You’re missing the point entirely.
there used to be a correlation between income and production (or value created). Almost all of the increased income that comes with increased productivity has been going to owners of capital and very little of it to the owners of labor.
No, I understand the point perfectly. The value of the painting does not change with the value of the house.
The painter isn’t working any harder, or better. The value of his labor, therefore, does not change.
You are making the common mistake of thinking there is some objective measure of value that is not controlled by supply and demand. A job is worth exactly what you can get someone else to pay - no more, no less.
Regards,
Shodan
If the residents of a town colluded to pay painters no more than $100, would that still be the inherent value of the work? Was the inherent value of the work of a programmer affected or not affected by collusion between Apple and Google, etc. to not “poach” employees?
I’m positing a situation where a house is worth $100,000 immediately before the paint job and $102,000 immediately after the paint job.
It’s not a perfect example. I’m just saying that almost all of the increased wealth created by increases in productivity has been going to the owners of capital and managers and very little to the owners of labor.
So the value of the house can change but the value of labor cannot?
I am saying that between the globalization of labor and the owners of capital rigging the game in their favor to extract almost all the increased value from increased productivity, the American worker has been left treading water.
Labor is not like every other good or service. That’s why economists don’t treat labor like widgets.
But the market does treat labor like widgets; it is the way it is designed. That is the problem with the current post industrial age, the differentiation between units of labor is small and thus labor is becoming a commodity. This has the expected effect of driving down the cost of that labor to the absolute minimum without regard for the externalities. A worker cannot live on 5 dollars an hour in this society (even if that is all their labor is worth), so the extra costs of supporting the worker are passed to the taxpayer and the society at large.
I struggle with this fact often: Is it better to force the employers to pay for the externalities directly through minimum wage laws or is it better to tax the employers and have the government cover the externalities? The employers will simply pass on the higher costs associated with the minimum wage to consumers and thus the costs of all goods will rise; in effect this will look like a regressive tax. Meanwhile, if we keep our relatively progressive tax system and tax the employers (i.e. owners of capital) at higher rates than workers, then the costs of the covering the externalities are better targeted at those that are reaping the reward.
When was that? And more specifically what income are you referring to here?
Of course they both change, perhaps you’ve heard of the Law of Supply and Demand. Perhaps you’ve noticed that nearly identical houses can have dramatically different values when built in buttfuck nowhere vs Midtown Manhattan. And nearly identical labour can have dramatically different value when unemployment falls.
But perhaps you’ll notice that the two values or barely linked. The housing market and the painting market have their own individual supply and demand curve. Is that a concept lost on you?
American Labour made a very conscious decision to not be involved with the means of production. That increased productivity you’ve seen came from capital investments, so it shouldn’t surprise you that the gains made went to the people investing that capital. There is no reason that there needs to be this massive distinction between owners and labour. In the US owners are free to sell it all and become labour, and labour is free to buy stuff and become owners*.
Let’s say just for fun you have a shitty old car getting 10mpg that costs you a fortune for your 50 mile daily commute. You trade it in for a fun little hybrid getting 50mpg, should you benefit from the savings?
Now let’s say you are a delivery driver in a shitty old car. Your boss upgrades the car you drive to a 50mpg hybrid saving a fortune in gas. Do you think you should pocket the difference? Are you some how entitled to a pay raise because the business is now more profitable?
Can you see the difference in the two cases?
The same thing has been happening to painters. It used to take 10 guys a week to paint a house. The owners invested in paint sprayers, lightweight ladders, fast drying paint, improved marketing, streamlined inventory management, supply chain blah blah blah. As a result it now takes 2 guys a weekend to do the same job. The business became more profitable through increased productivity, but the workers are still doing the same job, so who gets the increase?
This isn’t complicated.
Consider these three scenarios:
Guy’s like you love to fixate on [1] and [2] but willfully ignore the middle situation. You want the painter to get some of those sweet sweet gains, but what about loss? I’d really like to use the word risk, but we can’t do that any more. The painter is the one with all the risk, what with the ladders and driving and chemicals and oh my god he might lose his job!
So back to your first statement, what correlation would you like to see between income and productivity?
*In Muhammad Yunus’ book Banker To The Poor the example used was that of taxi drivers in Bangladesh. They didn’t own the cabs, and ended up paying all of their revenue to the owner, often losing money on a fare.
The driver’s didn’t have access to no-money-down-interest-free-loans, so they were trapped in a perpetual cycle of poverty, actually getting poorer as they worked harder. The evil owners taking all of the gains for themselves.
When a loan system was set up for the drivers, even at what we’d consider insane interest rates, the drivers were able to break that cycle, and actually make profit driving a cab, eventually being less poor.
Right now in the US nearly anyone can get one of those no-money-down-interest-free-loans and buy a car. Then get another to buy a smart phone. Then drive for Uber/Lyft/Sidecar, and make money. But that would mean labour becoming an owner, and labour doesn’t want to own things. They want to show up (some times), work an hour ,and get $15. Labour in the US has worked extremely hard at detaching their income from their productivity. Then they bitch that someone, somewhere is getting rich for doing nothing other than building a massively popular system that let’s people make money driving a cab.
