This is at least the third time I’ve quoted the dictionary definition of productivity:
What you’ll notice is that productivity is “widgets produced per hour” (“the rate at which goods and services… are brought forth or produced.”)
It has nothing to do with the “value to the employer.” Those words are no where in the definition.
Suppose ABC corporation sues XYZ corporation and obtains a billion dollar judgment. The lawyers have obtained a substantial value for their employers - $1,000,000,000, to be exact.
But nothing has been produced. Money has simply been transferred from one account to another.
That is why productivity has nothing to do with “value to the employer”.
So you don’t think “being able to generate, create, enhance, or bring forth goods and services” has anything to do with “value to the employer”? My employer does not care, IOW, whether or not I generate goods and services to him?
Are you seriously saying that?
Your lawsuit example means nothing. The lawyers generated a shit load of services for their employer.
I think I neglected to respond to this post. Or maybe I did, and the board ate it.
Some words are tricky, and “investment” is definitely one of them.
It has at least 6 meanings in the dictionary, and I believe it has a special meaning in the academic field of economics, as well.
This is from Investopedia:
The bolded part is how it’s usually used in economics, I think. It’s also called “savings”. (Which is confusing, because “savings” ordinarily means “money not spent”. Or, in other words, money set aside for the future.)
Either way, the point I’m trying to make is that “investment” could either mean “buying something with the idea that it will go up in value” or it could mean producing something that is not immediately consumed, but will “saved” so that it can be used in the future.
For the lack of better terminology, I’m going to use “financial investment” and “economic investment” to differentiate the two. (I’m not married to these terms: they’re just the ones that come to mind.)
The important thing is that financial investment - buying stocks, or gold, or land - isn’t economic investment. When you buy gold, for example, you haven’t produced anything new. You’ve just traded an asset from one owner to another.
When you make an economic investment - say, in transportation infrastructure, for example - you’re creating something new, that won’t get used up right away. In fact, it will continue to be useful and productive for years to come. When the US built the interstates, for example, it made an investment that’s used by - probably - every driver on the board. It gets you wherever you’re going, faster.
Not only that, but many of the goods that you buy make their way to your home using the interstate highway system. Without interstates, and roads in general, travel and trade would be vastly less efficient.
No, I’m saying exactly what I did say: that productivity has nothing to do with “value to the employer.” It is “the rate at which goods and services are produced.”
There are entire industries that are devoted to making money for some employer, but which produce little or nothing. On the other hand, there are tons of people who produce vast amounts of valuable goods and services, without enriching any employer.
As long as you think that productivity is enriching an employer, we’re going to continue to talk past each other, because you don’t understand what productivity is.
And you’re right: the lawyers produced shitloads of money for their employers. But they didn’t increase productivity: they merely shifted a sum of money from one company to another. Shifting money around is not productivity.
Actually, the bit you cut from your own definition was “…having exchange value”.
Of course it matters the value of the goods or services produced. And if I’m working during a time where a particular good is urgently needed then it’s relative exchange value (to the employer) is higher, and therefore I am more productive.
They’ve performed a service to their employer.
If I get a massage nothing is produced; it’s a service.
That is why productivity has nothing to do with “value to the employer”.
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There’s no doubt that risk vs. return is a fundamental financial concept. Actual gamblers - professional gamblers - use it all the time. If you’re a poker player, for example, you have to assess your relative advantage over your opponents, and take into account rake, variance, and bankroll.
Banks use risk to make decisions about loans. If they decide someone’s a higher risk, then the interest rate will be X + Y (Y being the extra risk). If they do their job right, the extra interest they collect from the ones that do pay off their loans will make up for the ones who default.
If you invest in a diversified portfolio of stocks, there’s still some chance you’ll lose money. If you invest in just one stock, your chances are probably higher.
But what does all this have to do with the relationship between income and productivity?
That depends. Particularly in poorly-paid positions, you can get fired for any number of reasons. Being late too many times, for example, even if it’s because the buses run late, or your child gets sick, or your car breaks down. If you’re living paycheck to paycheck, that’s a significant risk.
But again, what does that have to do with the relationship between productivity and pay?
