One problem is that income inequality leads to a loss of adequate safety nets. Do you think Trump, the Koch Brothers, the Bushes, the Tea Party or any of the right leaning Libertarians and Ayn Rand followers are endorsing policies that will provide safety nets for the vast majority of Americans?
When wealth is concentrated within a small group of people, it gives those people a disproportionate amount of power.
Or to put it another way. Who benefits when companies outsource work overseas, or hire contractors into traditional full-time employee roles so they don’t have to pay them benefits, or push for other reductions in benefits or repealing of regulatory requirements? It certainly isn’t average Americans.
In practice, an unruly mob of small shareholders exercise little to no consistent influence over a company’s operations. This is why the board can rob the joint - they can write up pay packages that pay absurd quantities of money, succeed or fail.
I suppose you are right, and the true culprit is that shareholders collectively allow this. They believe that if they allow the CEO to take tens or hundreds of millions every year, it will increase the chance that their money is spent effectively. The fact that is is back asswards and totally wrong (if those tens or hundreds of millions were spent on reinvesting in the company’s operations or paid as dividends it would be a leaner, meaner firm) doesn’t matter.
You’re saying we should just let this happen because to do otherwise would take away the “freedom” of shareholders to waste their money as they see fit.
Looks pretty outrageous. Maybe you could help me warm up my outragometer a bit faster. Since you linked to a pretty picture instead of an actual study, I can’t tell:
[ol]
[li]Are they looking at net compensation after taxes and transfers?[/li][li]Are they using the same measure of inflation for both compensation and productivity?[/li][li]Are there any problems with how they’re measuring productivity?[/li][/ol]
That will help me know how hard to rage at the rich crooks.
The real problem isn’t income inequity, it is that the super rich are contributing to the campaigns of Senators and Representatives that are actively trying to dismantle the welfare system.
Why? Because every tax dollar that goes to feeding hungry children means that that tax dollar does NOT go to the uber-rich.
Remember back in the 80s when Saint Ron “borrowed” trillions from the Social Security safety net? That has still not been paid back, and if Social Security is dismantled, they won’t ever have to!
No, I haven’t said that. I am saying that your arguments are poor and unsupported. The conclusions you’ve drawn are unfounded and arbitrary. The positions that you’ve taken are only appealing at the most superficial levels. It would be similar to a person trying to discuss the theory of black holes with Steven Hawking because they just watched Star Wars.
Not sure what is unsupported about the basic premise that
a. More wealth is being produced than at any other time in human history
b. That wealth is being poured into the hands of a tiny fraction of people
c. Those people receiving the wealth are, by and large, not the same people as the people creating the wealth
I’m an engineer, not an economics expert. I know that a-c are facts supported by a literal mountain of evidence. I don’t know the mechanisms why wealth funnels in this direction, but the entire premise of capitalism is supposed to allocate resources according to people’s relative values to each other. I don’t understand how a middle aged white guy who talks some good game is somehow worth 1000 times the other educated white guys working on his floor who are *also *working their asses off.
I ain’t saying CEO level talent grows on trees, I am questioning it being worth a pay premium of thousands of times. I ain’t saying there shouldn’t be a premium, either, just that the premium seems to be unwarranted.
You’ve concluded that technological advances were created mostly by workers and not executives and owners. This is unsupported. You’ve stated that the engineers, architects, technicians, and other folks (presumably this doesn’t include executives and owners) are the ones who actually do everything. This is unsupported.
Where is this literal mountain located?
The disconnect is that while you state that resource allocation is supposed to be transpiring, when you see the result of the resource allocation you can’t believe it to be true. Have you considered that the person who talks a good game could be worth 1000 times more? How would you evaluate whether this is true or not? And I brought this up earlier - do you have something against middle aged white guys? Age and race seem to be irrelevant to your complaint but you’ve brought it up again. I doubt your concerns would be assuaged if the person making 1000 times more was an elderly Indian woman.
Going further, while resource allocation is served by the use of a capitalistic pricing model, the idea that the entire premise of capitalism is this resource allocation is not a commonly held belief. The premise of capitalism is generally described as an economic system where wealth and the means of production are primarily privately owned.
