperformed
those without by 63%.
[2]The reason I began by saying that this technique would come as a
surprise to many people is that we so rarely see analyses of this
type.  I'm sure it will come as a surprise to First Round that they
performed one. I doubt anyone there realized that by limiting their
sample to their own portfolio, they were producing a study not of
startup trends but of their own biases when selecting companies.I predict we'll see this technique used more in the future.  The
information needed to conduct such studies is increasingly available.
Data about who applies for things is usually closely guarded by the
organizations selecting them, but nowadays data about who gets
selected is often publicly available to anyone who takes the trouble
to aggregate it.
Notes[1]
This technique wouldn't work if the selection process looked
for different things from different types of applicants—for
example, if an employer hired men based on their ability but women
based on their appearance.[2]
As Paul Buchheit points out, First Round excluded their most
successful investment, Uber, from the study.  And while it
makes sense to exclude outliers from some types of studies,
studies of returns from startup investing, which is all about
hitting outliers, are not one of them.
Thanks to Sam Altman, Jessica Livingston, and Geoff Ralston for reading
drafts of this.


copy

July 2006
When I was in high school I spent a lot of time imitating bad
writers.  What we studied in English classes was mostly fiction,
so I assumed that was the highest form of writing.  Mistake number
one.  The stories that seemed to be most admired were ones in which
people suffered in complicated ways.  Anything funny or
gripping was ipso facto suspect, unless it was old enough to be hard to
understand, like Shakespeare or Chaucer.  Mistake number two.  The
ideal medium seemed the short story, which I've since learned had
quite a brief life, roughly coincident with the peak of magazine
publishing.  But since their size made them perfect for use in
high school classes, we read a lot of them, which gave us the
impression the short story was flourishing.  Mistake number three.
And because they were so short, nothing really had to happen; you
could just show a randomly truncated slice of life, and that was
considered advanced.  Mistake number four.  The result was that I
wrote a lot of stories in which nothing happened except that someone
was unhappy in a way that seemed deep.For most of college I was a philosophy major.  I was very impressed
by the papers published in philosophy journals.  They were so
beautifully typeset, and their tone was just captivating—alternately
casual and buffer-overflowingly technical.  A fellow would be walking
along a street and suddenly modality qua modality would spring upon
him.  I didn't ever quite understand these papers, but I figured
I'd get around to that later, when I had time to reread them more
closely.  In the meantime I tried my best to imitate them.  This
was, I can now see, a doomed undertaking, because they weren't
really saying anything.  No philosopher ever refuted another, for
example, because no one said anything definite enough to refute.
Needless to say, my imitations didn't say anything either.In grad school I was still wasting time imitating the wrong things.
There was then a fashionable type of program called an expert system,
at the core of which was something called an inference engine.  I
looked at what these things did and thought "I could write that in
a thousand lines of code."  And yet eminent professors were writing
books about them, and startups were selling them for a year's salary
a copy.  What an opportunity, I thought; these impressive things
seem easy to me; I must be pretty sharp.  Wrong.  It was simply a
fad.  The books the professors wrote about expert systems are now
ignored.  They were not even on a path to anything interesting.
And the customers paying so much for them were largely the same
government agencies that paid thousands for screwdrivers and toilet
seats.How do you avoid copying the wrong things?  Copy only what you
genuinely like.  That would have saved me in all three cases.  I
didn't enjoy the short stories we had to read in English classes;
I didn't learn anything from philosophy papers; I didn't use expert
systems myself.  I believed these things were good because they
were admired.It can be hard to separate the things you like from the things
you're impressed with.  One trick is to ignore presentation.  Whenever
I see a painting impressively hung in a museum, I ask myself: how
much would I pay for this if I found it at a garage sale, dirty and
frameless, and with no idea who painted it?  If you walk around a
museum trying this experiment, you'll find you get some truly
startling results.  Don't ignore this data point just because it's
an outlier.Another way to figure out what you like is to look at what you enjoy
as guilty pleasures.  Many things people like, especially if they're
young and ambitious, they like largely for the feeling of virtue
in liking them.  99% of people reading Ulysses are thinking
"I'm reading Ulysses" as they do it. A guilty pleasure is
at least a pure one.  What do you read when you don't feel up to being
virtuous?  What kind of book do you read and feel sad that there's
only half of it left, instead of being impressed that you're half
way through?  That's what you really like.Even when you find genuinely good things to copy, there's another
pitfall to be avoided.  Be careful to copy what makes them good,
rather than their flaws.  It's easy to be drawn into imitating
flaws, because they're easier to see, and of course easier to copy
too.  For example, most painters in the eighteenth and nineteenth
centuries used brownish colors.  They were imitating the great
painters of the Renaissance, whose paintings by that time were brown
with dirt.  Those paintings have since been cleaned, revealing
brilliant colors; their imitators are of course still brown.It was painting, incidentally, that cured me of copying the wrong
things.  Halfway through grad school I decided I wanted to try being
a painter, and the art world was so manifestly corrupt that it
snapped the leash of credulity.  These people made philosophy
professors seem as scrupulous as mathematicians.  It was so clearly
a choice of doing good work xor being an insider that I was forced
to see the distinction.  It's there to some degree in almost every
field, but I had till then managed to avoid facing it.That was one of the most valuable things I learned from painting:
you have to figure out for yourself what's
good.  You can't trust
authorities. They'll lie to you on this one.