There’s at least some evidence, or so I’ve read, that worker-owned companies perform better than other companies. And I don’t know that you’d have to charge them money to start working there. My understanding is you accumulate ownership over time, not that you have to pay to start working there.
If you knew anything about the legal profession you’d realize how silly this statement is. Suppose we say:
ABC corporation = US Department of Justice/SEC
XYZ corporation = Dick Fuld and Lehman
And that billion dollar settlement is what Fuld stole from society with his anti-productivity. Wouldn’t that be a good thing?
Earlier you said that saving a life is considered productive. So what if a criminal defense lawyer prevents and innocent man from going to jail? What about a prosecutor that works her ass off to bring down a mob boss?
You also said that if someone transports apples from an orchard to a store that person was productive, but what makes money any different? You seem really bothered by money moving from one account to another, but isn’t that how the whole process works? When I buy an apple at the store, the apple gets transferred from them to me, and money gets transferred from my account to theirs. Why is moving money different than moving apples?
I’d also like to point out that even after defining “productivity” three or more times, you continue to play fast and loose with the usage. You actually do that a lot, in all your threads, it’s kind of your MO.
“But nothing has been produced.”
You say that a lot when you don’t like what someone or some company does, in other words you attach your personal values. A lawyer performs a service, which by your definition is productive. Hence, when a lawyer sues a company something has been produced–legal services. Seriously man, this isn’t complicated. Sometimes people produce things, like cocaine; other times people produce services, like blowjobs. Some people find a lot of value in hookers and blow, and so those people will define that as productivity. Other people see those as immoral acts destroying our society, and label it as anti-productive.
So whether or not income and productivity are related seems to hinge on whether or not YOU personally value the productivity, and by how much. You personally value the productivity of teachers more than lawyers, good for you, but you’re not the one paying the teacher or the lawyer, so your opinion on the matter is moot. The people actually paying for (or providing) the products or services will attach their own personal value to the process and provide/receive income accordingly in a near perfect relationship.
When a person stands in line for hours then pays $834 for a new iPhone they are establishing a relationship between income and productivity; those customers believe producing an iPhone is extremely productive. I’m not willing to stand in line, nor am I willing to pay that much for a phone, but that doesn’t mean I can define Apple Inc as unproductive.
So what is the relationship between productivity and income? It is the value attached by the players involved, regardless of what someone on the internet feels. A teacher is provided an income that she voluntarily agrees to, in other words she has established her own personal relationship between income and productivity. A person hiring a teacher will define how much they value the service provided and pay accordingly. It’s that simple.
I know that’s what you’re saying. It’s just that what you are saying is wrong and has been disproven.
Value to an employer consists of making money for that employer.
No, I understand what productivity is.
Providing legal services is producing services. A lawyer who wins settlements is more productive than a lawyer who doesn’t win settlements to his employer. It doesn’t matter whether he produces anything for anyone else - they don’t pay his billable hours.
I agree when I said nothing was being produced, I was going too far. The lawyers who worked on the ABC case did produce something: legal services.
I should have said they didn’t produce the billion dollars; not that they didn’t produce anything. I thought you were saying they’d produced the billion dollars. You can clarify, if you want, whether that’s what you meant.
The lawyers who lost the case also produced legal services. They may have charged the same as the lawyers who won. If so, the market value of the services was the same, even though they cost their employer a billion dollars, when they lost.
I also went too far when I said productivity has nothing to do with value to an employer: it’s enough to say they’re two different things. In the ABC case, the market value of the services the lawyers on each side may have been the same, even though the value to the two employers was exactly opposite. (One gained one billion; one lost a billion.)
But there are certainly cases where the market value of an employee’s services are closely related to the amount of money the employee makes for the company: salespeople paid on commission are an example.
Defense attorneys and prosecutors provide services. I will say the market value of services of defense attorneys who defend indigent people is very low. The market value of the services of attorneys who represent the interests of corporations, on the other hand, is very high.
I would consider this an example of a divergence between the actual value of indigent defense work and the work of corporate lawyers. Your mileage may differ. But I’d point out that locking up innocent people is extremely expensive. And paying indigent defense attorneys peanuts seems penny-wise and pound foolish. (Not to mention the miscarriage of justice, which leads to distrust of the judicial system, which is costly in its own way, though the costs may be hard to count up.)
