I think you have it completely backwards in terms of consumption. The amount you can consume is correlated with the amount of money you earn + the amount of money you have saved + the amount of money you are able to borrow.
As for income being the amount you produce, well that’s a complete starwman. Your income is the amount that the market places on the value of your labor. Not the amount, but the value. And there is no objective measure of value. You could try and set it arbitrarily in a command economy, but in a market economy it is set by, well, the market.
Of course there are going to be people who defraud other people in a market economy. Just as there are people who will kill other people. But it makes no sense to model the way incomes are determined based on the behaviors of fraudsters anymore than it makes sense to model typical behavior on the behavior of murderers.
Ah, ok, good to know. I guess my point is I have no respect for some billionaire that just “buys a championship”. I don’t have an disrespect but you can’t really say that they accomplished anything. But in lot’s of other situations I would have to retract my statements. A team owner who takes financial risk and takes a loosing team and builds it into a winning team is to be admired.
The players, and the rest of them, produce the game.
The fans pay for the game.
The owner takes the money, pays some of it to the players etc., and keeps the rest for himself. It’s called profit.
It’s one possible arrangement, but not the only one. The Packers, for example, are a community owned team. It’s the only one, because the NFL now prohibits it.
But in principle, there’s nothing to prevent the fans, players and groundskeepers from owning the team. It’s just that the NFL doesn’t want it that way.
I’m confused by what you’re saying here. You say that “income is the amount you produce” is a strawman. But a strawman is when you misrepresent someone’s argument. And my argument is that income is not (or at least not generally) a measure of how productive someone is.
You go on to say that income is set by the market, instead.
“The market” is a vague term. People often use it like it was some impersonal force, that no one has any control over - like gravity, or the value of pi. I don’t know if that’s the sense in which you mean it.
But in any case, the market is not an impersonal force. It’s made, organized, ruled, and policed by people. And the laws that govern the market are changed, generally every time a legislature is in session. Furthermore, which laws will be enforced, and to what extent, is also decided by people. Those decisions help some people, and hurt others. Sadly, the people who get helped are often those with the most money, influence and power, and the ones who get hurt are the often the ones with the least.
But whatever you mean by “the market” I’d still argue that you’re wrong, or at least not right. Relationships, power, and politics play an important role in how much people make - including the most highly paid ones. CEOs don’t make the money they get paid because it’s impossible to find someone to do a better job for less. They make it because they have so much power and influence within the corporations they control - including influence over how much they get paid.
Eric Holder, before he became Attorney General and decided not to prosecute Wall Street banks, worked at a law firm that represented Wall Street banks. He hasn’t said what he’ll do next, but if he goes back to defending Wall Street banks, it’ll most likely be at a higher salary. It has become a cliche that people who used to regulate businesses go to work for those business, after they quit their government jobs.
But it doesn’t just work this way at the highest levels. Many people have the jobs they have because of relatives and friends, not because of “the market”. Or because of politics at the corporation where they work, or because of dumb luck. The work of corporate executives, or so I’m told, revolves around corporate politics. Their income depends on that, not “the market”.
At the very highest level, there’s one set of monetary and fiscal policies that benefit working people. There’s another set that benefits the very rich. Is that the market at work, or is it politics?
Furthermore, those who work at advancing the interests of the rich always make more than those who don’t. If that’s what you mean by “the market” determining income, I couldn’t agree more.
“If they could” is the operative phrase here. Given the choice of two individuals with equal skills and potential for contributing to profit, the employer of course would value the fellow willing to work for less. He is by definition more valuable.
Markets tend to remove that choice. If I can get $10/hour working everywhere else, I’m not taking your $9/hour job, however much you’d rather I did. You’re also not likely to pay me $15/hour, because there are people who will work for less (and are consequently more valuable). But why don’t you help dispel my naïveté? What metric would you use to value someone’s contribution? What objective metric?
In my experience how much I am compensated for my work is directly related to how much I desire to give to them. If I feel underpaid my productivity will go down and I do feel taken advantage of, and it will damage my relationship with that organization and I will eventually leave.
However in jobs where I love what I do (normally making other people’s and children’s lives better), places where work and play are the same thing, that does not happen, but instead it gets noticed and I excel at it and compensation and advancement tends to increase.
Having recently been through the process of hiring a CEO, I can assure you that it was very much a market process. Supply (not very much of it) and demand (quite a lot) were at play. And as with my salary, the company paid as little as it could get away with while getting what it wanted, which ended up being a lot more than I get paid. But I have neither the skill set nor the experience nor the tolerance for 100-hour work weeks to negotiate that kind of pay. Neither do most people.
