This paper finds that the change in wage distribution in the US over the past 40 years has been more similar to China than France. This implies policy may be playing a large factor. How many times has the highest tax rate been cut in the past 40 years? How many states have enacted right-to-work laws? How have special tax rates for carried interest, long term capitals gains and dividends impacted business decisions?
France and Germany have works council that gives labor a voice in business decisions (a seat on the board). Maybe the solution is as easy as giving workers a voice.
Tax burden shifted from Capital to Labor. Corporate profits increased, wages stagnated.
Pretty simple, really.
And yet. While mega corps (FANG et al) horde cash, and management & bankders gets their cheddar, Joe Average investors are getting screwed, and no one's freaking out.
The Russia stuff has always seemed like fear mongering to me. It’s a big scary enemy messing with our political system. But is what’s happening actually new? And is what’s happening as significant as the news makes it out to be? Or is it another distraction with all the rest?
"But is what’s happening actually new? And is what’s happening as significant as the news makes it out to be?"
I mean, you should be able to answer those questions, otherwise you've put yourself into a tautilogical little bubble ("There is nothing new/just fearmongering, so I don't need to pay attention to it. I didn't pay attention to it, so I didn't hear anything new". Return to step 1)
"The Russia stuff has always seemed like fear mongering to me. It’s a big scary enemy messing with our political system."
Are you saying that countries don't really mess with other countries political systems? Because they do it all the time (including and maybe especially the US).
This basically reads like you saying that "bad/scary news isn't real, because I've decided that bad/scary news sounds like 'fear mongering' and couldn't possibly affect me". I mean, war is a thing. People and countries do hostile things to each all the time, often disastrously. Reporting on this isn't fear mongering.
I don’t think they are trying to delegitimize it. They questioned if we can even consider it new, and if it’s the problem we should be prioritizing. Both good questions, but either way, cleaning up our government and economy is the most important step in reforming our vulnerable campaign system and electoral process. I can’t tell what it is you propose but let’s discuss it later.
Ive slowly lost faith in the mainstream news over the last few years, and so have subsequently tuned it out.
It started when I noticed that the news barely covered the US bombings of hospitals and funerals overseas. There was very little coverage of the US supported war in Yemen where thousands of innocent civilians were being killed.
At some point CNN went crazy over MH370 and gave an uneventful search for the plane wall to wall coverage while US weapons killed people overseas.
I had to go to The Intercept to learn about drone killings in any real detail.
And then I remember in particular when Bernie Sanders had just had his largest rally yet, the PBS newshour failed to mention it while devoting 8 minutes to Donald Trumps twitter comments.
So when the media that hated Trump (a position I am not criticizing) started talking about allegations of Russian interference with the elections, I waited for the evidence. But after a couple of months of anonymous officials making this claim and that claim but no hard evidence in the matter, I tuned it out.
I’ve since stopped following mainstream news, so if they’ve come up with genuine evidence by now then I’m just out of the loop. It’s fair to say I’m uninformed here but I do recall that for some time at the beginning, no evidence was presented.
Lately I use my time to educate myself in other ways. I’m 10 hours in to PBS’s 18 hour documentary on the Vietnam war. I’ve never learned so much about that conflict. I’ve been watching some John Pilger documentaries on YouTube, and trying to understand why people all over the world still live in destitute poverty even in the outskirts of wealthy cities. I’m trying to understand my libertarian friends who say that broad social programs are unfair, while I see images of people with nothing dying from poisoned water or preventable disease. But I’m also trying to understand why socialism was unfair (John Pilgers documentary about Japan was enlightening there). I’m trying to find a way to care for the poor and give them more power without giving power to despotic governments that will siphon aid money into their personal accounts (as in the IMF funded nuclear power plant in the Philippines that was never finished, but poor local tax payers are still paying off). I’m also working on a week long robotics course to teach to some university students in Africa, and the associated robot I built as a teaching aid. I leave in less than a month and it’s been a busy time.
So when I see news that sounds like baseless claims about “The Russians” on channels that don’t cover the murder of children but do feast on images of a bare ocean where a missing airliner hasn’t been found, I just tune it out.
My life has improved since I stopped using Facebook and removed the normal political feeds from my reddit. I’ve been political my whole life and to this day I focus heavily on politics, but the information I want is scarcely carried on those normal news feeds.
> So when the media that hated Trump (a position I am not criticizing) started talking about allegations of Russian interference with the elections, I waited for the evidence. But after a couple of months of anonymous officials making this claim and that claim but no hard evidence in the matter, I tuned it out.
> I’ve since stopped following mainstream news, so if they’ve come up with genuine evidence by now then I’m just out of the loop. It’s fair to say I’m uninformed here but I do recall that for some time at the beginning, no evidence was presented.
National security officials don't generally present the support behind their conclusions to the public, and even when it became a law enforcement case, the evidence is only sparingly provided before a trial. There are pretty good reasons news media does report on announced intelligence and law enforcement positions before those agencies provide detailed support; blaming the media for the underlying evidence not being immediately presented is, well, somewhat naive.
OTOH, since then, while still little evidence has been directly provided to the public (because criminal investigations are ongoing and investigators are reluctant to tip their hand), we do actually have both the confession of an attempted colluder and a pile of indictments (which are grand jury findings of evidence providing probable cause to believe particular persons committed particular crimes.)
“Main stream news doesn’t cover everything I think they should, therefore I will get revenge by staying as uninformed as possible.”
Mueller laid out very specific evidence in publicly available indictments. It’s published on government website, you can read the whole thing for yourself.
In what way are my actions “revenge” rather than simply a choice to find a better use of my time? How is my choice to be informed in different ways the same as being “as uninformed as possible”?
"So when the media that hated Trump (a position I am not criticizing) started talking about allegations of Russian interference with the elections, I waited for the evidence. But after a couple of months of anonymous officials making this claim and that claim but no hard evidence in the matter, I tuned it out."
The tone of your statement suggests you don't have any way to know the facts of the Russia investigation, or what to believe.
That's bullshit. Mueller is gathering the facts and hard evidence in a very methodical, professional manner, and laying them out in criminal indictments, citing the relevant facts and evidence. You don't need the "mainstream media" to be informed on this subject. There are now direct sources you can go to.
Obviously, not everything is out yet, there is more to come. But what Mueller has already produced is very enlightening.
And your "couple of months" quip rubbed me the wrong way, too. How long did you expect an investigation of this scope to take? Did you expect Mueller to publish every single fact and testimony as he received it? Questioning the people involved, without necessarily letting them know what you already know, is a good way to quickly find out who is being honest with you.
Muller assumed office in May 2017. The allegations of Russian interference we’re going on in summer 2016, and at the time there seemed to be nothing of substance to them. I’m thrilled that 18 months later there are concrete claims being made, but can you not understand why I might have stopped caring in the interim?
There’s lots happening in the world. The mainstream news media wants to focus on a few pet issues and I just don’t feel well informed when I listen to repeated hand wringing about the same subject. Today I’ve been spending most of my work day listening to the political debates in South Africa after their state of the union. It’s a fascinating subject and one that I feel comfortable assuming is not well covered by US news outlets.
