A poor heart surgeon?
But yeah, you’re right. My plan is, I go to medical school and it doesn’t matter if I barely scrape through; I’ll simply choose to have wealthy patients from day 1 and I’m golden.
OTOH if this was again comparing jobs in the developed vs developing world, I think that’s a very misleading point. It’s not like some town in Malawi can decide one day that being a doctor is such a noble job it shall pay $300k regardless of what they can actually afford or what people there are willing to work for.
Obviously there’s some tendency for more productive people to earn more than the less productive, but it is mistaken to treat this as a general rule.
What about a professional poker player who earns $50,000? Did he “produce” $50,000? Certainly not in the sense OP, or most economists, would define the term. Or what about Wall St. analyst Henry Blodget who earned huge bonuses for touting stocks he privately thought were dogs? These are not isolated examples. All sorts of exceptions to an income/production relationship exist.
These are examples of the “successful risk management” I mentioned above.
Successful risk management is labor, in a sense.
True, but irrelevant. Aggregate demand for your work is what counts, no matter if it comes from lots of people or one wealthy patron.
There is a demand for the work of mass producing junk mail. Hiring someone to mass produce junk mail is an example of risk - if enough people buy the product or fall for the scam, it is a successful risk. But the cost of sending out mass e-mails is miniscule, so it makes even a very low response rate worth the effort.
Not directly, no. It is someone else’s perception of what your productivity is likely to be.
Again, this is saying "“Other people spend their money on things that I don’t want”.
Just the opposite is true. People are allowed to spend their own money on what they want. Under systems like Marxism, people are treated as interchangeable, and the state (which means, “Other People Who Have Guns and Can Condemn You to the Gulag”) decide what you want.
Isn’t everything the outcome of our collective choices in the aggregate?
I suppose it depends on your definition of personal and impersonal. If the personal decisions of people “in the aggregate” is impersonal, then I guess you’re right.
But many decisions are made by one person, or a handful. The decision to raise or lower interest rates, for example, is made by small group of people. The decision not to prosecute Wall Street banks or bankers for fraud was made by Eric Holder. The decision to perpetrate that fraud was made by a relatively small group of people (at least, compared to the millions who were affected by it).
That isn’t my assertion. My assertion is that their salaries are the effect of cronyism and backscratching, not “star power”.
And I’m not making it from my own personal observation - but even if I was, so what? Whose observations am I supposed to may arguments from, if not my own?
You would think so, but it’s not happening.
If you would think that, and the data contradicts what you would think, what does that mean?
This is an actual strawman argument. I’ve never said it, and it’s not what I think.
You don’t see the corrosive effect of government regulators going to work for the industries they used to regulate? You don’t think that might have some affect on the decisions they make as regulators?
Again, this is an actual strawman argument. I didn’t say they weren’t qualified. I said they got the job because of who their friends and relatives were.
What percentage of people got the job because of their connections?
Is it 10% 25% 50%?
I don’t get it. Distortions of the market are also the market? If distortions of the market are the market, why are they called distortions?
Can you give me an example of something that’s not the market?
Because throwing around words like the market, when you mean everything that happens, makes it confusing.
If the market is everything, what is it that it does not do?
And if I can’t make my own observations, whose observations should I make?
Start a business based on what, exactly? Stopping the revolving door between businesses and industry? Making the very rich even richer? Getting born into a family with political and industrial connections?
You have to remember that markets are man-made, and subject to change. The Fed could pursue a policy that kept interest rates permanently low. The Treasury could pursue policies that ensured full employment. The law could be changed to prevent regulators from joining the companies they used to regulate (or keep keep them from coming from those industries in the first place.)
Those are not policies that the rich and powerful would like to see implemented. But there are a lot more of us than there are of them. And we still - more or less - live in a democracy.
I’m not sure what point you’re trying to make exactly.
I will say there was a story on NPR today about a brain surgeon who went to work in Uganda (I think it was) to work on babies born with encephalitis. Apparently it’s a very common problem there. The resources he had to work with weren’t very much, and he wound up coming up with a new way to treat the disease.
Apparently it was more effective and efficient than the method used in 1st world countries, and it’s now being tried in the US.