It’s true that the labor markets are not completely open (participants have incomplete information) and people are not entirely rational. And this leads to inefficiencies. Some others, although not very many, could probably do my job for less. They were not at the right place at the right time, and my employer has even less information about a new candidate’s capabilities than it has about mine. I could probably do someone else’s job for less than they get paid but for more than I make now. But I don’t know where those jobs are, and the employer would rather stick with what they know than simply putting the job up for bid constantly.
Coming back to the OP, I, the recently-hired CEO, and the unknown person whose job I could do, all provide services that have value to our employers. This value to our employers is less than our compensation. Likewise, the value of my compensation is greater than how I value my time and effort. Otherwise I’d fuck off and do something else. Just like the value of the groceries I bought yesterday is higher than the price I paid and time I spent getting them. The employer and I both win because we are both exchanging lesser value for greater. The grocer and I similarly both win.
Scarcity is part of value. Not just anyone could do that CEO job, hence the long search, and the high value we place on her services.
Another way of phrasing the above is “Other people spend their money on things that I don’t want”.
The market reflects what people want,. Not what they say they want, not what they tell other people they want - what they want.
Above you are saying that you value what you perceive as a European lifestyle more than you value what you perceive as an American lifestyle. You could, in theory, “buy” such a lifestyle, by moving to Europe. It would cost money, it would be a lot of trouble, there would be a downside, but in theory you could do it.
But you haven’t moved to Europe. For whatever reasons, you have decided that, in reality, a move to Europe is not as valuable to you as staying in New York. IOW, the market reflects what you have decided, not a wish list.
If there were no such things as opportunity costs and limited resources things would be very different from how they are. But there are such things. Economics is the study of how things are.
Income is a measure of how much other people want your work. It is only indirectly related to productivity. People hire other people generally because they think the people they hire will produce enough to make the hiring decision worthwhile. Those who hire are often right, and sometimes wrong, but people get hired because other people want their work.
If only a few people want your work and lots of others can do the same work, then demand is low and you won’t make much income. If very few can do your job and lots of people want your work, then demand is high and you will.
Another aspect of income is that of income as a result of successfully-taken risk. That’s why sports team owners make money (or lose it). They gamble their money by hiring players and managers and so on, betting that the people they hire, overall, will attract enough spectators and TV interest that profits from ticket sales and TV contracts will more than offset the cost of the multi-million dollar salaries.
I have a relative who plays sports professionally. He is very wealthy, even though he plays for a lousy team. That’s because the number of people who can perform at his level is very, very small, and the profit available from a team made up mostly of people who perform at his level is very large - large enough to make enough to pay him his very large salary and still have enough left over. Is my relative productive? Well, it’s a lousy team and they don’t make the playoffs. (My relative consistently makes the Pro Bowl and is very well thought of in his sport.* ) But the value of the team has roughly doubled in the last seventeen years. This is a reflection, not necessarily of productivity, but of demand, which is only indirectly connected.
That’s why comparison of (for instance) teachers to interior decorators miss the mark. There are lots of people who can teach, and very few who can interiorly decorate to the level that they can charge $150K for their services.
Regards,
Shodan
*Revoltingly shameless bragging available on request.
There isn’t really anything vague about it. It’s basically the outcome of our collective choices in the aggregate. If millions of us want to watch Dancing With the Stars or professional football then there will be a demand for those things…and so people who make those kinds of shows or who participate in those sports will be in demand and their labor will be worth more than, say, people who make shows less well liked or play professional tiddly winks or something.
No, it’s not. There are regulations and policies that can impact it, distort it or shift it, but in the end it’s still impersonal in the sense that it reflects our collective and aggregate demand…and that is pretty impersonal in the aggregate.
That has nothing to do with how the market works though or even what the market is…this is your personal observation.
Again, this is your own personal assertion and really isn’t reflected by reality. CEOs (SOME CEOs of major Fortune 500 companies) make what they make because there is a perception that you need the best super star at the helm you can get in order to be a star company…and so companies are willing to pay a premium for that perception of super star power.
