I think the part where your analogy is falling down is that the assumption of risk, in terms of investments, is a sort of production in its own right. Without someone taking that risk and investing in various businesses, the economy sort of grinds to a halt.
And the other thing that’s being overlooked is that with the worker/owner divide, the non-assumption of risk on the part of the worker is also a sort of value.
In other words, the owners may make $10 on some guy’s work picking a bushel of apples, and only pay him $5, but the remaining $5 is essentially what the worker gives up in order to get that regular paycheck. Let’s say it was flipped on its head and the company’s not doing well, and the owner’s paying that guy $5 for htat bushel of apples that they’re only making $4 on, because the weather was such that his orchard’s apples are only good for making juice, not eating out of hand. Not so good for the owner, right? But the worker keeps getting paid $5- he didn’t assume any risk for the profitability of the company- as long as it stays solvent, there’s no real risk for him, unlike the owner, who has to deal with vagaries of the market, of suppliers, of natural disasters and conditions, etc…
Beyond that productivity isn’t really something you can always assign a value to. For example, a customer service representative or IT support person may be highly valuable, but not actually bring in a dime for the company. By many measures of productivity, they’re totally unproductive. And even if you did try and quantify it, it would be tough, because it might come down to “Joe CSR treated me right when I called OmniCorp 5 years ago as a user, and now that I’m making decisions, I think I’ll go with OmniCorp for our new system.” Clearly Joe CSR did something useful and valuable for OmniCorp, but it’s not something that you could easily quantify until well after the fact.
Well, as you said, the architects, bricklayers and others built and made the factory, and the other things. There’s nothing “magic” about it.
As for who paid the wages and salaries, it could come from a number of sources. Maybe a corporation is expanding. Maybe it came from crowdfunding. Maybe the money came from a bank: someone, or some group of people, applied for a loan. Maybe a rich guy came up with the idea, and paid the workers out of his own money. Again: no magic.
Well, like I said, the financing could come from any number of places. But let’s go with your example: an owner.
As a practical matter, of course, the owner’s income is a matter of profit. If (for example) he’s making something lots of people want, and few other competitors are able to provide, his profit will be more.
Conversely, if for whatever reason, he’s able to pay employees less (because of high unemployment, for example) his profits will be substantial.
If he’s able to establish a monopoly, or near monopoly, and wages are very low, he could become extremely rich. (Carlos Slim, for example.)
But let’s move back to the topic you’re asking about, and I want to switch from money to something else for a moment, if you’ll indulge me.
Suppose there’s something - a tool - that tremendously increases productivity. We’ll call it a “widget”. In the world there’s only one widget, and one owner of the widget.
The owner of the widget can rent it out to a worker, and the widget will increase the worker’s productivity (the amount he can produce) exponentially.
What is the price of the widget - the market price, I mean?
In this world, there’s lots of workers, but only one widget. Because there’s lots of workers, but only one widget, the market price is very high. The workers have to compete with each other to rent the widget, and the “winner” is whoever pays the most. Because of the law of supply and demand, the winner is likely to pay almost all of the excess production to the owner. The owner, on the other hand “supplies” the widget (in the sense of renting it to the highest bidder) but does nothing else at all.
Your argument, I think, is that by supplying the widget, he has created all the excess production, and is therefore entitled to it.
Let’s suppose you’re right for a moment.
But what happens when when somebody else comes up with a similar widget? Or thousands of people, or hundreds of thousands?
The price of the widget falls, right? The original widget owner - without doing anything other than he was doing before - suddenly finds that his income is dropping precipitously. In fact, let’s say eventually everybody gets a widget.
In that case, his income falls to zero.
But more than that happens. Now that everybody has a widget, productivity increases dramatically. Instead of one person producing more, everybody is producing more.
Money, of course, is not the same as a widget. For example, you can’t just go out and start printing money (unless you’re the government). But the underlying principle is the same.