If we pay for externalities through the minimum wage, we reward employers who increase productivity per worker and thus can keep prices low (which might be required by the market) while maintaining or increasing their profit. If we pay by taxes, there is no extra incentive to improve productivity, and perhaps even a disincentive if improved productivity increases earnings which increases taxes.
While you might think that employers would invest to increase productivity in any case, it is often a risky proposition. Profiting through low wages may be safer. In certain cases automating manufacturing lines in East Asia is not worth it since wages are so low that they are below the depreciation of the equipment.
Increasing the minimum wage can also be seen as progressive. The benefit, in terms of higher wages, falls almost entirely to those of low income while the cost, either through higher product costs or lower profits, get distributed over a wider range of incomes.
This is simply not true. There is not a finite supply of money where the more some have, the less there is available to everyone else. I wish people would get that through their heads. Your income is wholly dependent on your value to the marketplace. You will not make one dollar less because someone else is wealthy and you will not make one dollar more if every billionaire in the country suddenly went broke. The fact that a relatively small number of people hold the majority of the wealth (and btw use that wealth to provide wanted and/or needed goods and services to the rest of society) in no way means that your income is going to be less as a result.
This is nothing but childlike resentment over the fact that somebody has more than someone else. It’s petty and immature and accomplishes nothing worthwhile. If a person is born dead broke and they die dead broke, it’s because they did very little during the time they were alive to improve their situation.
Again, the fact that someone has more than you doesn’t mean that you’re getting less than you would otherwise. You are earning money according to the skill set, ambition, intelligence, drive, self-discipline, etc. that you bring to bear in the marketplace. If you earn only $20,000 a year it’s not because someone else is rich and living a life of luxury at your expense; it’s because the value you bring to bear on your own behalf in the marketplace is only worth that much. Don’t believe me? Improve your skill set, your knowledge, your work ethic, etc., and watch your income rise.
If the supply of money were truly finite (i.e., there were no such thing as economic growth) and the rich were holding you down by keeping a tight grip on all the money for themselves, you wouldn’t be able to make more money no matter what you did.
Yet there are people today who are only ten or fifteen years old who will become multi-millionaires or billionaires within the next ten or twenty years, just like Steve Jobs and Jeff Bezos and Mark Zuckerberg and many others already have. Where is all that money coming from if the rich have such a grip on it all?
It’s way past time this financial myth that the more someone else has the less there is for you died a well deserved death.
Actually it is more childlike to rely on anecdotes rather than research.
In reality it is “Harder for Americans to Rise From Lower Rungs” than in the past and when compared to other well developed nations.
It’s a terrible example. What if the owner picks a garish color and lowers the worth of the house? Should the painter have to fork over some money? How do you attach an objective “worth” to the painter’s labor if the color of the paint makes a difference?
Also because if simply adding a coat of paint boosted the house price 4x the cost of the paint job, more sellers would be seeking painters. More buyers would be seeking a bargain house that hadn’t been painted. We’d see the market adjust. Generally, simple fix-ups like this don’t pay off.
I realize it was offered as a hypothetical, but it’s hard to imagine a realistic scenario like this.
Then what’s it called when the research addresses an entirely different issue than the one under discussion? My argument is that money doesn’t exist as a finite amount in which the more money one has, the less there is available to someone else.
There’s no question that there is less upward mobility among the poor, but there are a lot of reasons for that and none of them are due to rich people supposedly soaking up all the money. And since your link references liberal vs. conservative beliefs, with the implication being that conservatives are wrong in espousing the view that everyone can climb the ladder. But it’s true. Everyone can climb the ladder, it’s just that amongst certain segments of society people are not raised in a way that equips or motivates them to do so.
This is why most of the people raised in the top fifth of incomes remain at least in the top two fifths and those raised in the bottom fifth stay in the bottom two fifths. Those raised in upper income levels tend to come from stable homes with parents who value and expect a certain level of academic performance in school and who work to instill a relatively strong work ethic in their children.
On the other hand, children raised in the bottom fifth income level often have only one parent, and often that parent is either absent much of the time because they are at work, or they’re simply ill-equipped for the job of raising a child and do very little to make sure their children do well in school.
Additionally we have the fact that we have a large underclass of people in this country who by dint of racism have been denied the opportunities and ability to achieve higher incomes along with the values and lifestyles that come with them. This deprivation has been a double edged sword also because it’s not only deprived the black population of economic and social parity with whites but has also given rise to certain self-destructive or self-limiting behavior patterns, such as scorn for those who try to do well in school or speak or dress in a more conventional way because they’re “acting white”. Therefore many of the opportunities that conservatives have in mind when they say anyone can climb the ladder are closed off to these young people because they’ve deliberately chosen attitudes and modes of dress and speech that set them apart from and often at odds with society as a whole, and therefore they close themselves off from opportunities to get ahead which they would otherwise have.