What you’ve said is that the profit portion between the value of production and the wages derived is theft and that the owners of business perpetrating this are crooks. You think the compensation being earned and paid is unwarranted, but haven’t presented any criteria or framework to evaluate it, beyond the facile justification that if productivity has doubled, then real wages should double.
My understanding is that a greater share of income is being paid in various forms of “profits” to the wealthiest individuals, as opposed to wages, than has been the case in the past. Don’t have stats at the ready, but pretty sure I saw such consistently recently.
In my opinion, countless aspects of our society are styled such that the rich get richer, while it is tougher for an average (or below average) person/family to maintain a decent standard of living. My personal opinion, is that a society is “preferable” to the extent it permits the greatest percentage of its adult citizens to support themselves at a decent level.
Lot of terms in there open to debate. But in the past, a HS graduate could get a job that would allow them to live modestly, and support a family - generally on a single income. Nowadays, there are many fewer such jobs.
Admittedly, everyone seems to want so much more STUFF than they had in the past.
I don’t know that his graph even shows that. What it shows is that there have been gains in productivity without corresponding gains in real income.
The implication that he’s trying to make is that the widening gap between the two represents some kind of wealth being siphoned off into some rich guys’ pockets.
But it’s not that easy; productivity doesn’t necessarily equal profitability, and that is what makes rich guys rich, and allows companies to pay higher wages, etc… It may well be that some combination of higher productivity and lower prices are the only two things keeping the lights on in many businesses, especially if they’re facing overseas competition with significantly lower labor costs. In that case, nobody’s really getting rich at all
The other thing to keep in mind is that most of the wealth generation isn’t due to companies paying absurdly high CEO salaries or crazy high dividends. It’s more due to companies’ growth in value, which is NOT something that a company can somehow retain and pay back in wages.
To use a simplified example, let’s say you want a lemonade stand, and you have $20. You need $40 to build the stand and buy lemons, sugar and a pitcher. So your dad comes in and fronts you the $20. He now owns half your lemonade stand, and you give him a nifty little receipt saying that he owns 1 of 2 shares of your stand.
A couple weeks pass. You’re doing well selling lemonade. Let’s say your neighbor tells your dad that he wants to pay him $35 for his half of your stand, and your dad accepts. Your dad just made $15, and his wealth increased correspondingly. There’s no way for you to have gained any of that $15, because it’s a transaction outside of the company itself. That’s what’s going on with most ownership and wealth acquisition. Dividends are different- that would be if you took the money you made at the end of the day and split it 50/50 with your dad (or neighbor, if we’re in the stock sale scenario). I’m not aware of any crazy growth in dividend payouts though.
I agree with msmith537 that the real problem is the disproportionate amount of power this gives the wealthy; they can change the game and the playing field to suit themselves when they get that level of money.
Every study ever done by anyone has concluded what I said. It’s a literal mountain - I’m not going to waste time providing cites because I can’t argue with someone who isn’t aware of this fact. If you are going to deny what I am saying is true, it means you have an agenda and are being willfully ignorant.
I have nothing against middle aged white guys - I am one myself. And I’m not even a poor middle aged white guy, I have benefited from the good-ole-boy club myself. My point is more from an information processing perspective. I know that I can only process a finite amount of information in a given workday, sending out information that has lower entropy. That’s what I do, I take requests for functioning embedded systems that are high entropy - just a vague email to me of what the system is supposed to do - and I return schematics, tested hardware designs and prototypes, the software to drive it, and the completed test plans.
I can only do so much in a day, and my outgoing information is lower entropy than incoming. As a worker I’m just a machine that processes information like that per a certain set of rules. I can only do so much in a day, and I have to sleep, and I put my pants on one leg at a time.
A company CEO is the same kind of worker. He also has a faded middle aged body, he puts pants on one leg at a time, and processes information the same way.
“Inventors”, in our winner-take-all society, are usually just folks who got their new advance to the patent office first. In practice, there have been throughout history in almost all cases other inventors who created the same invention, just a week or so later.
So from my fundamental understanding of how things work, I question even the *possibility *that one high quality information processing node can be worth 1000 times the value of another. I’m not at all saying everyone is equal, and I’m fully aware that the most obvious solution of seizing the unequal payments and redistributing them is a bad idea, I’m just pointing out that I don’t see any reason for the differences to be this large.