The reason moving apples and the transfer of money are different is that the truck driver is providing a service. The only person who provinces a service moving money from one account to another is the bank employee. That is a service, but it isn’t the one we were talking about before.
You keep saying my opinion doesn’t matter: I certainly agree with you, if you mean my opinion won’t change anything. But I have to say, if you genuinely believed my opinion was “moot”, it’s hard to see why you keep arguing with me.
I also have to say my power to change things isn’t really relevant. If I’m right, I’m right. If I’m wrong, I’m wrong. Whether I’m the Chairman of the Fed, or just some random nobody on the Internet doesn’t change that.
I want to add one more thing to the previous post. Michael Morton was convicted of murder in Williamson County, Texas in 1987, and sentenced to life in prison.
He was released after 25 years, after defense lawyers discovered prosecutors had withheld evidence that would have exonerated him. One of the two lawyers worked pro bono (for free). The other worked for the Innocence Project. I don’t know what she was paid.
The market value of the work the pro bono attorney did was zero. But it eventually led to the exoneration of an innocent man, and the conviction of the person who actually did it. It also led to new legislation (called the Michael Morton Act) which gave defense attorneys greater access to discovery, in criminal cases. (Previously discovery in criminal cases in Texas was very limited.)
I’d argue this is a good example of the disconnect between the market value of (income) of someone, and his actual productivity. (In this instance, the legal services he provided.)
I realize this is only one case. But compare it to the income of corporate lawyers, working for rich companies, fighting over money. Are the service they provide really that much more productive, just because they’re paid more? Or are they paid more, because they work for rich clients?
Of course they didn’t produce the billion dollars. They got paid X for legal services, and they provided legal services.
No, they didn’t.
Let’s say the judgement against the company was a fine for dumping oil in the gulf of mexico. Then, what cost the company a billion dollars was dumping oil in the gulf of mexico.
Their lawyers nonetheless may have earned their fee because they mounted a defence for the company. Maybe the fine would have been much more had they not had such a good legal team? It’s hard to say, but in general lawyers who can achieve better outcomes are the ones that subsequently can charge higher fees, once again contradicting your overarching point.
You may as well say if I give away a diamond ring then that diamond ring has zero market value.
Earlier you said, “if I’m working during a time where a particular good is urgently needed then it’s relative exchange value (to the employer) is higher, and therefore I am more productive.”
Michael Morton’s need for legal services were urgent during the entire time he was incarcerated. But the market value was zero, because he didn’t have any money. Which determines the value, the need, or the exchange rate?
You asked if giving away a diamond ring meant it had zero value. No, it doesn’t. But suppose you pawn it for $100. Does that mean its market value is $100? Suppose the same ring sells at the jewelry store for $1000?
The exchange value of the lawyers working on the ABC case was probably somewhere in the $300/hour+ range.
If the actual value of the pro bono lawyer’s services was different than what he was actually paid, does that mean it’s possible the actual value of the ABC lawyers was different than what they were actually paid?
And if the pro bono lawyer’s services were worth more than what he was paid, what were they worth?
It makes no sense to say the value of something is zero because no money was exchanged. Everything ever given as a gift would have zero value under this bizarre logic.
And yes, this is entirely consistent with what I said about working overtime. Someone working overtime is often more valuable to their employer because they are working during a time of increased urgency. And their increased utility remains true even if the employee were to work overtime for no additional pay.
Good. So why would giving away a service for free be any different?
A sensible definition of market value would either be the average price that people in general would be willing to pay, or the highest price one could sell an item for (e.g. if you took it to the right collector). Either way, no; an individual transaction doesn’t dictate the market price.
“Actual value” is a difficult thing to define. But sure, the ABC lawyers could have been over or under paid compared to the price comparable services typically cost.
The market price based on his criminal law ability and experience.
Exchange rates have nothing to do with anything in this thread. Please don’t introduce any more terms you don’t understand.
Market values are not set by need. They are set by agreement between the buyer and the seller. If I don’t have the resources to buy something, that does not affect the market value because the seller can sell to someone else who does have the resources.
