Does the free market really work?

Great Debates
61

We DO reward work. Teachers (and everyone else that works) ARE rewarded…consummately to their skill level and the level that society desires whatever work they perform. If you want something extra…well, you are free to take pride in what you do, to enjoy your work, to strive to be the best. Why you think that society needs to give you these things as extra is beyond me.

As to the other…why do you think that the creation of wealth is to be looked down on? Why is it not an honor to create wealth. Do you even grasp what the creation of wealth is, what it means?

Let’s compare and contrast a teacher vs the font of all evil…Bill Gates (HISSSSSSSSS!!). The teacher works hard, is a figure of inspiration to the kids in his or her class, pushes them to strive and attain great things. Bill Gates and the companies he founded and managed, however, gives them the jobs and tools they need. Microsoft has paid literally billions (that’s billyons and billyons, as Carl Sagon would say) of dollars in taxes, and donated more billions to schools (you know, where those teachers are) in grants, software etc. Who has had the bigger impact?

It depends…do you enjoy watching soccer? If so, then the total value is the entertainment value of watching him play (not that I actually know who this is, mind…I don’t like to watch sports, personally). The thing is, different people value different things. My wife, for instance, loves to watch things like Dancing with the Stars. Personally, I’d rather have a root canal PLUS a paper cut with lemon juice poured in. The point, however, is that what people value they tend to put a premium on…and, to paraphrase another poster up thread, people would rather watch some stars dancing about, or follow all of the minutia involved in their favorite sport than to watch a really kicking mathematical proof shown, or follow the top teacher awards…which means that, laudable and inspiring as a really great teacher is, he or she simply doesn’t have the value to society (at least wrt monetary compensation) as, say, Tiger Woods or Michael Jordan.

Horseshit. Society definitely lauds police, military and firemen. They are compensated proportional to the premium society as a whole puts on them, as well as to the numbers and skill level for each position. Again, as a poster explained up thread, you need to think of police, military, firemen, teachers as broad categories of services that society pays for. We pay BILLIONS of dollars for each of those categories. Individual compensation is less because there are MILLIONS of people who can and do fill those positions…and, frankly, because the qualifications for each of those categories is not overly difficult to attain.

Think of it this way…if we paid, say, teachers, a million dollars a year, then we’d bankrupt the country. There are millions of teachers, and, simply put, we couldn’t afford to pay them that much. We (society), can barely afford to pay them what we do…look at the troubles in California, for instance, wrt education and funding. There is only one Beckham, who, presumably, commands millions of dollars a year…but there are millions of police and fire fighters who command 10’s of thousands a year. Taken in the aggregate, police and fire fighters make a lot more than is spent on any given sport.

It seems so human to me. What you seemingly want seems contrary to our very nature, to be honest.

I find it ironic that you watch professional football…

-XT

62

I would go after the people who seem to infest television lately - people who are famous for being famous - the Paris Hiltons, the Cardassians (the family, not the space dudes), they don’t DO anything, they don’t produce or create anything, I don’t know WHAT is so interesting about them, and yet they are somehow famous for being famous (whatever that means).

63

That’s the beauty of them!

64

Well, no, we don’t. If one just takes the North American sports market, we do prefer teaching, inasmuch as we spend far more on it. The money paid for teaching salaries is vastly, vastly higher than the amount paid for professional athletes. The State of California alone pays more in teaching salaries than will be paid to every pro baseball, football, basketball and hockey player this year and next year combined.

What we have is a situation where people do spend more on education than they do on pro sports - far more - but where individuals in pro sports make vastly more. It’s simply a matter of distribution of the money; there are far fewer pro athletes than teachers, and pro athletes have an extremely skewed salary range where some are zillionaires and most will make peanuts and never make the top tier.

65

Whether the free market “works” or not is less important than the fact that freedom doesn’t need justification. The burden of proof is on those who would limit freedom. We have laws and not anarchy because some limits on freedom are necessary. But we should always start from a presumption of liberty whenever deciding whether to impose a new law or regulation.

As to whether the free market “works”, it does exactly what it is supposed to do. Teachers make more than athletes because society values athletes more. There is a difference between what we think is important and what we actually consider important when tradeoffs have to be made. The beauty of markets is that we can decide for ourselves what we value more. The most important tradeoff every single person makes is between time and money. Some people work 70 hours a week and have no life because they want to make money and further a career. Some people work part time and have no money because they value their free time. Everyone wants both, but since both are scarce, we make decisions. Most people get what they are looking for, even if they don’t think they are. What you think you want and what you actually want are often two very different things.