Comment on this essay.


ecw

December 2014If the world were static, we could have monotonically increasing
confidence in our beliefs.  The more (and more varied) experience
a belief survived, the less likely it would be false.  Most people
implicitly believe something like this about their opinions.  And
they're justified in doing so with opinions about things that don't
change much, like human nature.  But you can't trust your opinions
in the same way about things that change, which could include
practically everything else.When experts are wrong, it's often because they're experts on an
earlier version of the world.Is it possible to avoid that?  Can you protect yourself against
obsolete beliefs?  To some extent, yes. I spent almost a decade
investing in early stage startups, and curiously enough protecting
yourself against obsolete beliefs is exactly what you have to do
to succeed as a startup investor.  Most really good startup ideas
look like bad ideas at first, and many of those look bad specifically
because some change in the world just switched them from bad to
good.  I spent a lot of time learning to recognize such ideas, and
the techniques I used may be applicable to ideas in general.The first step is to have an explicit belief in change.  People who
fall victim to a monotonically increasing confidence in their
opinions are implicitly concluding the world is static.  If you
consciously remind yourself it isn't, you start to look for change.Where should one look for it?  Beyond the moderately useful
generalization that human nature doesn't change much, the unfortunate
fact is that change is hard to predict.  This is largely a tautology
but worth remembering all the same: change that matters usually
comes from an unforeseen quarter.So I don't even try to predict it.  When I get asked in interviews
to predict the future, I always have to struggle to come up with
something plausible-sounding on the fly, like a student who hasn't
prepared for an exam.
[1]
But it's not out of laziness that I haven't
prepared.  It seems to me that beliefs about the future are so
rarely correct that they usually aren't worth the extra rigidity
they impose, and that the best strategy is simply to be aggressively
open-minded.  Instead of trying to point yourself in the right
direction, admit you have no idea what the right direction is, and
try instead to be super sensitive to the winds of change.It's ok to have working hypotheses, even though they may constrain
you a bit, because they also motivate you.  It's exciting to chase
things and exciting to try to guess answers.  But you have to be
disciplined about not letting your hypotheses harden into anything
more.
[2]I believe this passive m.o. works not just for evaluating new ideas
but also for having them.  The way to come up with new ideas is not
to try explicitly to, but to try to solve problems and simply not
discount weird hunches you have in the process.The winds of change originate in the unconscious minds of domain
experts.  If you're sufficiently expert in a field, any weird idea
or apparently irrelevant question that occurs to you is ipso facto
worth exploring.
[3]
 Within Y Combinator, when an idea is described
as crazy, it's a compliment—in fact, on average probably a
higher compliment than when an idea is described as good.Startup investors have extraordinary incentives for correcting
obsolete beliefs.  If they can realize before other investors that
some apparently unpromising startup isn't, they can make a huge
amount of money.  But the incentives are more than just financial.
Investors' opinions are explicitly tested: startups come to them
and they have to say yes or no, and then, fairly quickly, they learn
whether they guessed right.  The investors who say no to a Google
(and there were several) will remember it for the rest of their
lives.Anyone who must in some sense bet on ideas rather than merely
commenting on them has similar incentives.  Which means anyone who
wants such incentives can have them, by turning their comments into
bets: if you write about a topic in some fairly durable and public
form, you'll find you worry much more about getting things right
than most people would in a casual conversation.
[4]Another trick I've found to protect myself against obsolete beliefs
is to focus initially on people rather than ideas. Though the nature
of future discoveries is hard to predict, I've found I can predict
quite well what sort of people will make them.  Good new ideas come
from earnest, energetic, independent-minded people.Betting on people over ideas saved me countless times as an investor.
We thought Airbnb was a bad idea, for example. But we could tell
the founders were earnest, energetic, and independent-minded.
(Indeed, almost pathologically so.)  So we suspended disbelief and
funded them.This too seems a technique that should be generally applicable.
Surround yourself with the sort of people new ideas come from.  If
you want to notice quickly when your beliefs become obsolete, you
can't do better than to be friends with the people whose discoveries
will make them so.It's hard enough already not to become the prisoner of your own
expertise, but it will only get harder, because change is accelerating.
That's not a recent trend; change has been accelerating since the
paleolithic era.  Ideas beget ideas.  I don't expect that to change.
But I could be wrong.