You obviously care about the Russia investigation. Great! But you accuse me of being generally uninformed just because I don’t follow this issue. Please. I don’t care about every twist and turn of this investigation. If they can convict somebody great, but I don’t see the value in following all this when so much else is going on in the world.
> Muller assumed office in May 2017. The allegations of Russian interference we’re going on in summer 2016, and at the time there seemed to be nothing of substance to them.
I understand a certain degree of skepticism around the conclusions of national intelligence services, especially on topics directly related to government, but the fact that such services do not immediately release the information underlying their conclusions is not unusual even in cases that have the strongest support; about the only time they’ll publicly release detailed evidence is if action is being sought by some body like the UNSC, or to the extent necessary after the matter moves from intelligence to law enforcement to the courts.
> Are you saying that countries don't really mess with other countries political systems? Because they do it all the time (including and maybe especially the US).
The interference that Russia has done is unprecedented in the modern era. There are dozens of election every year. Please provide some evidence of that extent of interfence happening "all the time".
Interference that Russia has done with its internet trolls is nothing compared to bombings and assassinations that US has been doing. If you look at South America you'd have to apply blacklist filter to see which countries US didn't mess with.
Well, just in regards to Russia, the US managed to get a $10 billion lifeline to Yeltsin's government at a VERY convenient moment just months before the 1996 election.
There is the real possibility that if Russia didn't interfere in the Brexit referendum and the US election that alternative outcomes could've happened. Both decisions were down to single percentage points.
If Trump isn't elected then you have the possiblity of the US joining the TPP, taking a leadership role with the Paris climate change accord, no massively expensive tax cuts etc. Those are fundamental decisions that effect every single American.
I'm for climate agreements when everyone carries a relative burden, but no way would I support the TPP or anything like it. That's just a continuation of the WTO but on a bigger more nefarious scale (corps having say in local laws.)
Globalization has already done quite enough hollowing out and selling out our blue collar workers. We don't need the same with more vigor.
US placed sanctions on wealthy Russians through Magnitsky act, which they didn’t like, so Putin ran an intelligence operation to get someone elected more likely to overturn it. This is still about putting the interests of the wealthy first. They see each other as peers and allies regardless of nationality.
You had a presidential election where the populist favorite candidates were Donald Trump and Bernie Sanders. Short of Kardashian candidates, that’s about as whacked as you get.
China previously bought its way into several of our Presidential elections. There was a small fraction of media obsession with that story compared to Russia now, for obvious reasons.
2007 LA Times: "Dishwashers, waiters and others whose jobs and dilapidated home addresses seem to make them unpromising targets for political fundraisers are pouring $1,000 and $2,000 contributions into Clinton's campaign treasury. In April, a single fundraiser in an area long known for its gritty urban poverty yielded a whopping $380,000. When Sen. John F. Kerry (D-Mass.) ran for president in 2004, he received $24,000 from Chinatown."
> I really don't see how you can include the Russia investigation on that list.
I really don't see how you wouldn't. "Russia" investigation I think includes not just the investigation itself but the insinuations and rumors around it. The time and money spent talking about it, writing about it and so on.
It started with the Russians hacked our elections idea. As in KGB agents in the bushes in Wisconsin with laptops twiddling bits on voting machines. Remember the Stein's recount. /r/politics was abuzz with everyone sure how it will be discovered and Trump will swap places with Hillary next Tuesday. https://patch.com/michigan/detroit/hillary-clinton-could-sti... except in the end it gave Trump 3 more votes.
Then Comey's hearing. People took the day off to watch Trump's collusion being exposed. /r/politics talked about him being impeached next Tuesday again. It turns out that Trump was mean to Comey and nothing else happened.
Then it was the piss "dossier". That surely would impeach him next Tuesday after it came out. Except that it didn't.
Notice how the goal post keeps moving every time and how it's always "next Tuesday" when the impeachment is coming. This is not unlike the doomsday cults where the day comes and then you'd think, finally the followers will see it was a scam and go home. But in a counter-intuitive way many stay and become even more zealous.
In the end some Russians were indicted because they were internet trolls. Half supported Trump while others supported BLM, Muslims for America, Bernie Sanders and Hillary. Even organized an anti-Trump protest in New York. I was invited and almost attended that one. It's sure good thing to catch those and worth a few weeks of reporting, but not a whole a year of hysteria? Didn't all the media companies, the blogs and the journalists who should have known better play into the Russians plan to destabilize and demoralize the country. It looks like they did. Did they "collude" as well perhaps? Are they secret agents, maybe? (/s)
The saddest part is really the opportunity cost. Some were working on fixing the DNC, there is effort in flipping some legislative seats in Congress with good results. But a lot more could have been done had the effort not been wasted on the "Russians".
How does that jive with several of the most prosperous nations on earth having similarly low corporate income tax rates? Such as Sweden and Finland for example. Even Norway is at 27%. Denmark is 24.5%.
Those rates have very clearly not impeded their exceptionally high standards of living.
Maybe you should be comparing effective tax rates and not statutory rates.
> "Comparisons of corporate tax rates should focus on the measures that reflect what companies actually pay, not the top statutory rate. Proponents of slashing the corporate tax rate often note the U.S. statutory tax rate is the highest among developed countries. But many U.S. companies use an array of targeted tax breaks and loopholes to significantly lower the taxes they pay. These include tax subsidies for certain types of investments (such as in research and development) and for particular industries (such as oil and gas).
The Joint Committee on Taxation estimates that in 2016, while the corporate income tax raised $300 billion in revenues, targeted subsidies delivered to companies through the corporate tax code cost about $270 billion. As a result of these subsidies and other tax avoidance measures, many large U.S. companies pay very low rates. For example, Pfizer paid a rate of about 7.5 percent on its $12 billion in worldwide pre-tax income in 2014. Studies generally also find that U.S. companies’ tax rates vary widely by industry and type of investment."
I was basing my comment on the (former) effective tax rate of the US, which was previously high across the board.
The former effective US corporate income tax rate, for all corporations, was higher than Finland, Sweden, Norway and Denmark's statutory rate.
The effective rate for the S&P 500 was higher than the statutory rate for Finland, Sweden, and comparable to Denmark. And that's for the elite of the elite of tax avoiding companies. eg:
"The average effective tax rate among S&P companies that had posted calendar fourth-quarter results as of Friday was 24.11 percent"
"The United States’ corporate tax ranks relatively high on all three measures [among the G20]. The U.S. has the highest statutory rate (39.1 percent), the third highest average effective tax rate (29 percent), and the fourth highest marginal effective tax rate (18.6 percent)."
Talking about "effective tax rate" with regards to multinational tax-avoiding corporations is basically gibberish.
You can't use taxes paid as a percentage of revenue because it's meaningless. A retailer with a 3% profit margin would have a ~1% effective tax rate because 97% of their revenue goes to tax-deductible expenses.
But if you use taxes paid as a percentage of profit then you're not counting any of the tax avoidance, because the way international tax avoidance works is to shift profits to sister companies in other countries instead of the one with a high nominal tax rate.
I attribute a lot of the stagnating wages (and the median net wealth levels) the last few decades, to rising costs in housing, healthcare and education.