My actual theory is this. I think the reason our society - freely operating according to capitalist rules mostly - shovels money around like this is that the actual decision making nodes in the “market” are other human beings who have finite memory capacity. They can only remember so many names of CEOs, and they can only remember so many names of celebrities. So, since the pool of bigshot investors can only even remember so many distinct names, being composed of middle aged white guys with aging meat brains, they compete among each other to shovel bigger compensation packages to this small pool of known successful, big name CEO candidates. This drives the market price up to ridiculous levels.
One fundamental mistake here is that any measure to reduce this compensation and make it more fair in any way is argued as potentially ruining the economy because we have to pay $10,000 an hour to motivate a CEO to go to work and do good work. I don’t believe this. I do work harder at a job that pays $20 an hour than one that pays $10, and my new job now pays about $50, but I don’t think the differences remain significant at $10,000 an hour versus $11,000.
Bill Gates did create a very nice BASIC interpreter. MS-DOS? Bought from someone else. Windows? Innovation done at Xerox PARC. (And Apple). Office? Plenty of other word processors and spreadsheets before that.
Did he go out and market MS-DOS to the PC world? Nope - IBM did that for him.
His great innovation was recognizing that he had what was effectively a chokehold on PC software, and leveraging that into big bucks. Is that the kind of innovation you mean? The Rockefeller was the greatest petroleum engineer ever.
At least he created stockholder value. Lots of CEOs get rich destroying it.
Item C in your post #26 is at best an opinion. It could be true, it’s been contested in this thread by more than myself. I suppose it’s easier to assume that anyone who disagrees with you has an agenda or is being willfully ignorant. It also means that your arguments are poor and unsupported. The conclusions you’ve drawn are unfounded and arbitrary. The positions that you’ve taken are only appealing at the most superficial levels.
Then it would be better to leave issues of age and race out of your rants. Introducing superfluous information regarding race is distracting from your message - it seems more like tinges of white guilt.
But you assume that there is some kind of linear or linear like relationship between the amount of information your are able to process and the earnings you derive. That you can process 10 widgets which results in $100, so if a person processes 11 widgets, they should earn something near $110 dollars. Is that about right? This makes two mistakes. The first is the assumption of some kind of linearity. In reality, the marginal increase of the 1 widget could be worth 100000% more. This is made quite clear in professional athletes. Those that are only marginally better than competitors could yield dramatically different earnings. The only way to measure this is what the parties to the transaction are willing to pay.
The second mistake is that the quantifiable widget processing is the only thing that contributes to the valuation. Qualitative measures could warrant exponential increases in earnings. Think of how a model gets compensated. Kate Upton is going to earn more than…not Kate Upton? I don’t know many models by name. Is she multipliers better at modeling skimpy clothes? Who knows. The only way to determine what she should earn is what someone is willing to pay.
Consider another example, if a CEO can increase top line by 10% and net income by 1%, is that worth paying $10M for? You can’t tell unless you know the size of the company. If the company’s current revenue is $100B and their net income is $5B, I’d say that’s a damn good deal. If the company’s current revenue is $100M and net income is $5M, then no way. It’s the same exact person, with the same ability to process finite amounts of information. What does that tell you about how to value the output of a CEO? It really has less to do with the amount of widgets of information or ideas they can churn out, but about how that impacts the company overall. The amount made by other people in the company is irrelevant.
At least you’ve made an attempt to explain why you don’t think 1000 times valuation is possible. It’s wrong of course, as I illustrate in the two reasons above.
I have no doubt that certain individuals, through their particular expertise, skills, inventions or leadership are able to create vast amounts of wealth and should be justly compensated for that.
But if talented, bright, hardworking people aren’t able to develop those expertise, skills, inventions or leadership because their parents didn’t send them to the right prep schools or they couldn’t afford hundreds of thousands in loans to go to the right colleges or they didn’t have relatives who could back door them into the right internships at the right companies, does that seem like a fair system? Or even one that is particularly desirable?
Do you think that demand just happens? To have customers, they have to have money to spend. That generally means income.
Higher wages *can *mean more demand and more jobs for the marginally employable.
An increasing share of business revenue going to capital–that is, to investors–as has happened over the last twenty years, means lower wages, slower hiring, and more layoffs. And this while the population is growing.
I’m seeing some glaring economic fallacies from both Habeed and Bone. Actually, maybe variations of the same one.