Notes[1]
My usual trick is to talk about aspects of the present that
most people haven't noticed yet.[2]
Especially if they become well enough known that people start
to identify them with you.  You have to be extra skeptical about
things you want to believe, and once a hypothesis starts to be
identified with you, it will almost certainly start to be in that
category.[3]
In practice "sufficiently expert" doesn't require one to be
recognized as an expert—which is a trailing indicator in any
case.  In many fields a year of focused work plus caring a lot would
be enough.[4]
Though they are public and persist indefinitely, comments on
e.g. forums and places like Twitter seem empirically to work like
casual conversation.  The threshold may be whether what you write
has a title.
Thanks to Sam Altman, Patrick Collison, and Robert Morris
for reading drafts of this.


foundervisa

April 2009I usually avoid politics, but since we now seem to have an administration that's open to suggestions, I'm going to risk making one.  The single biggest thing the government could do to increase the number of startups in this country is a policy that would cost nothing: establish a new class of visa for startup founders.The biggest constraint on the number of new startups that get created in the US is not tax policy or employment law or even Sarbanes-Oxley.  It's that we won't let the people who want to start them into the country.Letting just 10,000 startup founders into the country each year could have a visible effect on the economy.  If we assume 4 people per startup, which is probably an overestimate, that's 2500 new companies.  Each year.  They wouldn't all grow as big as Google, but out of 2500 some would come close.By definition these 10,000 founders wouldn't be taking jobs from Americans: it could be part of the terms of the visa that they couldn't work for existing companies, only new ones they'd founded.  In fact they'd cause there to be
more jobs for Americans, because the companies they started would hire more employees as they grew.The tricky part might seem to be how one defined a startup. But that could be solved quite easily: let the market decide.  Startup investors work hard to find the best startups.  The government could not do better than to piggyback on their expertise, and use investment by recognized startup investors as the test of whether a company was a real startup.How would the government decide who's a startup investor?  The same way they decide what counts as a university for student visas. We'll establish our own accreditation procedure. We know who one another are.10,000 people is a drop in the bucket by immigration standards, but would represent a huge increase in the pool of startup founders.  I think this would have such a visible effect on the economy that it would make the legislator who introduced the bill famous.  The only way to know for sure would be to try it, and that would cost practically nothing.
Thanks to Trevor Blackwell, Paul Buchheit, Jeff Clavier, David Hornik, Jessica Livingston, Greg Mcadoo, Aydin Senkut, and Fred Wilson for reading drafts of this.Related:


gap

May 2004When people care enough about something to do it well, those who
do it best tend to be far better than everyone else.  There's a
huge gap between Leonardo and second-rate contemporaries like
Borgognone.  You see the same gap between Raymond Chandler and the
average writer of detective novels.  A top-ranked professional chess
player could play ten thousand games against an ordinary club player
without losing once.Like chess or painting or writing novels, making money is a very
specialized skill.   But for some reason we treat this skill
differently.  No one complains when a few people surpass all the
rest at playing chess or writing novels, but when a few people make
more money than the rest, we get editorials saying this is wrong.Why?  The pattern of variation seems no different than for any other
skill.  What causes people to react so strongly when the skill is
making money?I think there are three reasons we treat making money as different:
the misleading model of wealth we learn as children; the disreputable
way in which, till recently, most fortunes were accumulated; and
the worry that great variations in income are somehow bad for
society.  As far as I can tell, the first is mistaken, the second
outdated, and the third empirically false.  Could it be that, in a
modern democracy, variation in income is actually a sign of health?The Daddy Model of WealthWhen I was five I thought electricity was created by electric
sockets.  I didn't realize there were power plants out there
generating it.  Likewise, it doesn't occur to most kids that wealth
is something that has to be generated.  It seems to be something
that flows from parents.Because of the circumstances in which they encounter it, children
tend to misunderstand wealth.  They confuse it with money.  They
think that there is a fixed amount of it.  And they think of it as
something that's distributed by authorities (and so should be
distributed equally), rather than something that has to be created
(and might be created unequally).In fact, wealth is not money.  Money is just a convenient way of
trading one form of wealth for another.  Wealth is the underlying
stuff—the goods and services we buy.  When you travel to a
rich or poor country, you don't have to look at people's bank
accounts to tell which kind you're in.  You can see
wealth—in buildings and streets, in the clothes and the health
of the people.Where does wealth come from?  People make it.  This was easier to
grasp when most people lived on farms, and made many of the things
they wanted with their own hands.  Then you could see in the house,
the herds, and the granary the wealth that each family created.  It
was obvious then too that the wealth of the world was not a fixed
quantity that had to be shared out, like slices of a pie.  If you
wanted more wealth, you could make it.This is just as true today, though few of us create wealth directly
for ourselves (except for a few vestigial domestic tasks).  Mostly
we create wealth for other people in exchange for money, which we
then trade for the forms of wealth we want.
[1]Because kids are unable to create wealth, whatever they have has
to be given to them.  And when wealth is something you're given,
then of course it seems that it should be distributed equally.