To put this another way, let’s say you are right and CEOs of major Fortune 500 companies are vastly overpaid and really aren’t worth it to the companies in question. You’d think that some of those companies would realize this at some point and hire a non-super star CEO type…heck, from what you seem to think they could just grab any old guy off the street and put him in the CEOs office and he’d do as good or better, plus save the company (and the stockholders and boards of directors) millions of dollars. Why don’t they do that then? The CEOs have some sort of union and collectively hold a gun to the heads of ALL the boards of directors and share holders of ALL the Fortune 500 companies? Not one can get out from under the monopoly of the CEOs and just hire some guy off the street for a few hundred thousand a year…something a lot of folks would be happy with?
They do. And the reason there is a market for them is because they know the system, how it works and who the players are, and so can demand higher salaries. It’s funny, but your example, presumably to continue to show how John was wrong and how the market doesn’t really work the way he was trying to say, does the opposite…it’s an example of how the market actually works.
You are talking about individual cases here, not the aggregate. The majority of people don’t get and keep jobs they aren’t qualified for and can’t do simply because of who their relatives or friends are…if that were the case our work system would be completely dysfunctional. There are, of course, distortions…jobs that are given to someone because of the color of their skin, their gender, who their relatives are or who they friends are or who they supported politically in a race…but those are individual cases, not the market as a whole. And regardless, those one offs don’t set the aggregate market rate for category labor in the US, which varies quite a bit from state to state and even within states.
The market of course. Which can and is distorted by politics just like everything else. Some of the distortions I’m guessing you are all for (minimum wage, for instance) while others you oppose. Ironically, it’s the aggregate of THOSE choices, also by ‘the market’ (a.k.a. you, me, and everyone else) that create those distortions.
No, that’s your personal observation, an unsupported assertion and you trying to tie that into the discussion about what ‘the market’ is…something you frankly don’t seem to have a good grasp of what it is and what it does, and what it isn’t and what it doesn’t do.
Making people’s and children’s lives better sounds like s noble profession.
I don’t know what you do. Maybe you’re a teacher. The average teacher’s salary is around $45k.
Maybe you’re a social worker. The average social worker salary is about the same.
The average salary for a first year investment banker is $110k. For a third year it’s $310k, and goes up from there.
I’m not saying you should quit doing what you’re doing. But if you stopped helping children, and started helping rich people get richer, your compensation would likely increase a lot faster, no matter how good you are at helping children.
If I could paraphrase, I think you’re saying it’s the market that decides CEO salaries. And that the reason they’re so high is that it’s so hard to find good ones.
I think it follows that the highest paid CEOs would also be the best ones.
But the research shows there’s negative correlation between compensation for CEOs and their subsequent performance.
The first one is only partly true. Income is not just a measure of how much people want your work; it’s also a measure of how much stuff you own. If you own a lot of things… bonds, stocks, land… you don’t have to work at all. I don’t mean to nitpick, because I know this is something you already know, but the people who have the most income are not those who sell their labor, but profit from the labor of others.
The second is also only partly true. The issue is not so much how many people want your work as it is how much money they have. You could be the worst artist in the world, but if one wealthy patron wants your work, you could be a very wealthy artist, even if the number of people who wanted your work was one.
Similarly, you could be a terrible doctor, but if your patient is Michael Jackson, you could make a lot of money. (Well, at least until your patient died.)
On the other hand, there might be millions of people who desperately want your product (antibiotics, for example, or clean water) but if those people have no money the sheer number of them makes no difference at all.
Depending on your definition of productive, providing antibiotics and clean water to millions of people might be incredibly productive. But you won’t get paid for it.
Mass producing junk email might make someone a millionaire (and in fact, it has), but depending on your definition of productivity, it’s not productive at all.
But on at least one issue we agree: it’s not someone’s productivity that determines his income.
For you, it’s the “free market”. I question what that means. Especially since markets are never free.
If you don’t know what a strawman is, I don’t think I can help you. Perhaps you should read the first sentence of your OP and give us a cite.
As for the rest of your post, I’m always fascinated by folks here who think they have found so fundamental flaw in the existing economy. Because if you have, what a fantastic business opportunity that presents. Take advantage of that flaw, and make millions. You can even donate all your earnings to the noblest cause you can think of. However, if you are unwilling to stake your claim on a business venture, then we are certainly left to wonder why you are so certain of your claims. I mean, it should be so easy. Start a business that is NOT encumbered by all the shortcomings you have outlined. What is stopping you?
I think capitalism is Immoral. It turns people into commodities. Your explaining the process by which people are turned into commodities “by the demand of the market” does not change my mind. I am more concerned with alleviating suffering than I am in hearing why the “market demands” that an interior decorator makes more than a school teacher. Your explanation, is accurate. And it makes me double down on my assertion that capitalism is immoral.