Healthcare is obviously dramatically expensive in the US, with per capita costs about twice that of the next highest spending nations. For most employed Americans, that ends up becoming a $5,000 to $10,000 'perk' in their compensation (which isn't counted in wage figures). If you make $50,000 at a full-time job (the median figure for full-time), you're liking getting a health insurance plan that is worth upwards of 10% of your salary.
Buffett likened healthcare costs to a monster that is eating the US economy. It's spot on. There's a trillion dollars per year there in excess costs, that if even half went into labor competition, would do wonders for giving wages a jolt at the median.
I don't have a handy link, but I recall a while back seeing a graph that showed the total value of compensation (wages + benefits) steadily increasing while base wages stagnated. Almost all the increase was due to the increasing value of employer provided health insurance.
If the company is hoarding cash, it's not paying dividends. (Sure, perceived value is high, but future cashflow at some point must reconcile this. Of course, the market can remain irrational as long as it pleases. After all, it's peopleware.)
That's completely backwards. Dividends are the only distribution to shareholders. Stock buybacks look great for Executives trying to inflate share price and earn bonuses tied to Earnings Per Share (EPS).
> That's completely backwards. Dividends are the only distribution to shareholders. Stock buybacks look great for Executives trying to inflate share price and earn bonuses tied to Earnings Per Share (EPS).
Argh.
Suppose you have a company with a business worth a billion dollars. The company makes $200 million in profits, so now they have a business worth a billion dollars and $200 million in cash, so now the total of the company's shares are worth $1.2 billion.
Suppose they have a million shares. When they make the money the price per share goes from $1000 to $1200. If they pay the dividend the share price goes back to $1000, but each shareholder now has a $1000 share and $200 in cash, so they still have $1200 in value.
If, instead of paying a dividend, they pay $200 million to buy back a sixth of their shares and each shareholder tenders a sixth of their shares in the buyback, then at the end of it for each original share the shareholders now have... wait for it... $1000 in shares and $200 in cash. Or, in particular, for every six shares they had they now have $6000 in shares (5 x $1200) and $1200 in cash. Which is basically the same thing.
But then the taxes are due on the ~17% profit from share price appreciation instead of on 100% of the dividend. And the shareholders who would have reinvested the dividend back in the company simply don't tender any shares and don't realize any taxable gains at all.
And then if the price per share gets too high they can have a stock split.
Of course, you also get almost the same effect by leaving the cash inside the company and letting shareholders who want immediate returns sell that percentage of their shares on the market, and if the cash is inside the company then it can be inside a foreign subsidiary in a jurisdiction with lower corporate income tax rates. Which is how the tax code encourages multinational corporations to hoard huge piles of cash.
Dividends and stock buybacks both distribute value to shareholders. Dividends distribute cash, and stock buybacks distribute value by increasing the price of shares. In a rational market, distributing an $X dividend or buying back $X worth of shares will both have the same result for shareholder value. See the sibling comment for details.
People who are investing with a long-term view in mind might prefer stock buybacks because it defers the taxable event until sale. I prefer stock buybacks when I'm planning to hold my shares. With a dividend, I have to pay taxes on the dividend before I can reinvest that cash by buying more shares; with stock buybacks, the share price just increases by that amount over time instead.
Not really (besides excellent answers from: AnthonyMouse,Pyxl101) share buybacks also shows the company's long term intention to give stockholders more value.
My completely unscientific theory is that all the money that would otherwise have been allocated to wage increases has been eaten up by skyrocketing healthcare costs.
I haven't actually looked at whether this is true though.
You're generally right. Total comp has increased, not stagnated, but only because employers have shifted compensation from wages to benefits (like healthcare). Companies don't pay payroll taxes on those, so I assume they like this arrangement, even though it causes all sorts of problems when you couple job + healthcare.
Though given the extraordinary profitability of companies right now, surely not the only factor. Some of those profits could be redistributed to workers. Not sure how to do that without potentially causing damage though.
Can you explain what "damage" it might cause? Giving labor a seat on the board seems like a logical, small step in this direction. Maybe a lower tax rate for Employee Owned Companies (ESOP's) would incentivize owners to spread some of these record profits.
I think you're right, these are good ideas. My concern for damage has to do with the ratio between production and wage. Obviously wage earners should keep more than they currently keep, but the amount they keep needs to be flexible. If the economy tanks or there's a shift in the market, the wage needs to be flexible. I merely advocate for an approach with the necessary responsiveness to a dynamic economy while still improving wages.
> Why should the government take the ideological view of favoring one type of company over another?
Because it does that inherently when it decides what form of business organization to allow in the first place. Corporations are creatures of government, not nature, by creating them and setting standards for what the rules are for governing them it is favoring a particular type of company. But taxing them and then creating a variety of more-or-less tax exempt categories with different behavioral restrictions it is favoring one type of company over others.
Even if it chose not to charter corporations (or similar, newer types like LLCs) and only to allow sole proprietorships and partnerships, that would be favoring one type of company over others.
The question is not whether the government should favor certain forms of business organizations -- there is no way that it can avoid that. The question is what forms it should favor and how.
As "minimum wages across state borders using contiguous counties" (Dube, Lester, Reich) demonstrates (confirmed by Seattle's recent experience), it doesn't cut employment:
In spite of this, an association of restaurant owners in California spent a lot of their own money on these billboards to express touching concern for the employment prospects of their employees:
It's now 4 years later and sadly, their predictions were startlingly accurate. Nearly every restaurant server in San Francisco and Seattle is now an app.
Major consequences to the restaurants. As for the city as a whole, I'd expect to see no new businesses such as light manufacturing locating there unless they have to be there.
And Amazon announced they were locating a second headquarters elsewhere. You could argue that has nothing to do with minimum wage, and probably not since Amazon doesn't have their minimum wage operations in Seattle. But Seattle has done things like passing an unconstitutional income tax targeted at Amazon (now winding its way through the courts) that likely factor in to such decisions. Along with other heavy tax increases, like sales taxes, property taxes, and a proposed "head tax" that appears to be targeted at Amazon.
Higher prices, fewer customers, more automation, fewer restaurants, less willingness to take a chance on marginal employees. More mom&pop restaurants with no employees. More off the books and illegal employees.
Personally, I don't go out to eat in Seattle anymore. Too expensive.
The trouble with most such statistics is context. How much has Seattle's population grown in the same time period? Are there more or less restaurant employees as a percent of the population? Does Amazon's huge hiring surge of highly paid employees skew the results?
Nothing is ever static in economics, it's very hard to do A-B experiments.
Oddly, I didn’t find any of that nuance or context in your original comment. You presented absolutes and the data proved you wrong. Maybe the population has grown by more than 10% in 2.5 years like food service employment. At the same time, the overall unemployment rate has fallen since the wage hikes started.
> You presented absolutes and the data proved you wrong.
I could say an absolute statement that throwing more wood on the fire would make it hotter. If it also happens to drop into the lake, that doesn't prove me wrong. In any such statements, there's an implicit assumption that other effects stay the same, that I am not dropping the fire in the lake.
Seattle has undergone enormous change in the last 5 years due to Amazon. Ignoring that in any cause/effect analysis of the overall city invalidates the analysis.