Back to teachers and athletes, most people want to spend money on entertainment and don’t begrudge the entertainment industry their riches. But when it comes to things we need, we demand low prices. So the people who supply us with things we need tend to not be very wealthy, while people who supply us with empty enjoyment tend to be zillionaires. Some would say this is a market failure, but this is exactly what people want. A person who saves your life or gives you an education shouldn’t profit, but someone who can make an album you enjoy listening to deserves his millions. So the market has aligned incentives to work exactly this way.

66

I don’t like the approach of aggregating employee salaries to conclude how society prioritizes their importance. It leads to bizarre conclusions. For example…

There are ~3.1 million public school teachers in USA.

There are more than ~3.4 million truck drivers (probably more than the total # of teachers.) If you sum up total salaries of all the truck drivers + cab drivers + pizza delivery boys + US Postal Service drivers + UPS + FedEx, you would see that total dollars exceeds that of teachers. Therefore, we would conclude that society “values” the drivers (people who operate steering wheels and brake pedals) more than the teachers (people who pass knowledge to children).

The reason this logic doesn’t make sense is that the # of teachers grows in relation to population count. Also, the services of teachers is localized to the region he lives in. The teachers get paid by an involuntary tax (home property tax) instead of discretionary spending.

What’s amazing is that pro athletes are not funded by involuntary property taxes and yet they still earn more than teachers.

I think you are Canadian but I have to use NFL examples since I know it more than NHL.

In 1987, the high-end Miami Dolphins ticket was $26. In 1997, it rose to $137.
That’s a 5X increase in price which translates to an average of 17% per-year increase.

Do we value teachers more than NFL players? Hmmm… let’s put that to the test. Let’s imagine we put a proposition on the ballot for voters to approve. The proposition says we will increase our teacher salaries by a factor of 5 over the next 10 years. To fund this, the proposed law outlines an increase school taxes (home property taxes) by a 17% every year for 10 years. Take a guess as to whether you think such a law would pass. Too unfair a comparison? (Keep in mind that multiply average teacher salaries by a factor of 5 would STILL result in them earning less then NFL football players.) Ok, the new proposal says to double the teacher salaries in 10 years with a 7%-per-year tax increase. I still don’t think even this would pass in most jurisidictions.

We may value teachers more than athletes, but we do so with our hearts & prayers – not with our wallets.

Scarcity is part of the reason but not all of it.

There are 32 teams in NFL with 53-man rosters. That’s 1,696 total players.

Consider the Fermat’s Last Theorem which was proven in 1994 by Andrew Wiles. In 1994, how many mathematicians worldwide could understand Andrew Wiles very complex 100 page proof? Possibly even less than the 1,696 people in the NFL? Even if you were to dispute that there are thousands of math PhDs that could understand Wiles’ proof, there’s still yet another level of mathematics talent that’s even rarer: How many mathematicians had the talent to create the proof? It’s one thing to read someone else’s math proof and nod yes to it but it’s quite another level of talent to even invent the proof in the first place. How many had this talent? Maybe less than 10 people on the planet. Fermat’s Last proof for 350 years had already confounded previous eminent math prodigies such as Leonard Euler, etc. None of the talented mathematicians (who are even more rare than NFL players) make $1 million a year in salary.

Before satellite cable in the 1990s, some NFL games were broadcast on TV for free (CBS, NBC, ABC, Fox). With DirecTV, they offered a package where you could pay extra for more NFL games. I think it was more than $100 a month. Can you believe people were willing to PAY extra for something they used to watch for free? That’s how powerful consumer preferences and free will over the discretionary spending is.

Now imagine creating a dedicated Math & English Literature channel package for satellite TV customers. Who would pay for this instead of the NFL channel?

In light of all the evidence, people continue to be mystified why teachers make less than athletes.

67

So come up with a better way. We pay much, much more money for education than we do for pro sports. And we do that because we value it more as a society. Indeed, we do so even on an individual level; for all you can point out how much people will pay to see an NFL game, most people don’t go to see an NFL game. This season, at least 97% of Americans will NOT attend a pro football game.

Indeed, last year over 6 million American children were sent to private schools, a far costlier expense than season’s tickets for an NFL team. The NFL, by comparison, will sell tickets to fewer than six million people (total tickets sold will be around 17 million, but most are repeat buyers.)

What reason can their be for that except that society values education more? You can point out that some individuals value the NFL more, but most don’t.