MR. Morton was bidding, in essence, against everybody else who needed legal services. He had nothing to offer and so his bid was zero. Other people had more than nothing, so they were able to contract for legal services at the given price point.
You need to get away from this notion that there is some way to set market value that does not involve both sides of the market - supply AND demand. Diamond rings are worth nothing on the open market if nobody wants to buy them. It doesn’t matter how much I want something - if the price is higher than I can offer, that neither raises the price nor lowers it.
Once again we’re back to the issue of timing. Imagine for simplicity that the trial only involved two lawyers, a winner and a loser. BEFORE the case they may have each billed out at exactly the same rate, and they may have each done the same amount of work, so technically you might say they are equally producing legal services.
But now consider AFTER the decision, one of those lawyers will be in higher demand than the other, so their incomes will diverge. It’s tempting to look at lawyers and say they’re all producing the same service so they should all have the same income. It’s also tempting to try and conclude that income and productivity aren’t related. If you know anything about the legal profession you’d realize that not all lawyers are the same, nor are their services the same, so obviously some of them will earn a higher income.
Of the many, many, mistakes you’ve made in this thread timing is probably the funniest. Pro athletes sign contracts at the beginning of the season. It’s entirely possible for one of them to stub his toe during training camp and never play a game–no productivity lots of income! It’s also possible for a guy to get called up from the minors during the playoffs and score the winning goal–high productivity low income! err mah gerd!
Or maybe it’s very high. Once again we have you applying your own personal judgement to the situation, then concluding your original thesis. Only now you’ve gone and switched from “productivity” to “market value.” Why did you suddenly switch terms?
What you are attempting to do, yet again, is assign your own personal value to legal services, and it’s no surprise you feel defending the poor is more productive than defending corporations. No one cares. A corporation with lots of money can choose to spend lots of money on legal fees. And a lawyer can choose to work for them. Your wacky theory doesn’t factor in.
All that is necessary for the triumph of evil is that good men do nothing. A lot of very bad economic and political ideas started off with someone spouting nonsense in the back of a dimly lit bar. And your particular brand of nonsense resonates with a lot of people too stupid to realize what’s going on.
This is now slightly off topic: At the core of your issue is the difference between costs born by an individual (or corporation) vs the cost born by society; private sector vs public sector. An individual that values education can choose to pay a teacher an enormous salary. It’s not about being a rich person, it’s about an individual personally valuing something. But in our society we’ve made teachers public servants, so their salary is determined by the public and will only ever be as high as the public values it.
Lastly, you mentioned pro bono work, which we’ve already covered. If a lawyer wants to they can choose to work for free, regardless of how you personally value the work they do. So now you need to go look up the dictionary definition of income, and see that it doesn’t just include what’s on a pay stub. A volunteer might do work for free, but gain something much more valuable.
The question posed by this thread is “What is the relationship between income and productivity?”
It hasn’t always stayed on point (which is fine) but I’ve tried to show the relationship is weak by giving examples of people or companies with high incomes and little or no productivity; and examples of people or companies with low (or no income) with high productivity.
The responses have been all over the place: name-calling, claims my opinion doesn’t matter, and claims that income and productivity are the same, among other things. It hasn’t been especially productive, and I’m starting to get a little bored.
But to recap, I’m going to go back over some of the examples (at least the ones I can remember), and maybe add a few more.
Jonas Salk helped eliminate polio. His work saved the lives of hundreds of thousands - if not millions - of children. His income, on the other hand, was nothing.
Dick Fuld made half a billion dollars, ruining his company. I don’t know how exactly to count that kind of productivity, but surely we can agree that a CEO who bankrupts his company is not very productive.
John Raley spent at least 6 years trying to overturn the conviction of Michael Morton. In the end, despite the strenuous efforts of the Williamson County DA, he succeeded. An innocent man was set free, the one who actually did it was convicted, and the Texas legislature changed the law regarding discovery in criminal cases in the state of Texas. He was paid nothing for his efforts. (Michael Morton, having been in prison for almost 20 years, had nothing to pay him.)
According to this website, the average hourly rate for partners in big firms was $727/hour (in 2012). Now it’s possible they make that kind of money representing people like Michael Morton. It’s more likely they represent the interests of the rich and powerful. In this case, for example, Apple secured a billion dollar verdict against Samsung, over a patent dispute.