When most of the money is in the hands of a small group of people, they’re able to command a high price for it. When more money is in the hands of more people, those people don’t have to go to the rich for financing: they can finance their own businesses with their own money; or at least obtain financing at a lower price (so they can keep more of the value of their work for themselves).
I’ve argued (provided at least some factual data up thread) that concentrations of great wealth in the hands of a small group of people are bad for the country, bad for productivity, bad for the economy, and bad for everybody who’s not one of the billionaires.
That’s not what this thread is about, though. What this thread is about is whether there’s a relationship between income and productivity.
If the owner of the original widget had a large income when there was only one of them, and his income dropped to zero when everyone had one, what does that say about the connection between productivity and income?
The point is that the owner of the factory is very unlikely to make anything as productive as the cure for polio, even if is profit is a billion dollars. In other words, (assuming for the moment he’s successful) his high pay correlates poorly with his productivity.
Sure. Bill Gates has said he doesn’t know what he owns and doesn’t own (aside from Microsoft stock, of course.) he benefits from whatever he owns, but he doesn’t produce anything himself.
If you ever get around to watching Born Rich, you’ll see that they either (1) don’t participate in the businesses their families own, or (2) don’t even know what they own or don’t own. They gets checks in the mail (or deposits in their bank accounts). But they don’t do anything relating to their incomes.
In fact, most people who own stocks fall into this category. They don’t work at the companies they own. They don’t make decisions about acquisitions, or marketing, or hiring and firing. But they benefit - from dividends and/or capital gains - from the work of the employees at the corporation.
If I own gold, and the price goes up, I make money. But I’ve done zero, in terms of doing anything productive.
You have provided one thing - funding. It is not, to use your words, the “ultimate” thing. To argue that you have produced all the jobs is like arguing that whoever tightened the last bolt on the last machine “produced” the factory.
I have to go. I’ve had a problem with board eating my posts, so post this and leave it here for now.
This is really the heart of the issue. As your argument with emacs makes clear, the whole concept of productivity is too fluid and ill defined to really answer the question of the OP factually. It all boils down to semantics. It is less important exactly how productivity is defined, than it is what the implications of that definition are. If you are going to define productivity to be identical to the amount of wealth acquired by a person and their possessions, then you can’t use it the vernacular way as an expression of the good that that person has done for the world. In other words if productivity is defined to equal wealth, than claims of productivity can’t be used to defend that distribution of wealth.
The problem is that certain people have taken the free market, which is basically a theoretical construct complete with frictionless pulleys and spherical cows, and transformed it into a moral imperative.
It’s a comparison between someone who did something very productive, and whose income was little or nothing, and someone who did nothing productive (actually, it was extrememay destructive) and whose income was, well, it was half a billion dollars.
The thread is about the connection between productivity and income. I’m arguing that the connection is weak. The comparison is an example intended to support the argument.
Risk.
I don’t know if you read ‘Dilbert’, but there was a strip once where the pointy-haired boss is telling the assembled cast about impending lay-offs, and one of the characters asks about the CEO’s latest bonus.
“He deserves that, because he’s taking risks,” says the boss.
“Question,” says Dilbert, “Aren’t WE the ones getting laid off?”
If risk was a source of income, the poor would be millionaires.
If you’re too poor to own a car, you risk getting killed crossing the street. If you’re too poor to live in a good neighborhood, you risk getting killed for pissing off the police. If you’re too poor for insurance, your risk dying from getting sick. If you’re barely getting by, you risk losing your home if you miss a paycheck.
And as far as getting paid $5 for $10 apples, as a form of insurance… most employers will just fire you if the price of apples drops. They’re not going pay anybody $5 for $4 apples. Business is about paying as little as possible, while making as much as you can. They’re not going to keep anybody on the payroll, if it’s more profitable to lay them off.
But there is one sense in which I agree with you: there are too many risk-free investments. Guaranteed student loans, Treasuries, bank deposits up to a quarter-million. The risk-free rate of return should be as close to zero as possible. If the rich are going to make money by having money, they should take risks: start new businesses, invest in start-ups, or otherwise seek out and fund risky enterprises. There are lots of good ideas out there that just need funding… but aren’t.