[2]
As in most families it is.  The kids see to that.  "Unfair," they
cry, when one sibling gets more than another.In the real world, you can't keep living off your parents.  If you
want something, you either have to make it, or do something of
equivalent value for someone else, in order to get them to give you
enough money to buy it.  In the real world, wealth is (except for
a few specialists like thieves and speculators) something you have
to create, not something that's distributed by Daddy.  And since
the ability and desire to create it vary from person to person,
it's not made equally.You get paid by doing or making something people want, and those
who make more money are often simply better at doing what people
want.  Top actors make a lot more money than B-list actors.  The
B-list actors might be almost as charismatic, but when people go
to the theater and look at the list of movies playing, they want
that extra oomph that the big stars have.Doing what people want is not the only way to get money, of course.
You could also rob banks, or solicit bribes, or establish a monopoly.
Such tricks account for some variation in wealth, and indeed for
some of the biggest individual fortunes, but they are not the root
cause of variation in income.  The root cause of variation in income,
as Occam's Razor implies, is the same as the root cause of variation
in every other human skill.In the United States, the CEO of a large public company makes about
100 times as much as the average person.
[3]
Basketball players
make about 128 times as much, and baseball players 72 times as much.
Editorials quote this kind of statistic with horror.  But I have
no trouble imagining that one person could be 100 times as productive
as another.  In ancient Rome the price of slaves varied by
a factor of 50 depending on their skills.
[4]
And that's without
considering motivation, or the extra leverage in productivity that
you can get from modern technology.Editorials about athletes' or CEOs' salaries remind me of early
Christian writers, arguing from first principles about whether the
Earth was round, when they could just walk outside and check.
[5]
How much someone's work is worth is not a policy question.  It's
something the market already determines."Are they really worth 100 of us?" editorialists ask.  Depends on
what you mean by worth.  If you mean worth in the sense of what
people will pay for their skills, the answer is yes, apparently.A few CEOs' incomes reflect some kind of wrongdoing.  But are there
not others whose incomes really do reflect the wealth they generate?
Steve Jobs saved a company that was in a terminal decline.  And not
merely in the way a turnaround specialist does, by cutting costs;
he had to decide what Apple's next products should be.  Few others
could have done it.  And regardless of the case with CEOs, it's
hard to see how anyone could argue that the salaries of professional
basketball players don't reflect supply and demand.It may seem unlikely in principle that one individual could really
generate so much more wealth than another.  The key to this mystery
is to revisit that question, are they really worth 100 of us?
Would a basketball team trade one of their players for 100
random people?  What would Apple's next product look like if you
replaced Steve Jobs with a committee of 100 random people?
[6]
These
things don't scale linearly.  Perhaps the CEO or the professional
athlete has only ten times (whatever that means) the skill and
determination of an ordinary person.  But it makes all the difference
that it's concentrated in one individual.When we say that one kind of work is overpaid and another underpaid,
what are we really saying?  In a free market, prices are determined
by what buyers want.  People like baseball more than  poetry, so
baseball players make more than poets.  To say that a certain kind
of work is underpaid is thus identical with saying that people want
the wrong things.Well, of course people want the wrong things.  It seems odd to be
surprised by that.  And it seems even odder to say that it's
unjust that certain kinds of work are underpaid.
[7]
Then
you're saying that it's unjust that people want the wrong things.
It's  lamentable that people prefer reality TV and corndogs to
Shakespeare and steamed vegetables, but unjust?  That seems like
saying that blue is heavy, or that up is circular.The appearance of the word "unjust" here is the unmistakable spectral
signature of the Daddy Model.  Why else would this idea occur in
this odd context?  Whereas if the speaker were still operating on
the Daddy Model, and saw wealth as something that flowed from a
common source and had to be shared out, rather than something
generated by doing what other people wanted, this is exactly what
you'd get on noticing that some people made much more than others.When we talk about "unequal distribution of income," we should
also ask, where does that income come from?
[8]
Who made the wealth
it represents?  Because to the extent that income varies simply
according to how much wealth people create, the distribution may
be unequal, but it's hardly unjust.Stealing ItThe second reason we tend to find great disparities of wealth
alarming is that for most of human history the usual way to accumulate
a fortune was to steal it: in pastoral societies by cattle raiding;
in agricultural societies by appropriating others' estates in times
of war, and taxing them in times of peace.In conflicts, those on the winning side would receive the estates
confiscated from the losers.  In England in the 1060s, when William
the Conqueror distributed the estates of the defeated Anglo-Saxon
nobles to his followers, the conflict was military.  By the 1530s,
when Henry VIII distributed the estates of the monasteries to his
followers, it was mostly political.
[9]
But the principle was the
same.  Indeed, the same principle is at work now in Zimbabwe.In more organized societies, like China, the ruler and his officials
used taxation instead of confiscation.  But here too we see the
same principle: the way to get rich was not to create wealth, but
to serve a ruler powerful enough to appropriate it.This started to change in Europe with the rise of the middle class.