The story didn’t say how much he made saving babies’ lives in Uganda. But unless he was being supported by some charity or foundation, I’m guessing it wasn’t very much.
Anyway, people are capable of doing the right thing, in spite of the market.
Damn…well, just had the board eat one of my posts. Sigh. In summary:
[QUOTE=LinusK]
I don’t get it. Distortions of the market are also the market? If distortions of the market are the market, why are they called distortions?
[/QUOTE]
Distortions aren’t part of the market…they are distortions TO the market. Some are good, some bad, some neutral. I’m assuming you were confused by this part of my post ‘Ironically, it’s the aggregate of THOSE choices, also by ‘the market’ (a.k.a. you, me, and everyone else) that create those distortions’…I was basically make a joke here. I’m referring to voting, since the government is one of the major forces for distortions to the market.
The market isn’t everything. There isn’t actually one Market. And there are things that distort the market. What markets don’t do well, IMHO, is self regulate to provide an optimal outcome to society as a whole…or, at least not in a timely manner. For example, pollution control and labor safety would be things that a completely unregulated market would lag behind the public’s overall expectation. Oh, the market COULD self regulate if people had perfect information and could make aggregate decisions based on not just price but on other factors as well. But the public isn’t perfectly informed and information isn’t completely free…which is why we have government.
I’m assuming this was from an unlinked cite? But let’s look at it:
[QUOTE=??]
From 1978 to 2013, CEO compensation, inflation-adjusted, increased 937 percent, a rise more than double stock market growth and substantially greater than the painfully slow 10.2 percent growth in a typical worker’s compensation over the same period.
[/QUOTE]
My question would be, during that same time period what was the inflation-adjusted increase for A-List actors or the top shelf star athletes in the more popular sports? I’m guessing it’s similar. This was a time period where the all star CEO concept really started to take off, and (IMHO) companies gained the perception to be top of the line companies they needed the very best CEO at the helm.
During this same time period, manufacturing became increasingly automated, and many of the productivity gains for companies came either from automation and/or expert systems and refined and streamlined processes…IOW, the workers weren’t the one’s making the major difference wrt their labor, but instead it was vertical specialists. I can tell you that in the IT field the prices for good engineers and techs skyrocketed especially in the 90’s…and it was based on perception.
Ok, then you tell me what you think CEOs should be paid. You acknowledge that not just anyone can do the job, which means there is going to be a smaller pool of qualified people to do the job. How small do you think it is? Obviously you can’t just drag anyone off the street, but what’s the pool size? And what do you base your answer on?
Shodan: So can I just ask you straight out: do you think there is a relationship between productivity and income? Maybe you said earlier, and I missed it. If so, I apologize.
What I get from your posts is that there is none, and that’s a good thing.
For example, you say that people whose income comes from owning things, or sending junk email, take risks. That’s obviously true. I own a car, for example. Last week, I ran over a nail. If I didn’t own a car, or didn’t drive it, I wouldn’t be exposed to risks like that. (I might get hit by a car, walking to work, but at least I wouldn’t have to worry about running over nails.)
But my income doesn’t come from owning a car. It just makes my life easier. So to get back to the original point: aren’t we all exposed to risks, all the time? And isn’t there an inverse relationship between how much money you have, and risk? Isn’t that one of the reasons for saving money in the first place? So if I lose my job, I don’t also lose my house? Or if I wreck my car, I can buy a new one, instead of having to walk?
And what, if anything, does taking risks have to do with being productive?
I mean, poker players take risks, but they’re not producing anything. Junk emailers take risks (I suppose. I don’t really know, but let’s suppose they do.) But they produce negative productivity, in form of all the wasted time of the people who receive them. At one time, we used get junk faxes. They wasted both our time, and our money. (We mostly don’t dont get them anymore. I believe some law was passed to prevent them.) Wall Street bankers took risks, when they packaged and sold bogus securities.
Anyway, in what sense is taking risks a form of productivity?
And if it is a form of productivity, how does it relate to income? If you and I own land, and you own a lot and I own a little, you likely collect more rent than I do. Does it mean you’re taking more risk? Because it seems like a small land holder is taking more risk than a large one. If you own a lot of land, you’re less likely to get wiped out by, for example, a flood.