That makes sense to me. I don’t see why you’d find that bizarre. The physical transportation of goods and people is as indispensable a part of our society as is education. Truck drivers alone… well, without the carrier industry you’d starve to death. If you bought it, a truck brought it.

It’s not at all amazing, even assuming it’s true (if you count ALL pro athletes, their average salary is not as high as you might think, and their careers are very short.)

Why would it amaze anyone that a very rare talent is more valuable than a common one? Do you find it surprising that gold is more valuable than gravel, or that uranium’s more valuable than pine cones?

And yet we pay more of our money to teachers. It’s a straightforward fact.

None of them will draw 75,000 fans into a stadium to watch them work out proofs on a blackboard. You’re now concentrating on supply but ignoring demand.

Unless, you know, they just understand supply and demand. People like watching pro sports, and the supply of professional sporting entertainment can be generated by a very small (relatively speaking) number of people.

I can understand why you wouldn’t LIKE athletes making a lot of money, but there’s nothing mystifying about it. I don’t like lots of things people will spend a lot of money on; I’m not mystified by it.

68

**Unless, you know, they just understand supply and demand. People like watching pro sports, and the supply of professional sporting entertainment can be generated by a very small (relatively speaking) number of people.
**

Also, people tend to be irrational about their motivations for spending. We tend to begrudge every dollar we spend for things we actually need, but enjoy spending money on things we don’t. In a world where companies that treat cancer are villanized for daring to make money doing something people actually need done, but entertainers are lauded for being teh awesome making millions doing something we don’t need done, it’s no wonder kids would rather become athletes or entertainers, rather than find a cure for cancer. If they do, and actually try to make money off it, they’ll be condemned as greedy. Making money off sick people. Well, yeah! Making them better! What is more deserving of big bucks than that?

69

Sports pros are entertainers. That has always been overpaid. A singer can make a ton in one night like Barbra Streisand. I am amazed at what people will pay to look at them in person.
There never has been or will there ever be a free market. Before we had regulation ,we had companies control the market and form monopolies. A free market is just an econ. 1 starting point. Regulation is actually an attempt to force competition. That is why corporations fight it so hard.

70

Let’s go back to athletics. The NFL does not operate by using a free market. They impose a salary cap, each team spends equally on salaries and so teas in small markets, like Pittsburgh, can compete on an equal basis. Compare that to baseball, where teams can spend freely. My Yankees just buy while a team in Pittsburgh is left to wither.

You also assume that all inovation is purely profit driven. It isn’t. Are you saying that a gifted musician, composer, physician are strictly profit driven?

It seems to me that defending the idea that a ballplayer is worth more than a person who provides let’s say healthcare in an inner city is ludicrous.

Of course that’s the way it is now. That’s exactly why free markets don’t work.

And using Walmart as an example of how free markets work? Please! Walmart has done more to destroy small town America than any army could have done.

71

No, it doesn’t make sense. If you were to ask random people on the street if “drivers are more important than teachers”, then most would say no, even though a convoluted summation of salaries seems to say otherwise.

The summation of salaries is not relevant to explain consumer preferences. The summation is a side effect of population growth paying taxes for a school system already in place by tradition and custom. The average salary on the other hand is a more useful number to gauge consumer preferences. Or the estimated salary of person if they were to freelance (a teacher for private tutoring as an example) would be another gauge.

You’re highlighting a minority slice of upper-class Americans who know education and have the money to express that it’s important.

We have a semantics gap. Yes, maybe society does value “education” more in a large sense.

But that’s not what most of us (including me) are talking about in this thread. We are talking about the “people” that deliver the education: the teachers. We value athletes more than teachers even though we value education more.

Likewise, we do value water and our bodies are 90% water but that doesn’t mean we value water boys.

(I’m not totally convinced we value education as much as you say but that’s a topic for another thread.)

I left out “demand”, because your example of # of NFL players left it out. I already explained at the outset that scarcity only explains part of it.

I agree there’s nothing mystifying about it (to me) but it is a recurring question why athletes make more than teachers. There must be dozens of threads in SMDB about it. People are mystified by it.

72

You haven’t answered this before.

Please explain why millions of parents pay a plumber more than a babysitter when it’s the babysitter that provides the more important service.

Parents can voluntarily pay the babysitter $75/hour. But they don’t.

Parents can also voluntarily (try to) pay a plumber $10/hour. Most don’t.