Now we think of the middle class as people who are neither rich nor
poor, but originally they were a distinct group.  In a feudal
society, there are just two classes: a warrior aristocracy, and the
serfs who work their estates.  The middle class were a new, third
group who lived in towns and supported themselves by manufacturing
and trade.Starting in the tenth and eleventh centuries, petty nobles and
former serfs banded together in towns that gradually became powerful
enough to ignore the local feudal lords.
[10]
Like serfs, the middle
class made a living largely by creating wealth.  (In port cities
like Genoa and Pisa, they also engaged in piracy.) But unlike serfs
they had an incentive to create a lot of it.  Any wealth a serf
created belonged to his master.  There was not much point in making
more than you could hide.  Whereas the independence of the townsmen
allowed them to keep whatever wealth they created.Once it became possible to get rich by creating wealth, society as
a whole started to get richer very rapidly.  Nearly everything we
have was created by the middle class.  Indeed, the other two classes
have effectively disappeared in industrial societies, and their
names been given to either end of the middle class.  (In the original
sense of the word, Bill Gates is middle class.)But it was not till the Industrial Revolution that wealth creation
definitively replaced corruption as the best way to get rich.  In
England, at least, corruption only became unfashionable (and in
fact only started to be called "corruption") when there started to
be other, faster ways to get rich.Seventeenth-century England was much like the third world today,
in that government office was a recognized route to wealth.  The
great fortunes of that time still derived more from what we would
now call corruption than from commerce.
[11]
By the nineteenth
century that had changed.  There continued to be bribes, as there
still are everywhere, but politics had by then been left to men who
were driven more by vanity than greed.  Technology had made it
possible to create wealth faster than you could steal it.  The
prototypical rich man of the nineteenth century was not a courtier
but an industrialist.With the rise of the middle class, wealth stopped being a zero-sum
game.  Jobs and Wozniak didn't have to make us poor to make themselves
rich.  Quite the opposite: they created things that made our lives
materially richer.  They had to, or we wouldn't have paid for them.But since for most of the world's history the main route to wealth
was to steal it, we tend to be suspicious of rich people.  Idealistic
undergraduates find their unconsciously preserved child's model of
wealth confirmed by eminent writers of the past.  It is a case of
the mistaken meeting the outdated."Behind every great fortune, there is a crime," Balzac wrote.  Except
he didn't.  What he actually said was that a great fortune with no
apparent cause was probably due to a crime well enough executed
that it had been forgotten.  If we were talking about Europe in
1000, or most of the third world today, the standard misquotation
would be spot on.  But Balzac lived in nineteenth-century France,
where the Industrial Revolution was well advanced.  He knew you
could make a fortune without stealing it.  After all, he did himself,
as a popular novelist.
[12]Only a few countries (by no coincidence, the richest ones) have
reached this stage.  In most, corruption still has the upper hand.
In most, the fastest way to get wealth is by stealing it.  And so
when we see increasing differences in income in a rich country,
there is a tendency to worry that it's sliding back toward becoming
another Venezuela.  I think the opposite is happening. I think
you're seeing a country a full step ahead of Venezuela.The Lever of TechnologyWill technology increase the gap between rich and poor?  It will
certainly increase the gap between the productive and the unproductive.
That's the whole point of technology.   With a tractor an energetic
farmer could plow six times as much land in a day as he could with
a team of horses.  But only if he mastered a new kind of farming.I've seen the lever of technology grow visibly in my own time.  In
high school I made money by mowing lawns and scooping ice cream at
Baskin-Robbins.  This was the only kind of work available at the
time.  Now high school kids could write software or design web
sites.  But only some of them will; the rest will still be scooping
ice cream.I remember very vividly when in 1985 improved technology made it
possible for me to buy a computer of my own.  Within months I was
using it to make money as a freelance programmer.  A few years
before, I couldn't have done this.  A few years before, there was
no such thing as a freelance programmer.  But Apple created
wealth, in the form of powerful, inexpensive computers, and programmers
immediately set to work using it to create more.As this example suggests, the rate at which technology increases
our productive capacity is probably exponential, rather than linear.
So we should expect to see ever-increasing variation in individual
productivity as time goes on.   Will that increase the gap between
rich and the poor?  Depends which gap you mean.Technology should increase the gap in income, but it seems to
decrease other gaps.  A hundred years ago, the rich led a different
kind of life from ordinary people.  They lived in houses
full of servants, wore elaborately uncomfortable clothes, and
travelled about in carriages drawn by teams of horses which themselves
required their own houses and servants.  Now, thanks to technology,
the rich live more like the average person.Cars are a good example of why.  It's possible to buy expensive,
handmade cars that cost hundreds of thousands of dollars.  But there
is not much point.  Companies make more money by building a large
number of ordinary cars than a small number of expensive ones.  So
a company making a mass-produced car can afford to spend a lot more
on its design.  If you buy a custom-made car, something will always
be breaking.  The only point of buying one now is to advertise that
you can.Or consider watches.  Fifty years ago, by spending a lot of money
on a watch you could get better performance.  When watches had
mechanical movements, expensive watches kept better time.  Not any
more.  Since the invention of the quartz movement, an ordinary Timex
is more accurate than a Patek Philippe costing hundreds of thousands
of dollars.