Similarly, someone who owns a large, diversified portfolio is safer than someone who owns, say, a small business. Many small business were wiped out in the recession that started in '09. If you look at the very richest Americans, on the other hand, they mostly rode out the recession, and are now worth, if anything, even more than before.
If you own a lot of stuff and have a lot of income, are you more productive than someone who owns a small amount of stuff, and has a smaller income? If you own land, are you more productive if you own a lot of land, than if you own a little?
So I guess my questions are (1) in what sense are people with lots of money taking more risks than people with less; and (2) what does that have to do with how productive they are?
The relationship between income and productivity is indirect. My employer hired me because he believed I would produce enough income to make up for my salary and benefits, with more left over for the company to turn a profit.I get raises and promotions because my employer can track my productivity in various ways.
It would if you delivered pizzas or drove a taxi.
That’s not the kind of risks that produce income.
The kinds of risks that produce income are investments. If I buy a stock, I am taking the risk that the stock could lose all or part of its value. If it does that, I have less money than when I started and it was a bad risk. Or it could increase in value, and then I have more money and it was a good risk.
Some investments are riskier than others. There is a greater-than-average chance that they could lose value. In order to get people to invest in those kinds of things, they offer a higher return on investment than one could get investing in something else. So people take a risk by investing in those things, and if the investment goes up in value instead of down, they get more money than if they had invested somewhere else. This greater ROI is the reward for successfully predicting that the investment would do well.
A person could be considered more “productive” if he were able to make a greater number of correct guesses about investments that would increase in value than someone else.
So what? That does not affect the cost of the people who send the junk mail at all - it costs the same (almost nothing) to send out a junk mail that gets deleted unread than one that produces a sale.
Taking risks isn’t a form of productivity. Correctly predicting which risks will pay off is a form of productivity. Risks you can’t avoid don’t make you productive.
And a diversified portfolio is going to return, on average, a lower ROI than a portfolio managed by someone who is good at assessing risk.
They aren’t, and very little.
You are confusing two concepts - work productivity, and return on investment. Both produce income, but they are not the same.
[QUOTE=Shodan]
The relationship between income and productivity is indirect. My employer hired me because he believed I would produce enough income to make up for my salary and benefits, with more left over for the company to turn a profit.I get raises and promotions because my employer can track my productivity in various ways.
[/QUOTE]
Right. It’s basically the perception of the employer to judge the worth of the job required in conjunction with the value the employer thinks they will get from the perspective employee but filtered by things like location (a company is probably going to have to offer more for a network engineer in California than in, say, South Dakota, even though they do the same amount of actual work) and how easy or difficult it will be to find prospective employees in the job they are trying to fill…or, in the case of giving raises or other incentives, in retention policies to be able to keep staff (or let them go) depending on perceived value to the employer.
Productivity itself is going to be variable and dependent on what the employer is looking for and what that means to them…and, for sure, it’s going to be different than what LinusK THINKS productivity means, since he seems to have a very blue collar verse white collar oriented view of what labor and productivity are (or, as my in-laws think, real man work verse jobs they can’t believe anyone would be willing to pay someone to do…like, say, network engineering ;)).
Income is not related to productivity but to the expectation of productivity. Baseball players are not payed by the home run but by how many home runs the team expects them to hit when they sign their contracts. If a team is bad at predicting how many home runs their players will hit they lose games and money. Same as in any other business. Companies pay their employees what their expected productivity is. Companies that are bad at predicting employee productivity go out of business. Since the future is unclear to even the brightest many people are going to be wrong about their expectation of productivity. This is unavoidable.
Capitalism and the market are evil because people are evil. If everyone had my values no one would own luxury or sports cars, jewelry, alcohol, or artisan coffee. Yet because people want these things, the market provides them. In order to get a moral market you need a moral people.
I’m always befuddled by people who talk with such disdain about “the market”. They are the economic equivalent of Creationists. “The market” is nothing more and nothing less than every economic decision that every person participating in the economic sphere makes every day of his life. It is not directed anywhere, and it is not trying to accomplish anything. We can put limits on the market in the same way that we can affect evolution, but evolution is going to happen one way or another whether we want it to or not. And people are going to set a value on things whether anyone wants them to or not. That’s all the market is-- people setting a value on things.