No, the "trouble" is that exactly the opposite of what you warned would happen actually happened.
What happened was exactly in line with the papers I cited predicted. 1. Large profit hit, 2. small price hike, 3. no effect on employment (employment actually went up, possibly for other reasons).
The reason you believe what you believe is because you swallowed a lot of kool aid. The people concerned about 1 happening want us to think will 3 happen. In Seattle it didn't. In well run studies it didn't.
In propaganda and poorly run economic studies it does.
Yeah, not that one. The one I cited by the UK low pay commission where it found a minimum wage hike was accompanied by a 11% drop in profits and a slight increase in prices (and even then only in the food service industry).
I doubt that anybody has studied the profit drop in Seattle. As an economist, it pays not to look too closely at certain topics and that is definitely one of those topics. It would not help your employability to study that topic at all.
Your employability goes up, however, if your research helps to find results that restaurant associations or "walmarts" with a bit of cash to splash around might find useful.
David Neumark and William Wascher are keenly aware of this, which is probably why they took Card and Krueger's landmark study and twisted it until it showed employment going down after a minimum wage hike.
>Minimum wage hikes are typically a pretty direct transfer from profits to wages, with a minor increase in prices:
This sentiment has always bothered me. It assume that whatever "profit" exists, must continue to exist, nay increase, and that it is a zero-sum game. One could argue that paying your workers more make them eligible to purchase your products ala Henry Ford and the Model T.
Henry Ford raised wages because his staff turnover was killing productivity and because he fell out with his shareholders and decided to spite them. The man wasn't an angel. He was an anti Semite and a Nazi sympathiser ffs.
Edit: also interesting point Mark Andreesen made: we don't have too much automation, we have too little at least in some sectors. If things keep going as they are now, a TV will cost $10 and health insurance and college $1,000,000.
I think that has face validity. However I don't think that those who pay wages allocate a certain amount, pay benefits and then pay the rest as wages. More likely they pay a little as possible (both wages and benefits) to fill the jobs. (Econ 101...)
I think a more likely factor is that automation has reduced the number of jobs relative to the size of the labor pool. In that situation more workers chasing fewer jobs will tend to drive wages down. (Again, elementary economics.)
Another factor may be that large employers that dominate a labor market can exert downward pressure on wages that workers are not able to resist if there are not other jobs available. (Not IMO elementary economics.)
On the face of it, your reductio ad absurdum is perfectly reasonable. Employees do their job, get their money, end of story. Right?
In continental Europe, nobody expects it to work like that. It's a different mindset. If you work in a large firm, the works council has a say (to some degree) in management decisions. It's not always perfect – politics are everywhere – but it is completely normal and expected by bosses and workers alike that employment is a relationship, not a transaction. And for the most part, it seems to be working.
To someone who grew up in that culture, your wild-west thinking seems a bit, well, primitive? Or uncivilized?
> In continental Europe, nobody expects it to work like that. ... To someone who grew up in that culture, your wild-west thinking seems a bit, well, primitive? Or uncivilized?
One should challenge that setup by asking the question: has contintental Europe's policies resulted in high wages?
France has far lower wages than the US, with 1/4 to 1/5 the wage growth rate of the US over the last two decades. Germany, Britain, Spain, Portugal, Greece, Italy, Austria, Belgium, all have considerably lower wages than the US.
Continental Europe also includes dozens of nations that are dramatically poorer than the US, both in terms of median income and median household net worth.
Wouldn't it be more primitive or uncivilized to be using the French approach, since it has resulted in dramatically lower wage growth for decades now? Wage growth in France averaged 0.5% annually the prior two decades. In the US, 2.5% wage growth is considered very slow, with 3.5% to 4% being average in the 1999-2009 time frame. If their system works so well, where's the wage growth (and we're talking about the last 20 years, not a blip of time)?
But digging deeper, Europe has a bigger middle class than the US, and the US has the largest lower class and upper class, the latter which pulls up the overall average.
So is the average citizen is probably better off in Europe than in the US.
Also, Europe is catching up on the US average income too, which is really more relevant than what the past or current average is. It means that recent US policy is not working in favour of the average citizen.
> Europe is catching up on the US average income too ... It means that recent US policy is not working in favour of the average citizen.
Western Europe isn't seeing faster wage growth than the US. Economically the US is pulling away from Germany, Britain, Italy and France. US income and GDP growth rates have been far higher the last 10 and 20 years than most of its peers.
Economically speaking, Germany's GDP hasn't net expanded since 2007, when it was $3.44 trillion (it was $3.46 trillion for 2016). France and Britain are similar. French GDP was $2.66 trillion in 2007, it was $2.46 trillion in 2016.
In that time, 2007 to 2016, the US added GDP larger than the entire German economy (about $4.5 trillion).
It's practically impossible to generate broad wage gains if you don't grow the whole economic pie. That's why French wages have been so stagnant for so long, despite all the supposedly labor friendly approaches there.
The US middle class has contracted because more people have moved up and out of the middle class and into the upper classes, than have moved down and out (that's true over 10, 20, 30 years of time):
The formerly extremely poor 1/2 of Europe in the East has seen dramatic improvement since the end of the USSR. You can see that dramatic improvement in several countries like Czech, Slovakia, Romania (more recently), etc. Many are still doing very poorly at growing their economies, including Bulgaria, Moldova, Hungary, Belarus, Macedonia, Albania, Ukraine, Croatia, Bosnia.
The median incomes of Latvia and Lithuania are still around 1/4 that of the US, Estonia is closer to 1/3 that of the US.
> The US middle class has contracted because more people have moved up and out of the middle class and into the upper classes, than have moved down and out
The study cited directly in the Washington Post opinion piece (and indirectly, by way of a WSJ opinion piece, in the Forbes piece -- good effort there passing off the same underlying study as if it were two independent sources) excludes adult children living with parents from the analysis, which makes it completely broken, since that's a living pattern that is known to be more common among adults with lower income relative to the cost of living, and which has been observed to increase over the time period the study addresses. [0]
So, yeah, if you ignore a growing share of young adults that are unable to afford to live independently, the share of the remaining population that is in higher economic strata by income is greater.
Clever spin, but not really a good representation of the reality.
Would you go ahead and break out the the impact you're claiming as it pertains to adult children living with their parents? I disagree that it makes it completely broken, the effects shown in the study are dramatic, rather than subtle. You'll need to show an equally dramatic impact from adult children living with their parents having a counter effect.
That study also makes adjustments for household size. Further, average household sizes are smaller today than they were in 1980, by about 10%. That trend has been persistent, with household sizes shrinking considerably since the 1950s/1960s.
The upper middle class expanding from 12.9% of households to 29.4% of households, cannot be explained by your premise.
The change in adult children living with their parents between 1994 and 2016, is a mere 4%. From 27.5% to about 31.5%. And most likely that figure is set to decline a bit from here given the very low unemployment rate.
That 4% change, for example, could explain some of the drop in the poor and near poor, from 24.3% of households to 19.8%; and the lower middle class falling from 23.9% to 17.1% of households. However it very obviously fails to explain the change on those two combined. And it entirely fails to explain the epic increase in the upper middle class.