Habeed, you’re thinking in terms that imply that the price of labor follows the value of the labor put in. That’s not necessarily wrong in a “good policy” sense; Marxist economics, for example, partly rests on it.[sup]1[/sup] It’s just not how theoretically “free” markets work.[sup]2[/sup] The price you can charge depends on demand, not the work you put in. That’s ultimately why free markets, pace Adam Smith, can be bad at filling certain needs. The amount someone will pay does not directly correspond to the cost of producing a good or service.
Bone, the kinds of dramatic increases in compensation you’re talking about derive not from the utility of the labor put in, but from limited opportunities, whether natural or enforced. A CEO who makes enormous amounts of money often isn’t a spectacular CEO, and some of them are objectively terrible at their jobs! Instead, it may be someone one lucky and connected enough to be hired to a major conglomerate. Huge personal compensation is a function of huge conglomeration, and anti-competitive behavior on multiple levels.
If **Hellestal **or someone else with an economics degree comes into this thread, I suppose they can answer this better. But I think Habeed is *less *wrong. There is a sort of ownership class that have negotiated for themselves high pay; and they may even tell themselves they deserve it precisely for cutting compensation to line workers, and thus “increasing shareholder value.” :rolleyes: There are some interesting rationalizations used by the “businessman” subculture.
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In theory. I can’t say that it works out quite that way in state socialist régimes. But the labor theory of value is a major concern in that tradition of economic thought.
Well, things like prevailing wage laws and union organization help some of that defense of labor value come into play. Today, in the USA, with white collar workers not being unionized, and unions in general now a very small part of the private sector workforce, that only goes so far.
One issue here is that for lone workers negotiating with a firm for a job, they are at a severe disadvantage. If their skill is one that a million other people have, even though it is a valuable skill, and they are negotiating with a gun to their head. Lone workers *need *a job, or they/their family will starve to death.
Once you move on up to that elite class where there are only a few hundred other people in the world with the same skills, and you already have enough money you can afford to wait, you have enormously more negotiating power.
Unions of course were a solution to this problem, they may have been stodgy and shady, but a company is under a lot more pressure to negotiate with a block of 100k laborers than 100k separate laborers all by themselves.
So, one of the fundamental assumptions behind free market capitalism I think is wrong when one party has to have a job or they starve but the other party can hire one of a large number of interchangeable substitute workers - even for high skill jobs.
Having an adequate safety net will allow people, who would otherwise perish in the event of failure, to take risks and start businesses, and in developed countries small business start-ups are the biggest providers of new jobs. In the US, family businesses provide more jobs than multi-national corporations. The safety net is also money that will be, almost always, put back into the economy immediately, unlike a CEO who makes 10 million a year, as that CEO can only wear one suit and drive one car at a time. He only needs a relatively small amount to live on, the rest is just for showing off. Perhaps we need more conspicuous consumption to have the wealth trickle down?
It’s not fair. Neither is the world. Fairness is neither achievable or desirable. There is no desirable way to ensure that a 5’2" guy from Florida has a fair way to compete with his 6’8" neighbor for a spot in the NBA. You may say that everyone should have the same opportunity - I don’t think that’s attainable. I’d push for minimum levels of opportunity.
Obviously demand is a critical component to the valuation of any individual’s contribution. I alluded to this when I described willing parties to a transaction. I’m not describing a comprehensive system that explains how an economy functions. I’m simply pointing out the numerous ways that Habeed’s position is unsupported. Literally.
But if you think that Habeed saying that the profit portion between the value of production and the wages derived is theft and that the owners of business perpetrating this are crooks - that the compensation being earned and paid is unwarranted without any criteria or framework to evaluate it, beyond the facile justification that if productivity has doubled, then real wages should double is “less wrong”, go right ahead. It seems you place value in the Labor Theory of Value which is revealing enough. But please, indulge me - in what way do you think I’ve stated anything that is wrong?
A skill that a million other people have is not a valuable skill with respect to the rest of the population. I assume when you say “a million other people” this is figurative. If you mean literally only a million then it could indeed be valuable.
Unions don’t solve the problem of unskilled or obsolete workers and low wages. If those skills are so common, companies can simply choose not to engage with unions or ship those jobs overseas. Unionizing a bunch of workers with outdated skills no one wants doesn’t benefit anyone.