[13]
Indeed, as with expensive cars, if you're determined
to spend a lot of money on a watch, you have to put up with some
inconvenience to do it: as well as keeping worse time, mechanical
watches have to be wound.The only thing technology can't cheapen is brand.  Which is precisely
why we hear ever more about it.  Brand is the residue left as the
substantive differences between rich and poor evaporate.  But what
label you have on your stuff is a much smaller matter than having
it versus not having it.  In 1900, if you kept a carriage, no one
asked what year or brand it was.  If you had one, you were rich.
And if you weren't rich, you took the omnibus or walked.  Now even
the poorest Americans drive cars, and it is only because we're so
well trained by advertising that we can even recognize the especially
expensive ones.
[14]The same pattern has played out in industry after industry.  If
there is enough demand for something, technology will make it cheap
enough to sell in large volumes, and the mass-produced versions
will be, if not better, at least more convenient.
[15]
And there
is nothing the rich like more than convenience.  The rich people I
know drive the same cars, wear the same clothes, have the same kind
of furniture, and eat the same foods as my other friends.  Their
houses are in different neighborhoods, or if in the same neighborhood
are different sizes, but within them life is similar.  The houses
are made using the same construction techniques and contain much
the same objects.  It's inconvenient to do something expensive and
custom.The rich spend their time more like everyone else too.  Bertie
Wooster seems long gone.  Now, most people who are rich enough not
to work do anyway.  It's not just social pressure that makes them;
idleness is lonely and demoralizing.Nor do we have the social distinctions there were a hundred years
ago.   The novels and etiquette manuals of that period read now
like descriptions of some strange tribal society.  "With respect
to the continuance of friendships..." hints Mrs. Beeton's Book
of Household Management (1880), "it may be found necessary, in
some cases, for a mistress to relinquish, on assuming the responsibility
of a household, many of those commenced in the earlier part of her
life." A woman who married a rich man was expected to drop friends
who didn't.  You'd seem a barbarian if you behaved that way today.
You'd also have a very boring life.  People still tend to segregate
themselves somewhat, but much more on the basis of education than
wealth.
[16]Materially and socially, technology seems to be decreasing the gap
between the rich and the poor, not increasing it.  If Lenin walked
around the offices of a company like Yahoo or Intel or Cisco, he'd
think communism had won.  Everyone would be wearing the same clothes,
have the same kind of office (or rather, cubicle) with the same
furnishings, and address one another by their first names instead
of by honorifics.  Everything would seem exactly as he'd predicted,
until he looked at their bank accounts.  Oops.Is it a problem if technology increases that gap?  It doesn't seem
to be so far.  As it increases the gap in income, it seems to
decrease most other gaps.Alternative to an AxiomOne often hears a policy criticized on the grounds that it would
increase the income gap between rich and poor.  As if it were an
axiom that this would be bad.  It might be true that increased
variation in income would be bad, but I don't see how we can say
it's axiomatic.Indeed, it may even be false, in industrial democracies.  In a
society of serfs and warlords, certainly, variation in income is a
sign of an underlying problem.  But serfdom is not the only cause
of variation in income.  A 747 pilot doesn't make 40 times as much
as a checkout clerk because he is a warlord who somehow holds her
in thrall.  His skills are simply much more valuable.I'd like to propose an alternative idea: that in a modern society,
increasing variation in income is a sign of health.  Technology
seems to increase the variation in productivity at faster than
linear rates.  If we don't see corresponding variation in income,
there are three possible explanations: (a) that technical innovation
has stopped, (b) that the people who would create the most wealth
aren't doing it, or (c) that they aren't getting paid for it.I think we can safely say that (a) and (b) would be bad.  If you
disagree, try living for a year using only the resources available
to the average Frankish nobleman in 800, and report back to us.
(I'll be generous and not send you back to the stone age.)The only option, if you're going to have an increasingly prosperous
society without increasing variation in income, seems to be (c),
that people will create a lot of wealth without being paid for it.
That Jobs and Wozniak, for example, will cheerfully work 20-hour
days to produce the Apple computer for a society that allows them,
after taxes, to keep just enough of their income to match what they
would have made working 9 to 5 at a big company.Will people create wealth if they can't get paid for it?  Only if
it's fun.  People will write operating systems for free.  But they
won't install them, or take support calls, or train customers to
use them.  And at least 90% of the work that even the highest tech
companies do is of this second, unedifying kind.All the unfun kinds of wealth creation slow dramatically in a society
that confiscates private fortunes.  We can confirm this empirically.