> Would you go ahead and break out the the impact you're claiming as it pertains to adult children living with their parents?
No, barring a grant to do so, I'm not going to dig into the paper’s source data and rerun the analysis without the methodological errors, of which the treatment of the demographic noted is just the most glaring, should be obvious to even a layman at the time who had been basically attentive to the news, much less anyone seriously trying to do honest analysis. Among the other methodological errors (and this is not intended to be an exhaustive list):
(1) The paper commendably recognized that current money income is a different thing than class, which “knits together multiple factors such as income, wealth, education, prestige, and cultural sophistication”, and then proceeded to use money income alone to measure class mobility on the assertion that it “current income is closely related to all the factors associated with social class and because data on current income are readily available.” While prestige and cultural sophistication are clearly hard to get annual statistics for, education and wealth distribution are not; there is no excuse for not including these of the intent to is assess a feature which includes them.
(2) Related to #1, Rose does not justify his thresholds as meaningful class thresholds,
(3) Also related to the use of money income as a proxy for class, Rose justifies using fixed real income thresholds (which mean that changes in the median inflation-adjusted income with even with no distribution change within the non-excluded population will result in upward “class” mobility, which, even to the extent that money income correlates to class, doesn't seem to correlate with how it usually correlated with that concept) with the only justification being that that's how the federal poverty line works (which is true, but it's worth noting that this is both a controversial thing about the federal poverty line, and dubious in relation to class generally even if it is appropriate to the purpose of the FPL; there's probably a good reason to think that what is right for the FPL corresponds in some ratio to the boundary for the lower class, but that with successively higher classes income mapping to the class is not simply a constant multiple of the poverty line.)
(4) No justification is given for the method of calculating “family of three equivalents” (using the square root of the ratio of the actual household size to 3 as an income divisor to get the “family of 3” equivalent income.) Note that if one views the FPL as having a reasonably constant relationship to class boundaries as Rose suggests in his justification of the use of constant real-income thresholds, this method of size adjustment is tolerably close for families under 3 (though off in different directions for size 1 vs. size 2) but artificially pushes families over three upward in “class” because it understates the additional income needed to stay at the same level with more family members.
Are you suggesting you think that kind of housing valuation in relation to the size of the economy, is sustainable? The gap between US housing vs Canadian housing vs economic size, is not subtle, it's extreme. The same kind of housing debt vs economic size representation, is why Sweden's median net wealth level is lower than the US median. Having housing be such an extreme share of the economy, usually has predictable consequences (which the US previously took a hit for).
You'll also need to adjust that 2014 middle class story, for the fact that Canada hit an economic skid shortly thereafter when oil imploded, and the dollar went up a lot (as have most US assets). That occurred almost immediately after that story. The dollar going up a lot by itself is enough to have dramatically altered the wealth balance in question. The Canadian Dollar was around 0.95 to 1 at that time, it's now at 0.78.
> The US middle class has contracted because more people have moved up and out of the middle class and into the upper classes, than have moved down and out (that's true over 10, 20, 30 years of time)
I think this is a super interesting phenomenon, and I honestly don't understand how the migration from middle to upper class works in practice, particularly in the face of technological un(der)employment. (And nobody has been able to explain it to me.)
However, the exact same is happening in the EU as well (graph: http://slatestarcodex.com/blog_images/techun_polarization.pn...) so it's not like it's some libertarian US-only miracle (or that labour-friendly rules would prevent it from happening for that matter).
I've responded to the GP about how the US study cited is misleading, but the graph here seems to be worse, as it seems to simply misrepresent the data in the cited source, "Goos, Manning, Salomons (2014; Table 2)". Looking in the paper that it appears to be referencing [0], Table 2 shows -- instead of the across the board decreases in share of jobs in the low wage sector with increases in the middle and high wage sectors shown on the graph -- increases in most countries in both the low (Finland and Luxembourg being exceptions) and high (all countries) sectors, and decreases in the middle wage sector (again, all countries.) The first sentence of the conclusion of the paper states: "The employment structure in Western Europe has been polarizing with rising employment shares for high-paid professionals and managers as well as low-paid personal service workers and falling employment shares of manufacturing and routine office workers."
I actually do this, but not in the dramatic fashion that you suggest.
If I want my house painted (or a similar task), I go to a good professional. He asks me what I want. I usually give broad instructions like “I want it to look good” or “I want a good quality to price ratio” or something like that. Then I ask what he suggests and/or what he would do if he were in my shoes.
I usually get a pretty damn good answer. At “worst”, I am presented with some trade offs, and I pick my poison.
If I don’t trust the painter (or other specialist), then I probably have not done enough due diligence.
>> Maybe the solution is as easy as giving workers a voice.
>Maybe you should give the guy you paid to paint your garage a voice in your management of your home.
Probably not. Managing my home far exceeds the responsibility to paint my garage. However it would be wise for me to give that guy a voice in how best to paint the garage. He is, after all, a professional and knows more about painting garages than me.
Oh that’s a very different thing. You’re comparing a one-off job with a job where two parties have decided to share a decent amount of their life time together. That’s a whole different story, more like you’re consulting with your au pair on the children’s room paint color
An au pair usually lives in your home and takes care of the children for 6-8 hours a day, for 6-12 months. Are you suggesting she shouldn’t have a voice?
Yes, but the actual education is carried out by the au pair. Like it or not, if she doesn't like your decision, she may act otherwise. Execution is more important than decision.
>Your distinctions between [...] a contractor and an employee, are arbitrary legal definitions. They aren't economic ones.
I would argue that not only are these definitions not arbitrary but they meaningfully reflect the differences in the relationship across legal, ethical and economic spheres based on the length and type of the business relationship. For instance there are very meaningful legal, economic and ethical differences in responsibilities for the seller and the buyer when leasing a house (long term) vs booking of a hotel room (short term).
Isn't it tautological to claim that legal definitions are not arbitrary because of legal spheres? As to ethics, people often invent ethics that coincidentally benefit themselves. I'm talking about economic definitions.
If you agree to provide X labor for Y $, and later say you are "ethically" entitled to Y*2, how is that ethical? Ethically, you should stick to what you agreed upon.
The ethics are about how you construct laws around employment based on the sorts of employment relationships the society considers just or ethical. For instance in many states there are regulations around workplace safety. Given the power differential between the employer and employed and general human stupidity it is understood that there are certain limitations that must be placed on an employer to protect the employed. This similar to how society recognizes certain obvious limitations to transactions such as purchasing food, medicine or the construction of Opera houses.
Legal definitions drive economic reality, the results of which we are discussing in this thread. What is the tax rate other than an "arbitrary legal definition"?
I consider my education an investment, by your logic that makes it a business.
Your education most definitely is an investment, and various economists have indeed calculated the returns on such investments. The ROI certainly affects students' choice of major, as well as the decision to even go to college.
Economically speaking, making an investment and expecting a return on that investment, makes it a de facto business. This is even recognized by the courts, as they've decided that a partner who supports the other going through college, is entitled to a share of the others' earnings afterwards.