Also, one more thing: (and sorry for going off topic) if banks are too big to fail, they’re too big to exist. The government shouldn’t be in the business of bailing out the richest of the rich when their own stupidity nearly bankrupts the economy.
It’s a sad commentary that Wall Street got bailed out after their securitized mortgage scam caught up with them, but the people who lost jobs and homes in the aftermath did not.
But it is a lesson in what risk is all about: the rich and well-connected are mostly insulated from it. The rest of us are not.
Even though this thread has nothing to do with the relationship between income and productivity, I wanted to point out a funny inconsistency: overtime pay.
In California, labour laws require hourly employees to get overtime if they work more than 8 hours at 1.5 times their normal rate. But why? We determine their hourly productivity, and then offer an hourly rate, why should that change after 8 hours? They aren’t 1.5 times as productive, often times fatigue sets in and they’re less productive. Yet the law says their income should go up?
I say fuck that. We need a better relationship between income and productivity. If your productivity stays the same, so should your income. Unless perhaps there are other factors involved. Nah, there can’t possibly be any other factors that might influence the relationship between income and productivity.
On a separate note, I want to tie in a previous thread with this one and discuss bus drivers.
To do this we’re going to look at four bus drivers in the Bay Area. All drive identical buses, picking up identical people, and driving identical routes from San Francisco down the 101 to Manlo Park.
It seems logical to conclude each driver is equally productive, and so each driver should receive the same income. That’s what we want right? A relationship between income and productivity?
Sure there can be slight variations in their customer interaction, driving skills, etc, but for right now it’s not relevant.
The difference between the drivers doesn’t actually occur until after the passengers get off the bus. For two of the buses, the passengers go to work at Facebook, a company ranking in massive amounts of profit. The other two buses, the employees go across the street to a different company which currently has ZERO revenue. In fact, that company is hemorrhaging money with a burndown chart putting them bankrupt in 6 months.
The bus drivers contracted to Facebook looked at the $10billion in profit, and asked a lot of the same questions that LinusK likes to ask. They got it in their head that they deserve some of that profit, and it wasn’t hard to find people who agreed.
But what about the other bus drivers? They are contracted to a company with negative profit, so what are they entitled to?
Again, I think the lesson here is to be careful what you wish for. A lot of people are going to suddenly realize they aren’t nearly as productive as they think they are.
You may have noticed that there were four bus drivers. The reason for that is to look at one more issue: seniority. Two of the bus drivers have been going back and forth along the 101 for 5 years, the other two have been at it for three years. The more senior drivers feel they should get more money. The younger drivers disagree, they figure they’re doing the same job they should be getting the same pay.
Fortunately since she’s a woman, you don’t have to pay her as much.
I feel like everyone is looking to find some inherent absolute value on the goods and services they produce. That’s not how it works. This is all very neatly explained by the supply/demand charts from Econ 101. Facebook has more money to pay for charter buses, so that will influence bus companies to charge a higher fee. OTOH, the bus companies will be competing with each other for Facebook’s business and undercutting each other. At some point, there will be an equilibrium where the bus companies figure out it doesn’t make sense to lower their fare to land the Facebook account.
Actually there are studies that show productivity decreases as the number of hours of work increase over a certain amount, as you noted. Overtime pay is not to reward productivity but to give employers a disincentive to make workers work longer hours. Since benefits remain the same no matter how many hours you work, forcing someone to work 50 hours decreases their average hourly cost to the employer. Since in certain cases overtime will be necessary, overtime pay forces employers to use it only when they really need the extra hours, not to save on employee costs.
If employees demanded and could get overtime, then paying less might make sense. Since employers usually demand it, paying more makes sense. Getting everyone who wants it up to 40 hours would be good enough - or do you think that those working 30 hour weeks, who are fresher, should get paid more?
I think what you’re saying is that overtime pay is an example of a disconnect between income and productivity. If that’s what you’re saying, I’d agree: it’s unlikely that an employee is going to be more productive in his 11th or 12th hour of work, than in during his first 8.