Suppose you hear a strange noise that you think may be due to a
nearby fan.  You turn the fan off, and the noise stops.  You turn
the fan back on, and the noise starts again.  Off, quiet.  On,
noise.  In the absence of other information, it would seem the noise
is caused by the fan.At various times and places in history, whether you could accumulate
a fortune by creating wealth has been turned on and off.  Northern
Italy in 800, off (warlords would steal it).  Northern Italy in
1100, on.  Central France in 1100, off (still feudal).  England in
1800, on.  England in 1974, off (98% tax on investment income).
United States in 1974, on.  We've even had a twin study: West
Germany, on;  East Germany, off.  In every case, the creation of
wealth seems to appear and disappear like the noise of a fan as you
switch on and off the prospect of keeping it.There is some momentum involved.  It probably takes at least a
generation to turn people into East Germans (luckily for England).
But if it were merely a fan we were studying, without all the extra
baggage that comes from the controversial topic of wealth, no one
would have any doubt that the fan was causing the noise.If you suppress variations in income, whether by stealing private
fortunes, as feudal rulers used to do, or by taxing them away, as
some modern governments have done, the result always seems to be
the same.    Society as a whole ends up poorer.If I had a choice of living in a society where I was materially
much better off than I am now, but was among the poorest, or in one
where I was the richest, but much worse off than I am now, I'd take
the first option.  If I had children, it would arguably be immoral
not to.  It's absolute poverty you want to avoid, not relative
poverty.  If, as the evidence so far implies, you have to have one
or the other in your society, take relative poverty.You need rich people in your society not so much because in spending
their money they create jobs, but because of what they have to do
to get rich.  I'm not talking about the trickle-down effect
here.  I'm not saying that if you let Henry Ford get rich, he'll
hire you as a waiter at his next party.  I'm saying that he'll make
you a tractor to replace your horse.Notes[1]
Part of the reason this subject is so contentious is that some
of those most vocal on the subject of wealth—university
students, heirs, professors, politicians, and journalists—have
the least experience creating it.  (This phenomenon will be familiar
to anyone who has overheard conversations about sports in a bar.)Students are mostly still on the parental dole, and have not stopped
to think about where that money comes from.  Heirs will be on the
parental dole for life.  Professors and politicians live within
socialist eddies of the economy, at one remove from the creation
of wealth, and are paid a flat rate regardless of how hard they
work.  And journalists as part of their professional code segregate
themselves from the revenue-collecting half of the businesses they
work for (the ad sales department).  Many of these people never
come face to face with the fact that the money they receive represents
wealth—wealth that, except in the case of journalists, someone
else created earlier.  They live in a world in which income is
doled out by a central authority according to some abstract notion
of fairness (or randomly, in the case of heirs), rather than given
by other people in return for something they wanted, so it may seem
to them unfair that things don't work the same in the rest of the
economy.(Some professors do create a great deal of wealth for
society.  But the money they're paid isn't a quid pro quo.
It's more in the nature of an investment.)[2]
When one reads about the origins of the Fabian Society, it
sounds like something cooked up by the high-minded Edwardian
child-heroes of Edith Nesbit's The Wouldbegoods.[3]
According to a study by the Corporate Library, the median total
compensation, including salary, bonus, stock grants, and the exercise
of stock options, of S&P 500 CEOs in 2002 was $3.65 million.
According to Sports Illustrated, the average NBA player's
salary during the 2002-03 season was $4.54 million, and the average
major league baseball player's salary at the start of the 2003
season was $2.56 million.  According to the Bureau of Labor
Statistics, the mean annual wage in the US in 2002 was $35,560.[4]
In the early empire the price of an ordinary adult slave seems
to have been about 2,000 sestertii (e.g. Horace, Sat. ii.7.43).
A servant girl cost 600 (Martial vi.66), while Columella (iii.3.8)
says that a skilled vine-dresser was worth 8,000.  A doctor, P.
Decimus Eros Merula, paid 50,000 sestertii for his freedom (Dessau,
Inscriptiones 7812).  Seneca (Ep. xxvii.7) reports
that one Calvisius Sabinus paid 100,000 sestertii apiece for slaves
learned in the Greek classics.  Pliny (Hist. Nat. vii.39)
says that the highest price paid for a slave up to his time was
700,000 sestertii, for the linguist (and presumably teacher) Daphnis,
but that this had since been exceeded by actors buying their own
freedom.Classical Athens saw a similar variation in prices.  An ordinary
laborer was worth about 125 to 150 drachmae.  Xenophon (Mem.