You keep ignoring the primary point in order to argue semantics. Laws impact the economics of businesses operation, no matter how you define a business. The data tells us that our laws are maximizing wages for a small subset of the population. Other countries are not seeing this same divergence.
The laws in those countries are more similar to a time in the US where income was much more evenly distributed than today’s US laws. For those of us interested in improving the wage distribution for those in the bottom half, this is worth discussing. If you don’t think there is a problem, no need to comment.
> Laws impact the economics of businesses operation
Absolutely, they do. That does not imply the laws are not arbitrary.
> If you don’t think there is a problem
The US remains a country where poor people want to immigrate to in enormous numbers. Maybe they see something you don't.
Also, the share of GDP spent by the government has gone up, up, up along with increasing inequality. Maybe you should look at that? Somebody is paying for that. I suspect it is a cause of increasing inequality. The spending is so enormous that to ignore it when discussing other economic trends seems unrealistic.
The guy that I pay to paint my garage most certainly has a voice in how he is managed. If I want him to paint the garage on Sunday at 23:00, he will most certainly refuse to do so (or impose extra charges).
Even so, the problem outlined isn't after-tax earnings, it is wages. Lower tax rates don't solve that fundamental economic issue.
In the past twelve months, the unemployment rate has fallen, from 4.8% to 4.1%. Meanwhile, the laborforce participation rate has also fallen, from 62.9% to 62.7%. This is not easily explained by traditional labor economics. It seems like there is a broken link somewhere in the chain.
Why haven't we seen wages rise with the falling unemployment rate? Why aren't discouraged workers moving back into a labor market with 4.1% unemployment?
Wages aren't going up because there is nothing forcing them to go up. The upper class just takes their rents and insists paying more wages would tank the economy.
Participation is going down because there's little reason to seek employment if you know the employer is just attempting to shaft you. You produce $40/hr, but they'll pay you $8/hr. You can't negotiate, they'll just find someone who is desperate.
I largely agree with you, it was more of a question for those who believe labor economics should act like traditional market economics. You have pointed out the key difference as there isn't perfect information in labor economics like there is in market economics.
I think the decline in the labor rate isn't as much of a mystery as some people think. Baby boomers are definitely retiring. For the last 10 years we've had two demographic bubbles (baby boomers and millenials) in the job market at the same time, and now that is shifting. Obviously there is more at play when you look at certain demographics in certain regions, but a lot of this can be explained by the number of older people who are choosing to retire or being forced to retire by medical issues.
I believe HN misses this issue sometimes because on average tech workers are pretty young. However, anecdotally, in my last office (in the same organization) we had a team of 10. 5 of my coworkers there were over 60 years old... Those people are going to retire soon and hopefully live good long lives outside of the labor pool.
Looking at the federal income tax rate is only a small part of the picture. There are a lot of other taxes everyone pays, payroll taxes / fica, sales taxes, etc.; most of which are highly regressive. You could cut those for lower income brackets.
When you include these tax categories you will also note that there was a shift to these regressive taxes at the same time the highest income tax rates were cut. And to further reinforce this feedback loop there was also a move to reclassify income to long term capital gains profit which is taxed even lower than the highest income tax.
All of these policy shifts combined to create greater wealth inequality, and wage stagnation.
It's supply and demand 101. We've allowed 15-20 million illegal immigrants into our country who have no labor protection under federal law because they don't exist. End result is depressed wages up the chain.
At the opposite end of the spectrum – which we call ‘strong linkage’ – it’s possible that productivity growth translates fully into increases in typical workers’ pay, but even as productivity growth has been acting to raise pay, other factors (orthogonal to productivity) have been acting to reduce it.
At the same time, non-purely technological hypotheses for rising mean-median inequality include the race between education and technology (Goldin and Katz 2007), declining unionisation (Freeman et al. 2016), globalisation (Autor et al. 2013), immigration (Borjas 2003), and the ‘superstar effect’ (Rosen 1981, Gabaix et al. 2016). Non-technological hypotheses for the falling labour share include labour market institutions (Levy and Temin 2007, Mishel and Bivens 2015), market structure and monopoly power (Autor et al. 2017, Barkai 2017), capital accumulation (Piketty 2014, Piketty and Zucman 2014), and the productivity slowdown itself (Grossman et al. 2017).
All of the non-technological reasons, to me, boil down to globalization.
I'd love to see the productivity-wage divergence chart in China and other developing countries. I wouldn't be surprised if the divergence is inverted in those places that have seen unprecedented wage growth over the last forty years.
I guess what I'm saying is that I don't think productivity and wages have diverged as much as people think, it's just that a national analysis is insufficient in a global labor market.
This seems like the obvious answer. There was a consensus after WW II to push globalization. The theory being that international economic relationships would reduce chances of war. Plus dramatic improvements in shipping efficiency, through containerization and attendant automation. So yes, "a national analysis is insufficient in a global labor market."
Also, globalization has necessarily depended on reducing protectionism. And it's arguably been associated with declining nationalism. In a collective sense. As in, for example, American firms and their employees being loyal to each other. I believe that this sense of nationalistic loyalty peaked in the 40s and early 50s. Reflecting the war effort, of course.
> All of the non-technological reasons, to me, boil down to globalization.
I tend to agree that globalization plays a significant role. However several of the listed factors aren't directly related to globalization, and have more to do with US culture and domestic economic priorities:
I'm most familiar with this one, but I agree with your comment more generally
> (Goldin and Katz 2007)
This in particular is not a globalization issue. To the unfamiliar, the premise is that technology aids productivity for the highly educated, but replaces productivity for lower educated. Highly educated people will see higher wage growth as technology improves but lower education will correspond with fewer productive job opportunities. The group will become increasingly small at the same time, as more advanced technology begins to replace more complicated jobs. I don't think it was part of the paper, but you can think of it also in terms of what the singularity will look like as it happens (eventually no human is individually more productive because of technology, because the technology doesn't need the human).
Very little to do with Globalization, at least in the US where we have a relatively highly educated workforce.
I would add women entering the workforce en bulk, essentially doubling it. Between that and globalization it would seem the supply/demand ratio significantly changed to have downward pressure on salaries.
Your downvotes are unwarranted for an economically proven observation.
Woman entering workforce have had an effect and still have at a decreasing rate.
Esentially they converted the labor market from a supply driven market (workers more in command) to a demand-driven market (those creating work in command)
Any measures to lower the need for workers (automation, efficiency gains) or increasing the workforce (immigration, women working) worsens working conditions.
Women entering the workforce in bulk was done already two decades ago. The female labor participation rate peaked in 2000 and has declined since that - however, the trends are still continuing; they are not coupled/correlated to this increase of workforce.
Yes, that's been important too. But it's complicated. I gather that women are in greater demand in sectors that have benefited from globalization. Whereas globalization has cut labor demand in traditionally male blue-collar sectors. Except for trucking and construction, anyway.
A two-parent household isn't going to double its consumption of everything if both parents start working. First, because wages will be depressed from the new labor supply, the total income of the household doesn't double. Second because their tax rate will increase. Third because many things we consume in fixed units with little control over the total cost, like "health insurance".