Do I want a non-fat chai latte today, or am I going to make a cup of instant at home? Do I buy the gas guzzler or the hybrid? Do I send my kids to public or private school? Do I take the job that pays more, but I have to travel 25% of the time, or do I take the job that pays less, but I get to make sure I can be at all of my son’s baseball games and my daughter’s soccer games? Do I save for retirement, or spend it all on hookers and blow?
I don’t think I’m the one confusing the concepts. I asked about productivity, and you brought up “risk”, and now “return on investment”.
I don’t have time to point out all the problems with what you posted, but there are a few things I think are worth mentioning.
There are two related concepts. One has to do with the stock market, and the other has to do with ROI. Poker players, like stock players, use the concept of ROI. Importantly, good players don’t use results oriented decision-making. In other words, if you make a good play, and it doesn’t pay off, that doesn’t change the fact that you made the right decision. In poker, you might make a decision to call, or even raise, if you have a 1/3 chance of making a flush. If the flush doesn’t come (and it won’t, 2/3 of the time) that doesn’t mean you made the wrong decision. If the pot odds were right, you made the right decision, regardless of the fact that you lost. In stocks it’s the same. You make a decision based on the numbers and information available to you. If you wind up losing on the trade, that doesn’t mean you made the wrong decision.
Poker players, like stock pickers, take risks.
Poker players, and stock traders, also trade money back and forth. The winners make money (after the house cut) by taking it from the losers. Nothing productive, however, is getting made.
I understand what productivity is. But by bringing up stock trading and ROI, I think you’re confusing making money with productivity. The fact that somebody makes money - by winning a hand, or picking a good stock - doesn’t mean anything productive has happened. There are lots of ways of making money, and many of them have nothing to do with producing anything, or being productive. Many of them are illegal. For example, I could be a pick-pocket, or a corrupt cop. I could make lots of money doing that. But it doesn’t mean I’ve done anything productive.
Before Lehman Brothers fell, it sold part of itself to a British bank. In the week or so before the bankruptcy the British bank paid millions of dollars to top Lehman executives. In the end, the British bank made about $5 billion dollars on the deal.
It was very very profitable for them. And the Lehman executives, as well.
But that money didn’t represent anything productive happening. It was a simple transfer of wealth, from Lehman creditors, to the British bank (and the Lehman executives).
From your arguments, I’d infer you’d say that the millions paid to the Lehman executives represented the value of their services. Their “productivity” in securing the $5 billion windfall for the British bank.
In other words: long as somebody is paying you to do something, or you’re making money somehow, you’re being productive.
But that’s not what productivity means. It means producing goods and services. Not just transferring money from one pocket to another.
Maybe I own some land, and I rent it to a farmer, who produces wheat.
The farmer has produced wheat. But I have produced nothing. I get some of the value of the farmer’s producing. But that doesn’t mean I’ve produced anything myself.
You might argue I’ve taken a risk, by renting to the farmer. Let’s say, for the sake of the argument, that’s true. So what? I still haven’t produced anything. “Making correct guesses” to use your words, is not the same as being productive.
No. My point is that being productive isn’t about how much money you make for someone else. It’s about producing goods and services.
Productivity:
As you can see, the definition of productivity is creating goods and services. It’s not making money for your employer.
Also, I’m not sure where you get the idea that I have a “very blue collar verse white collar oriented view of what labor and productivity are”.
A network engineer would be a perfect example of someone doing something productive. Whether you’re doing something productive has nothing to do with whether you’re using a computer or a forklift. I’m pretty sure I’ve said that over and over before.
Let me add one more thing: in addition to people who make money (either for themselves or for their employer) without producing anything, there are also people do are productive without making any money. A father who stays home to raise his children is doing something productive. But he’s not getting paid anything. Somebody who volunteers, say for Habitat for Humanity, or rehab facility, is doing something productive. But he’s not getting paid.
As long as you confuse productivity with how much someone’s paying you, you’re making a really fundamental mistake.