The financial burden of the verdict isn’t that big of a deal for Samsung - the billion dollars, I mean - because Samsung is a very rich company. But it will force them - and other companies, like companies that use Android - to make their products less user-friendly for their customers:
A lot of lawyers made a lot of money over the course of that lawsuit. Were they productive? YMMV, but I would argue that the end result - enriching one corporation at the expense of another, and banning things like pinching and swiping on phones - was not very productive.
Financial advisers who convince their clients to do a lot trading increase their income. But is the increase in income reflective of anything productive? I would argue, probably not.
There are many other examples.
A father who stays home to raise his kids makes no money. But if his presence helps his kids - making them happier, and more well-adjusted, for example - I’d argue that he’s very productive.
Wall Street professionals who are unethical probably make more, on average, than those who are ethical. Does that make them more productive? I’d argue that it does not.
[Link](According to the independent survey, 52 percent of the respondents believed that their competitors engaged in illegal or unethical behavior while 24 percent felt employees in their own company had engaged in similar misconduct. An astonishing 23 percent reported that they had observed or had first-hand knowledge of wrongdoing in the workplace and 29 percent believed that financial services professionals may need to engage in illegal or unethical behavior to be successful. An alarming 28 percent felt the industry does not put the interests of clients first and 24 percent admitted they would engage in insider trading if they could get away with it. Surprisingly, in response to each of these questions, younger professionals on Wall Street were significantly more likely to be aware, accept and engage in illegal or unethical conduct than their more senior colleagues.).
Apparently, the more you make, the more unethical and illegal behavior you’re likely to see.
Which makes sense. Being ethical just means there are certain things you will or won’t do, even if it’s to your advantage. Amorality, on the other hand, gives you the freedom to do exactly those things which gives you an advantage.
Of course that’s not just true in the financial industry. It’s just that misbehavior in the financial industry can be - and has been - especially destructive to the rest of the economy.
And then there’s the tiny percentage of the population that takes home a huge percent of all the income. Many of these people do nothing productive at all. And yet their incomes are more than millions of actual workers. The source of their wealth is not producing anything; it’s from owning things.
There are a couple of different concepts here which you seem to be inter-mingling at your convenience.
From a purely economic standpoint, people and companies produce goods and services which have a value based on their demand in the market. Doesn’t matter if it’s cars, widgets, crack cocaine, legal services, investment services, or whatever (although that would be an interesting supply chain). The value of those goods ands services is a product of their availability and the demand at various price points, regardless of the legal or moral value ascribed to them or the method by which they are produced.
Not to be ignored, there is also the matter of ownership. People who own the means of production are entitled to the fruits of what is produced. This holds true if you are the owner of a factory, a partner in a law firm or an investment bank trading shares of ownership on the stock market. The owner (typically) doesn’t “produce” anything. He hires people to perform the tasks that create the goods and services and he keeps the profit, which is the difference between what he can sell those goods and services for and what he has to pay his people to produce them.
Some examples:
Being a stay at home parent does have a certain value and from an economic standpoint, they must weight the opportunity costs of lost income against the money saved by not having to hire daycare, housekeepers, or therapists and bail money for the child.
A company involved in litigation may decide it’s worthwhile to spend $10 million in litigation fees to save $50 million in fines. Nothing is really produced here other than legal services, but there is still economic value to the company. Even more so if in the future other companies decide it’s worth it to spend $15 million dollars on safety features that would have avoided $50 million lawsuits in the first place. So in this example, the economic value is in encouraging companies to run more safely.
Wall Street professionals like investment bankers, venture capitalists and private equity fund managers don’t directly produce anything, but they finance people who do. And in exchange, they typically get some ownership stake in those companies. One the one hand, it allows people to start companies they could not afford on their own. OTOH, it is basically a huge self-perpetuating collection of wealth that only exists to grow larger through the application of that wealth to making more wealth. Not in and of itself a bad goal, except that wealth is largely controlled by a tiny number of people.
Perhaps you’d find it more interesting if you actually had a debate for once.
What’s funny is, I, and I think most people, would agree that income and productivity are not perfectly correlated. I’m just taking exception to you saying rarely or weakly correlated, and the misconceptions your examples seem to be based on.