But they will increase their consumption of some things, particularly when it comes to the direct cost of working, so the family may spend more on things like transportation, clothing, child care, home care & maintenance services, food preparation, grocery delivery, etc.
Home ownership rate is currently near averages maintained since the 70s. But it increased substantially in the 40s-70s (from ~45% to 65%). So to the extent that rise was enabled by dual income households you’re absolutely right more demand for housing drives up housing prices and saps up the extra income.
I think you mean consuming more because spending more is meaningless if inflation has risen faster than the increased spending.
A corollary trend is families having far fewer children. I imagine (but don’t have the data) that would decrease consumption more than whatever increased when we doubled our workforce.
>All of the non-technological reasons, to me, boil down to globalization.
Union busting, the rise of monopoly power and capital accumulation aren't solely about globalization though.
Most of these reasons do share one salient feature that technology doesn't, however: you can single out individuals who are deliberately making the problem worse.
Because it was always about class warfare, and as W Buffett said, the rich are winning. Just how they promised us the industrial revolution would, but instead the rich gobbled up all the profits while starting the workers which led to the Era of robber barons. Anyone who thinks the information or automation revolution isn't going to result in the same thing unless we change fundamental business practice is in for a rough surprise.
Is this true? I think the average worker is much better off now than in the past. It's not that long ago that many people in the US didn't have electricity. I think what's happening is as we get richer our definition of what's necessary to have a middle class life gets continually revised upwards. Most people have a car, several electronic devices, eat out relatively often, etc. What used to be a luxury or aspirational becomes commonplace.
That's not to say there aren't problems, but exaggerating how bad things are makes any argument to fix them less credible.
This is a common retort and an overly simplistic way to look at the subject. In essence, it's not about the improvement overall compared to the past, it's about the potential for improvement that never reached the people because of exponentially growing wealth inequality. Trickle down is bullshit.
I notice you side stepped the direct question regarding whether or not your initial statement was true. You then go on to state that it isn't about overall improvement (something that can be measured) but rather improvement compared to an imaginary world that might have existed (something that cannot be measured). You then say that wealth inequality has grown exponentially. I'd like to see a verifiable source for that assertion. If you are just going to virtue signal and call me names, there is no need to respond.
Bread and circuses[1] satifies only the most base of human needs[2]. Perhaps that is why stress, anxiety, depression, and mental health issues have been on the rise for quite some time now.
I think there's a lot to be said for how helpless the average worker is in the modern economy. Part of it isn't just the absolute conditions of modern people, but the knowledge and zeitgeist that people have now. The concept of the "American Dream" isn't dead, but it's becoming increasingly reserved for only a small subset of people with specific backgrounds and skills. People that aren't, for lack of a better word, special simply aren't going to make it big; more importantly, even if this has always been the case, people now know that about themselves.
People born in poverty look to lottery tickets, both literally and in the form of risky activities like gang activities and becoming professional sports players (which is risky relative to what else you could accomplish given the same amount of effort). They typically don't have access to education, or benefit from stable households, enough to break out. Middle class people don't realistically have a chance of becoming wealthy unless they're unusually smart or socially skilled. Neither group has the means to fix this situation politically or culturally because very wealthy people control politics and culture (or at the very least, all the important parts). Most modern success stories are essentially an upper-middle class person rising to the lower-upper class.
I think we need a new frontier. Maybe that's just a substitute for a lottery ticket, but it's a lottery ticket with much better odds.
And not everyone is secure enough in the "bread" either.
"An estimated 12.3 percent of American households were food insecure at least some time during the year in 2016, meaning they lacked access to enough food for an active, healthy life for all household members. That is essentially unchanged from 12.7 percent in 2015. The prevalence of very low food security also essentially unchanged, at 4.9 percent in 2016 and 5.0 percent in 2015." [1]
>Perhaps that is why stress, anxiety, depression, and mental health issues have been on the rise for quite some time now
You're gonna need a citation on that. Especially because it's far more likely that it's simply become more acceptable to talk about, and the definitions have expanded.
I don't know how much easier it is to talk about but I do agree the definitions have expanded greatly. Perhaps a more objective measure is needed, such as the suicide rate:
Yeah, I'm not disputing that. I'm saying that the conditions of the average person are better now than at any point in the past, even though income inequality has gone up.
I'm in favor of marginal changes affecting how income is distributed by the way. I'm skeptical of large changes because I don't think we're very good at predicting the outcomes of such changes and the current system, though obviously deficient, is the best we (meaning the US) has been able to come up with at this point.
The average worker is one $1000 calamity away from financial ruin. The average worker is not better off, and your view about how “most people” live regarding vehicle ownership, electronics, and eating out is out of line with reality for the lower and middle class.
95% of American households have a car. So I'm not sure I'm that wrong. Maybe if you live in New York or Boston that's not true, but in most of the country you need a car to get around.
I don't know too many lower class people, but I do know a decent amount of lower-middle class people (service industry jobs, no college degree). They all have cars, newish cell phones, and do go out to eat and go to bars. They don't save much money as far as I can tell, so they probably are $1000 away from financial ruin though.
Yes, I don't think we're disagreeing. I was just saying that what is considered a reasonable expectation for a middle class life is much more than it used to be. On an absolute scale I think the average American is better off now than they were 50 years ago.
I'm aware that there is small, but substantial part of the population that lives on a few dollars a day in the US, but I don't think that invalidates my main point.
Here's the thing, happiness or just general "well being" is due in large part to how people perceive their world, not only due to the physical, material conditions of it. Yes, even poor people these days have smartphones and cars and refrigerators (in part because these are basically necessities to participate in Western economies).
But that doesn't mean they'll ever not be poor, nor that they can easily afford those goods. And that doesn't even touch on all of the class-based cultural differences and systemic inequalities (e.g. in education and justice) that middle class/poor people are still subject to.
If happiness is relative and based on perception, could you make the argument that making everybody equally poor would be just as beneficial as contributing to everyone's success, rather everyone willing to work for it? If you continue to move the "goalposts of happiness" you could end up in a situation where there is the potential to do right by 98% of people, but you decide against it so that the 2% don't feel bad.
I suppose that is the logical reductio ad absurdum counter-argument. I'm no idealist, obviously some level of inequality is inevitable because humans are fundamentally different from each other in their abilities. I think it's really generational wealth and social mobility (two sides of the same coin) that are the important factors. Everybody knows that there will be "losers" in any game, whether it's a video game or the more serious economic game that we all play throughout our lives.
I think the disaffectedness of the not-well-off is due to a sense of helplessness that even if they had the ability and wherewithal to contribute to the world and better their own lives, that they wouldn't be able to do so due to factors that are out of their control, not out of some misplaced belief in equity-of-outcome
Note that I'm not railing against meritocracy. Rather, it's that the system currently equates a lot of "merit" with factors that very highly correlate with having a wealthy upbringing. Also, meritocracy taken to its own reductio-ad-absurdum of a small group of extremely capable people controlling all wealth is not in itself desirable - just because it's theoretically possible to achieve upward social mobility by being part of the top 0.01% of intelligence/capability/whatever doesn't mean it's "fair" that success is reserved for such a small group
Wealth inequality is the result of a debt bubble that's been growing for several decades, not technology. High household debt to GDP and wealth inequality probably coincide today for the same reason they coincided during the Great Depression. The ways these debts have to be restructured or dealt with distort the economy, in a way that tends to massively benefit some while hurting everyone else. If you own stock in or work for a health insurance company, the last decade has been fantastic. On the other hand, the government will soon find that it's having trouble keeping up with the debt from its healthcare programs. If you started a company in Silicon Valley, you benefitted from enormous pools of VC money that might have been in treasury bonds if the Federal Reserve hadn't already been buying trillions of them. If we look back historically, wealth inequality began to normalize by the 1950s only after the US's debt was erased. The story that runaway technology is creating massive inequality is unlikely be true in a country where GDP growth is only 2%.