My point is that parents are free to dole out any “fairness” they wish via $$$ to equalize the babysitter and plumber, and yet they don’t. Why?

73

Well for one thing when you mention babysitting you’re talking about exploiting child labor, and yes I have hired babysitters. It is a bit different when you are looking for full time child care.

As for plumbers, licensed, regulated, plumbers are indeed expensive. Free market plumbers, the ones behind any Home Depot are much cheaper.

74

Wow, you didn’t even answer the question.

It is irrelevant that the unlicensed plumbers behind the counter are cheap (and in my area, they are not cheaper than babysitters anyway.)

And as far as full-time child care, how many people do you know pay $75/hour for that service? Whether they send junior off to day care or have a live-in nanny, none of them pay $75/hour. Maybe Tiger Woods pays his nanny $75/hour.

My point is that you and virtually everyone else with a child do not pay babysitters $75/hour even though they perform the more important service (the care of a child!) than licensed plumbers. It is totally within your economic power to dole out this “fairness.” Why don’t you?

(I suspect the intrinsic virtue of the work is not as much of a factor as you say it is when you decide to pay people.)

75

“When I was a kid, I used to covet expensive Reebok or Nike shoes. Now that I’m an adult and fully understand how poor laborers (often children) in China, Vietnam, etc are making shoes, it makes me feel ridiculous for lusting after something that the workers only see as a way to buy rice to eat. “
This quote seems to get at the point I was trying to make. The lusting is ridiculous and I am not saying I haven’t lusted for things I didn’t need just that it was stupid to do so.

Interesting point about babysitting, I probably was a poor parent when I left my kids with a paid babysitter. I paid $10 or more an hour 35 years ago. Most times children were left with family, because you can’t really put a market price on their well being.

I said behind Home Depot, not the counter, you know the place where you can pick up all types of construction workers for about 1/3 the cost of licensed workers.

76

Who cares what people SAY? Economics is about how people act.

Talk is cheap; a person’s values are really where they expend their resources.

It’s most certainly relevant. It’s not the entire story, but it’s sure a part of the equation of demonstrating what people want to spend their money on. You’ll note that very few people are paid a living wage for Kick Me In The Balls services.

And in complaining about pro sports salaries, people are highlighting what is, to a large extent, the preferences of upper-class Americans and big, rich corporations who can afford season’s tickets and luxury boxes. We can slice this into as many different slices as you want, but you can’t change the fact that your society chooses to pay far, far more for education than it does for pro sports.

Should we, then? Are “Water boys” really valuable?

Then it’s a good thing we’re here to fight ignorance, but this is one of those topics (economics, in general, seems to be a breeding ground for such topics) where I suspect a lot of the ignorance is willful.

77

STILL didn’t answer the question.

My admission about stupid consumerism isn’t relevant to why you (and me) and everyone else do not pay child care workers the same as plumbers.

Why don’t you pay babysitters (or your family members) the same per/hour rate as the plumbers? Even the cheap ones 1/3rd the price of licensed ones. I looked at my plumbing repair bill last year. He chard $95/hour for 3 hours of work. So 1/3rd of that is $31/hour. I don’t know anybody paying baby sitters $31/hour.

In any case, you’re trying to distort the comparison by mentiong plumbers-who-aren’t-really-plumbers because they aren’t licensed plumbers. Ok, fine, pick any profession that you’re not able to find behind the backside of Home Depot. Explain why you pay babysitter less than [insert that profession]. Tax accountant, attorney, mechanic, whatever.

You are not happy with the economic unfairness of certain occupations. Ok, child care is a noble occupation. In that very simplified example, you have the power to dole out fairness – to make right the wrong which you mentioned – at least in that scenario – and yet you don’t (or didn’t). Why not?

78

If he’s portrayed by Adam Sandler in a movie, yes.

79

What do you mean “they’re not real plumbers” In a “Free market” of course they’re real, they’re just not regulated. Why don’t I pay $31 an hour for babysitting maybe today I would. Let’s use a real example. My daughter who earns in the neighborhood of $100 an hour will drive ½ hour each way to leave her child with family over strangers. So if she goes out for 3 hours, it costs $33 an hour.

But to the point “Does the free market work?” If it produces a society that values the almighty dollar over everything else it may “work” but in my view it’s a dismal failure.

80

No, society produces a free market that responds to mass preferences. You’re making the typical left activist error of getting cause and effect backwards, and presuming your value preferences, which are objectively not shared by most people, are default correct. That is not a failure of the market, it is a failure or your ideals.