ii.5) mentions prices ranging from 50 to 6,000 drachmae (for the
manager of a silver mine).For more on the economics of ancient slavery see:Jones, A. H. M., "Slavery in the Ancient World," Economic History
Review, 2:9 (1956), 185-199, reprinted in Finley, M. I. (ed.),
Slavery in Classical Antiquity, Heffer, 1964.[5]
Eratosthenes (276—195 BC) used shadow lengths in different
cities to estimate the Earth's circumference.  He was off by only
about 2%.[6]
No, and Windows, respectively.[7]
One of the biggest divergences between the Daddy Model and
reality is the valuation of hard work.  In the Daddy Model, hard
work is in itself deserving.  In reality, wealth is measured by
what one delivers, not how much effort it costs.  If I paint someone's
house, the owner shouldn't pay me extra for doing it with a toothbrush.It will seem to someone still implicitly operating on the Daddy
Model that it is unfair when someone works hard and doesn't get
paid much.  To help clarify the matter, get rid of everyone else
and put our worker on a desert island, hunting and gathering fruit.
If he's bad at it he'll work very hard and not end up with much
food.  Is this unfair?  Who is being unfair to him?[8]
Part of the reason for the tenacity of the Daddy Model may be
the dual meaning of "distribution." When economists talk about
"distribution of income," they mean statistical distribution.  But
when you use the phrase frequently, you can't help associating it
with the other sense of the word (as in e.g. "distribution of alms"),
and thereby subconsciously seeing wealth as something that flows
from some central tap.  The word "regressive" as applied to tax
rates has a similar effect, at least on me; how can anything
regressive be good?[9]
"From the beginning of the reign Thomas Lord Roos was an assiduous
courtier of the young Henry VIII and was soon to reap the rewards.
In 1525 he was made a Knight of the Garter and given the Earldom
of Rutland.  In the thirties his support of the breach with Rome,
his zeal in crushing the Pilgrimage of Grace, and his readiness to
vote the death-penalty in the succession of spectacular treason
trials that punctuated Henry's erratic matrimonial progress made
him an obvious candidate for grants of monastic property."Stone, Lawrence, Family and Fortune: Studies in Aristocratic
Finance in the Sixteenth and Seventeenth Centuries, Oxford
University Press, 1973, p. 166.[10]
There is archaeological evidence for large settlements earlier,
but it's hard to say what was happening in them.Hodges, Richard and David Whitehouse, Mohammed, Charlemagne and
the Origins of Europe, Cornell University Press, 1983.[11]
William Cecil and his son Robert were each in turn the most
powerful minister of the crown, and both used their position to
amass fortunes among the largest of their times.  Robert in particular
took bribery to the point of treason.  "As Secretary of State and
the leading advisor to King James on foreign policy, [he] was a
special recipient of favour, being offered large bribes by the Dutch
not to make peace with Spain, and large bribes by Spain to make
peace." (Stone, op. cit., p. 17.)[12]
Though Balzac made a lot of money from writing, he was notoriously
improvident and was troubled by debts all his life.[13]
A Timex will gain or lose about .5 seconds per day.  The most
accurate mechanical watch, the Patek Philippe 10 Day Tourbillon,
is rated at -1.5 to +2 seconds.  Its retail price is about $220,000.[14]
If asked to choose which was more expensive, a well-preserved
1989 Lincoln Town Car ten-passenger limousine ($5,000) or a 2004
Mercedes S600 sedan ($122,000), the average Edwardian might well
guess wrong.[15]
To say anything meaningful about income trends, you have to
talk about real income, or income as measured in what it can buy.
But the usual way of calculating real income ignores much of the
growth in wealth over time, because it depends on a consumer price
index created by bolting end to end a series of numbers that are
only locally accurate, and that don't include the prices of new
inventions until they become so common that their prices stabilize.So while we might think it was very much better to live in a world
with antibiotics or air travel or an electric power grid than
without, real income statistics calculated in the usual way will
prove to us that we are only slightly richer for having these things.Another approach would be to ask, if you were going back to the
year x in a time machine, how much would you have to spend on trade
goods to make your fortune?  For example, if you were going back
to 1970 it would certainly be less than $500, because the processing
power you can get for $500 today would have been worth at least
$150 million in 1970.  The function goes asymptotic fairly quickly,
because for times over a hundred years or so you could get all you
needed in present-day trash.  In 1800 an empty plastic drink bottle
with a screw top would have seemed a miracle of workmanship.[16]
Some will say this amounts to the same thing, because the rich
have better opportunities for education.  That's a valid point.  It
is still possible, to a degree, to buy your kids' way into top
colleges by sending them to private schools that in effect hack the
college admissions process.According to a 2002 report by the National Center for Education
Statistics, about 1.7% of American kids attend private, non-sectarian
schools.  At Princeton, 36% of the class of 2007 came from such
schools.  (Interestingly, the number at Harvard is significantly
lower, about 28%.)  Obviously this is a huge loophole.  It does at
least seem to be closing, not widening.Perhaps the designers of admissions processes should take a lesson
from the example of computer security, and instead of just assuming
that their system can't be hacked, measure the degree to which it
is.