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View Diary: John Edwards: Workers are Worth Every Bit as Much as Owners.   (282 comments)

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  •  You are making the same mistake... (0+ / 0-)

    ...that most apologists for the Free-Market system make:

    But clearly from society's perspective, not every person contributes equal value. That is why wide disparities of pay and skills exist and we need to acknowledge that as a fact...

    The mistake you are making is that you are using market prices to validate whether or not the market itself works. This is self-referential, ciruclar logic.

    Just becuase someone is paid 100x more does not mean that they contribute 100x more value.

    It is also a mistake too believe that pay disparities are the result of "society's perspective".  They are actually the result of the perspective of individuals who make decisions about how rewards are allocated.

    These people are a very small group, and they tend to reward people who are similar to or aligned with themselves.

    Corporate CEOs sit on boards and give high pay to other Corporate CEOs.  Senators get donations from Hedge Fund Managers and then tax Hedge Fund Magagers at lower rates. (Sometimes a Senator's daughter gets a job at a Hedge Fund).  

    Our society overpays exeutives and overpays owners of capital assets.  Our society overpays investors.  The Free Market has failed to correct this problem, so government must take action.

    The Free Market does not produce the most efficient allocation of resources.  Some people believe it does, but they have no logical or empirical basis for doing so.  

    •  re: Value (0+ / 0-)

      Sometimes there are cases of nepotism and favoritism in job selection and compensation but those are really the exceptions.

      The general rule is that the laws of supply and demand determine what people get paid in the market. If you have a scarce skill in high demand, you'll get paid a lot. That scarce skill could be education, experience, productivity or willingness to take a risk washing skyscraper windows rather than floors. In any case, somebody other than "society" has to make an assessment of your worth and cut you a check (while you make your own assessment of whether you can do better elsewhere). Of course your potential may be something else. For example, you may decide to serve society as a teacher rather than take those same skills to the business world.

      In the free market, resources (including labor) that are being used inefficiently tend to get re-allocated to others who can use the more efficiently. If I owned a mill plant because I got it from my Daddy but was really a lousy businessman, I'd be better off selling that to a good businessman who can run the business (and thus pay more for it). So it goes with labor markets. So that makes them pretty efficient because naturally people move towards the most attractive spots. Of course there are some barriers. For instance, family exerts some influence that might keep people in a place where they are earning less than their potential. But the general trend is that people migrate to where opportunities are.

      Now society doesn't really pay anybody but government officials except in the very indirect sense that it allows for a free market system. So to make an argument about whether large classes of people are overpaid, you would need to identify another group that could do the same job more efficiently. So when it comes to CEOs, the next best option would be say a selection of corporate Vice Presidents from the same companies. Could they do just as good a job as the current CEO? Capital is slightly different because ownership is the outcome of some kind of wealth creation rather than the cost. But generally it still tends to migrate efficiently. Idiots lose their money, smart investors make more money (creating wealth).

      You do point out a major part of the system that is a bit unfair: that there are significant tax dodges for different types of income like investment income. Hedge fund managers are enjoying record profits from that exception now. The Bush administration has also reduced capital gains taxes. The problem is that governments play this game with investors where they dramatically raise then lower taxes. It's really bad policy that should be changed: keep one fair rate across time. But unfortunately that's not how Washington has worked.

      •  Many of the things you say... (0+ / 0-)

        ...are widely believed, but have no basis in fact, have never been verified by research or any empirical study, or are inherently unfalsifiable.

        ...there are cases of nepotism and favoritism in job selection and compensation but those are really the exceptions...

        Really?  Why do you believe this?  Do you have any evidence? We all know of well-known cases of nepotism or favoritism, but how can you prove that a given salary is the result of "non-favortism"?  

        If you have a scarce skill in high demand, you'll get paid a lot.

        Mostly people believe this because of circular logic.  They look at the salary and assume that that "means" that the guy is in high demand.  But consider a real-world situation:  We have a large number of homeless in America.  Obviously we "need" more builders.  Yet, their salaries are low!  The Market doesn't seem to be working.  But then, it seldom does.

        •  Falsifiability of economics (0+ / 0-)

          Since you want to talk about theory, you could falsify economics if you could find me a bunch of common skills that are dramatically well compensated. In other words, the inverse of what the theory expects.

          A basic indicator that you could use is education. Higher education is rare, especially from graduate degrees from the top schools in the country. Do salaries generally increase with education? Of course.

          •  Many things are "rare"... (0+ / 0-)

            ...people who are ambedextrous are rare.  So are people who are identical quadruplets.

            I've seen no evidence that either makes one higher paid.

            But Free Market Faithful don't claim that "rarity" brings wealth.  They make the astonishing claim that one's salary is closely related to how "productive" one is.

            So, to falsify the claim, we only need to note that large numbers of people produce huge amounst of goods and services, yet get paid only a fraction of what these things are worth.  We know that this fraction is small because there is much money left over to pay shareholders and executives.

            "But", says the Sophomore Economics Major, who has just read Ayn Rand, "shouldn't we consider the possibility that the CEO of the company possesses some magical rare skill that justifies his high salary?"

            I say, no.  We should not consider this fantastic, absurd, idea.  It's magical thinking, it's a fairytale, and if flies in the face of the fact that we know that the CEO is good friends with the Board that sets his salary and also sits on a Board that sets the salary of his own board members.

            I look at the top 1% of our economy and I see a group of people are paying each other large amounts of money from our pockets.  I believe that, at best, they are opportunists. At worst, they are theives.

            If Economists exepct us to believe that any of these guys are "worth" the salary of 100 Teachers or 500 Soldiers, then the burden of proof is on them.  And, they must make their proof without reference to the Invisible, the Magical, or the Unmeasureable, and without resorting to Circular Logic.

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