But it’s not as though my position is actually that far from yours.
The first thing to say is that it’s pretty pointless trying to use individuals as examples. Why pick a CEO who bankrupted his company and not one who saved her company?
If you want to say there is a general pattern of higher paid CEOs performing worse, then say it, otherwise it’s just an irrelevant anecdote.
But to address these specific examples:
Jonas Salk wasn’t a volunteer worker: he drew a salary the whole time he worked on the polio vaccine, presumably a pretty decent one as an already respected scientist / researcher with a well-funded laboratory.
Had he patented his vaccine (and if it was indeed patentable) the standard estimate is that he would have earned $7 billion in inflation-adjusted dollars. Essentially he chose to waive this income for the good of the world.
It’s just like the pro bono lawyer again; essentially “gifting” a service but that doesn’t mean what they do is not valued by the market.
Dick Fuld was a well-qualified trader who worked his way up the company over decades presumably by showing great aptitude. And when he reached the top he was not well paid to sink the company he was well paid because they had an expectation that he would be crucial to the success of the business.
Consider pro sports. That really should be a meritocracy given that everything every player does is watched by millions and analyzed to the bajillionth decimal place.
Yet big sports teams sometimes take on guys who then hugely disappoint. Why?
Well obviously because humans can’t predict the future. All we can do is make good estimates based on past performance. Same with CEOs.
The main problem I’ve had during this thread is that productivity isn’t something that can be measured for a great many employees.
Someone can be extremely valuable without being particularly productive, and vice-versa, and their wages will probably reflect their perceived value, not their productivity.
Say… there’s a guy at a company who generally loafs around, drinks a lot of coffee, but he’s the only guy who can fix the big, antiquated ERP software package when it breaks, which happens often enough to keep this guy around and pay him $75k a year. Not really productive overall, but very valuable. Contrast this with some guy down on the production floor who’s some sort of wizard at doing his relatively unskilled assembly work. So much so, that he makes 15% more widgets per day (and is paid $8.33/hr) than the other 49 people doing that same job for $7.25/hr.
Thing is, he’s productive, but not particularly valuable. They could replace him, and there would be minimal disruption, cost and a negligible decrease in production overall, while replacing the IT sloth upstairs would cost a LOT, since he’s the only fix-it guy for the antiquated ERP system.
That’s why income <> productivity, and why income is a lot closer to reflecting value.
You’re mixing up “value” and “market price”. Market price is a product of supply and demand (mostly). Value, on the other hand, is an entirely different concept.
The most simple example is air: without air, nothing not the planet would live. It has, therefore, infinite value. But its market price is zero.
The value of a thing, and its market price often have little to do with each other.
This is my point exactly. One of them, anyway. You’d be surprised how much flack you get for pointing out this simple observation.
Well, if we’re talking about value, the main observation I’d make is that parents usually take better care of their own kids than strangers making something close to minimum wage. I’m sure that’s not always the case, but I think it’s true in a general sense.
Furthermore, the bond developed between a child and a parent develops when the child is a child. There is no replacement for being there, as far as a child-parent relationship is concerned. If a parent is not there when a child first skins a knee, or loses a tooth, or speaks her first word, there’s no way to go back in time and get it back.
But I think we agree on the general point. The thing I’d add is that parents who do make economic sacrifices for their children are not just benefiting their children: they’re benefiting all of society - as your point about bail money makes clear. Keeping people in jail is very expensive. Society is much better off with fewer people in jail, and more people working and contributing to the overall wealth of the country.
We agree. In general conservatives are against trial lawyers and lawsuits brought by ordinary people against corporations, as well as government regulations of corporations. But their arguments are colored by their own self-interest, not the interests of the country as a whole.
Whatever process is used to determine which ideas or projects should get funded, and which should not is an extraordinarily important process.
Having said that, I’m not sure that Wall Street is especially good at it. The financial crisis of '08 should be enough to convince anybody. But in the real world, self-interest and ideology generally trump evidence. The way things are going, it’s inevitable Wall Street will eventually find a way to enrich itself while endangering the rest of the country, again, as it’s done repeatedly in the past.