I have nothing against rich people (particularly people who were born that way). I have something against great concentrations of wealth in the hands of a tiny proportion of the population.
When you asked me this question last time, I said something like, “In a perfect world, there would be a close correlation between income and productivity. As practical matter, that’s impossible, but there are things we can do to improve the situation.”
Thinking about it some more, though, there’s a population that’s unproductive: children, the aged, the disabled, for example. Those of us who are productive have a moral obligation, I think, to make sure those people live reasonably comfortable lives, despite being unproductive. So I’d add that caveat: even in a perfect world, some of the productivity of productive people would and should go to people who are unable to be productive.
However, that doesn’t change the second part of my answer.
Profit and productivity are two different things. I mean that literally - they have two different meanings.
Conflating the two is a logical error. One with real-world negative consequences.
I don’t have an answer for you. Maybe the bus company values more experienced drivers. Maybe there’s a cost associated with replacing drivers, and they want people who work there to stay.
If you mean this as an example of a disconnect between income and productivity, I’d say it’s a relatively small one.
If you took all the bus drivers in the city, it wouldn’t begin to compare with the income of Dick Fuld.
If it were up to me (and of course it’s not) I start with the really big inconsistencies between income and productivity, and look at the tiny ones later on.
But I’m not trying to build a perfect world with this thread: I’m merely arguing that the relationship between income and productivity is weak.
If you’ve come around to the same conclusion, then I’m happy we agree.
Because, as I’ve said before, I think the idea that productivity = income; or that productivity = profits is not only wrong, but a kind of moral poison.
Right. Legislating overtime pay is not about saying “It’s fine to make your employees work 70-hour weeks all the time, as long as you pay them more”. It’s supposed to be a disincentive to regularly asking your employees do that.
Alternatively, in situations where it’s not legislated, but employers offer extra overtime pay, it’s in recognition that occasionally deadlines have to be met, and in those unusual circumstances they will pay extra to encourage employees to stay late or work the weekend.
It would be a needless complication to try to write a contract where overtime is a mandatory X hours every week and pays extra – just change the base hours and pay instead.
So in terms of the OP, it’s a red herring again. Productivity is not just “widgets produced per hour” or whatever. It’s a matter of value to the employer / project / process. Overtime is an exceptional situation when the employer really needs additional labour, or they might lose a contract, say. So essentially an employee working overtime is more productive, even if they’re making less widgets per hour.
In that sense, yeah, but that’s not the sense we’re talking about. We’re talking about financial risk, which is not concerned with everyday risk, like the risk you run walking across a street. It’s concerned with the possibility that you might lose what you invested.
Put simply, financial risk is the potential for an investor to lose what they invested, if the investment doesn’t work out.
Risk vs. return is a fundamental financial concept, and is integral to the owner/employee divide. Owners assume financial risk, meaning that they own a part of the company in hopes that the company will perform well, and that either they’ll kick him back a percentage of the profit (dividend), or that the overall value of the company increases (price per share goes up). This isn’t a foregone conclusion; it’s entirely possible that if the company underperforms, that the price per share will decline, and/or that the company may not pay good dividends, or any at all.
So as an owner, you’re basically gambling, in a sense. Kind of a slow-motion, well-researched gamble, but you’re still taking a chance in hopes that it will pay off.
As an employee, you’re still gambling, but your risk is MUCH lower. You’re not betting that the company will be profitable enough to make your investment worthwhile, but rather only betting that the company will stay solvent enough that they can continue to pay you. Your risk is essentially that the company will go under, or struggle enough to cut your pay, but your reward is that you get defined pay (hourly or salaried), regardless of the company’s performance.
I think we’d both agree that making poor employees spend $200 to buy into a company, and then paying them based on the profitability of their company would be far worse overall, than paying someone a normal wage, right?
That’s what I’m talking about- there isn’t any financial risk to being an employee, like there is being an owner. Opportunity costs, sure, but not risk, per-se.