And then we have the deplorable state of education in this country, with its dumbing down of the curriculum and so-called ‘social promotion’, which at its worst can see so-called students graduating from high school unable to read or write at even a first or second grade level. Needless to say, substandard education affects children of all races and impacts negatively upon their ability to get ahead in life. Thus people in higher income brackets send their children to private schools where they’ll receive a higher level of education and become accustomed to a higher work ethic and level of achievement, and so of course these students will do better out in the work force than those who come from public schools. This is not an indictment of rich parents sending their kids to private schools; it’s an indictment of the terrible job public schools are doing now and how it affects the ability of kids to get ahead in life.
And then we have a political party that strives to convince people that the odds are stacked against them, that they can’t get a fair shake and their lack of success is other people’s fault, that business and corporations are bad, and it’s the job of the government to take care of them and provide for them and make things fair. We’re even at the point now where success and achievement and the acquiring of nice things are frowned upon and successful people are being made to feel guilty for doing well.
In light of all this, it’s certainly true that not everyone can climb the ladder…but rich people’s money isn’t what’s holding back the ones who can’t.
Really? Kinda seems to me that, at any given time, the amount of money is finite. The amount of wealth in the world is increasing year-by-year, but it will only become infinite in an infinite number of years. Some folks might not be willing to wait that long.
Yes, some people of modest means today will become the millionaires and billionaires of tomorrow, and education and hard work have a lot to do with it. Brand new fortunes will be created, but not every smart, hard-working person will get one.
So does the fact that the money is available for them to obtain by dint of their own efforts rather than being deprived of it because the rich are supposedly hoarding all the money.
That’s not the point. The point is that money gets created through the efforts of enterprise and anyone - poor, middle class or wealthy - may earn all they are capable of given the qualities they bring to the mix. If they’re a Steve Jobs or a Jeff Bezos they can make a fortune. If they’re poor but get a good education and work hard plenty of money is there to lift them out of poverty and up into whatever lifestyle they’re capable of attaining. Some will become small business owners, some will become doctors, lawyers or accountants, some others will work their way up the ranks in corporations, etc., etc. Lots of money can be made in modest ways too. I know of a couple guys in Houston who operate a huge mowing business cutting 2,000 lawns a week and they make over $200,000 a year. But the fact is that everyone’s earnings are going to be determined by the value they bring to the marketplace and the wealth possessed by the 1% or anyone else is not going to deprive them of a single dollar.
People on this board like to talk about low information voters on the right. But low information voters exist on the left too, and many of them believe that there’s only so much money to go around and the more money the rich have, the less there is for them. Try not to be one of those people.
Kobal2, was that the point?
But the number of dollars is still not infinite.
In most companies there is a fixed pool of money available for raises in a given year, determined by profitability, etc. Now, the C-level execs can split this pool 50-50 with lower workers, or they can take 90% of it, or they can take 10% of it. If they take 90% of it (which is roughly what has been happening in the economy as a whole) they are indeed taking money that could have been given to workers, and the workers are worse off.
Can the workers move? Not if there is a recession. Pointless if all the C-level execs are taking 90%. And there is always inertia, which is why they get away with it.
If the “job creators” really created jobs that would would cause a worker shortage that would raise incomes, then it would be better, but that hasn’t happened, has it?
So keep on living in your conservative fantasy economy.
The value of both the house and the labor can change since both are determined by supply and demand. But the value of the painter’s labor is determined by the market for painting, not the market for houses.
I have a house that costs $250K. I want it painted. I am willing to pay $100 an hour. I find someone who is willing to paint my house for $100 an hour. He paints my house, I am happy. He has $100 an hour instead of an hour doing something else, I have a painted house.
Now real estate prices go up, and my house is worth $500K. I want it painted again. The painter says, “No, I want $200 an hour, because the house is worth twice as much.” I then shop around to try to find someone who is willing to put in the same amount of labor as the first guy for $100 an hour. But I can’t find anyone - the lowest I can find is $101 an hour. OK, maybe I value my time at more than $101 an hour, so I hire the $101 an hour guy.
We are now in the same situation that you are objecting to. Almost all the value of the house is going to me, and only $1 an hour to the painter.
So what? The value of the house and the value of the labor are not connected to each other except in the most indirect way. The market is the number of people who are willing to hire at the highest wage the worker will accept, and the supply of people who are willing to work at the lowest wage the employer will pay. It has nothing to do with the fact that you added a bathroom and your house is conveniently close to shopping and the local schools are excellent.
What is the difference between labor and services, and how do you think economists treat the labor market from the widget market?
Regards,
Shodan
That is nice, I was not much dealing with that because I see it as just a platitude with not much to say about what inequality is causing to the whole society.
Don’t think so when some rich people show the difference that can be made by sharing.
Don’t follow Noam Chomski a lot, but I do agree with him when he described the raw deal the poor in America are getting in comparison to other developed nations, it is “appalling”.