This touches on something I've been thinking about but don't have a word to look into further; maybe someone can help me out.
I would think that the productivity of a worker (as defined here) would put an upper bound on wages, but not that wages would necessarily rise to that. That would depend on supply and demand of labor.
The concept I've been toying with is this: suppose there are 100 software jobs and 90 software developers. In that regime, the wages will rise to the value created by the software developers, since there will be a bidding war among the companies that need them, and they'll be willing to pay up to what the developer is worth to them. On the other hand, suppose there are 100 software jobs and 110 software developers. Now the wages will fall to the minimum amount the developers will take, based on cost of living or switching careers or whatever, since companies will now offer as little as they can get away with.
IOW, I think that there are two discontinuous "wage regimes" depending on if there are more workers than jobs, or more jobs than workers. Is there a term or concept for this that I can read about more?
In your example there's not really 100 software jobs and 90 software engineers, but instead a supply curve and demand curve. If the price of engineers went down, companies would love to hire more. While if the price went up, more students would start learning comp sci, self-employed developers would look for a job instead, etc.
You are getting near some fundamental concepts in economics, but still need some guidance.
For one thing, saying that here "are" 100 software jobs is not the right way to think about a labor market.
You're right that no worker can sustainably be paid more than their work is worth to the employer. That is an upper bound on their pay.
Similarly, no worker will accept less in pay than they can get elsewhere. That puts a lower bound on their pay.
And so on.
The science that deals with this is called "Microeconomics", or sometimes, and more descriptively "Price Theory".
There is an enormous amount written about it, and knowledge of it gives you a hugely useful tool to understand the world. I wish I had a great introductory book to recommend, but I don't :(
If you go to the classical economists (Smith, Ricardo, Mill, Marx), you'll find that they tend to discuss both specific classes of goods, and specific factors to the wages of labour.
Of the first, from Smith, generally: commodities, wages, rents, interest, assets (gold and silver), capital (stock), and public goods ("expenses of the sovereign"). These are somewhat scattered about the book, the first six largely in Books 1 & 2, and Book 5 devoted solely to the latter.
I'll turn it over to Smith for the factors in compensation of labour, as he's uncharacteristically direct and brief:
"The five following are the principal circumstances which, so far as I have been able to observe, make up for a small pecuniary gain in some employments, and counterbalance a great one in others: first, the agreeableness or disagreeableness of the employments themselves; secondly, the easiness and cheapness, or the difficulty and expense of learning them; thirdly, the constancy or inconstancy of employment in them; fourthly, the small or great trust which must be reposed in those who exercise them; and, fifthly, the probability or improbability of success in them."
(An expansion of each of the five elements follows.)
From Ricardo we get the Law of Rent and Iron Law of Wages (Lasalle, Marx, and Engles also discuss this). The first notes that for any productive input whose quantity is fixed, the price will rise to capture all of the generated value. The second notes that wages fall to or below the level of bare subsistence.
The second factor is most distinct for nondifferentiated labour, that is, unskilled, and in particular, in a stagnant or declining economy. Smith describes the circumstances of the latter in terrifying detail in Book 1 Chapter 8, which I strongly recommend reading in full, though the relevant detail begins at: "But it would be otherwise in a country where the funds destined for the maintenance of labour were sensibly decaying..."
Smith, et al, are classical economists, and their observations were given mathematical rigour and explanation by the marginalists. Effectively, goods producing rents have zero price elasticity, public goods have zero marginal cost, and in the case of wages, there are generally distinct short-term and long-term cost components, a phenomenon which can produce a backwards-bending supply curve. That is, if you reduce a wage rate below subsistence, on a time-worked or piece-work basis, you will get more productivity as labourers work more hours to simply meet their minimum survival requirements. This comes, however, at the cost of long-term capacity: raising of families, rest and recuperation, education, and the like.
Much of the conflict of modern economic life, from a worker-renter's point of view, can be explained by the squeeze of falling wages against rising rents, via numerous mechanisms.
Your observation on who has rightful claim to the surplus value generated by labour (and the role of increased productivity in setting an upper bound to the possible wage component) is the matter explored by Thorstein Veblen, though I need to revisit just exactly where.
Apologies for the late response, though I've been thinking this over.
I'll stand by my earlier comment: read the classic economists themselves, directly, if at all possible. Smith, Malthus, Ricardo, Marx, Mill (both John Stuart and David), Carlisle, Toynbee, Marshall.
You don't need to read all of them or the works in full, but each of these addresses at least in some depth and detail the question of goods and their pricing behaviours, in ways that are not generally addressed today.
There are overviews and histories of economic thought and its development which should be useful. I've read Heilbroner (The Worldly Philosophers) and Backhouse (The Ordinary Business of Life), both of which provide a broad overview. Ha-Joon Chang has Economics: The User's Guide, which is a pretty good overview of various schools of thought.
I'm particularly impressed currently by Steve Keen, whose most recent book is Debunking Economics. He's been developing his ideas at a rapid pace and to an extent has overrun what's in the book. He's good to watch though.
John Kenneth Galbraith tends generally to discuss economics more-or-less in the terms I've been mentioning here, with The Affluent Society and Age of Uncertainty probably being good starting points.
I'm not much impressed by and generally strongly discount most Libertarian thinking, though if you'd like a sense of what I consider to be bad/poor economic theory, Howard Hazlitt's Economics in One Lesson and Murray Rothbard's Libertarian Manifesto might be considerations.
That's an awful article. The author is trying to infer too much from data that summarizes the entire economy. There's far more detailed data available from the Bureau of Labor Statistics. You can look at technology and productivity by industry sector, which is more useful.
This guy was Secretary of the Treasury and a professor of economics at Harvard. He has to know better. This looks like starting from a desired result and working backwards to support that argument.
I first read the comments page on nakedcapitalism.com before browsing these comments. It is interesting that these articles are discussed on HN as a proxy for using the comment section of the actual site, but I guess that is the norm these days. I would kind of expect the discussion at the actual site to be more informed as only more dedicated people to the topic would have membership at the smaller site. But I feel like, more or less, the discussion here mirrors the one on nakedcapitalism. It would be interesting to bucket all the arguments that are more or less the same. I see the following: (in answer to why have wages stagnated)
* 'its because the rich are greedy assholes who have corrupted government'
* its due to globalization or cannot be explained without factoring this in
* its because of some complex unorthodox economic theory (insert here)
I can tolerate the comments on HN more than on reddit where I can only anticipate the ratio would tilt so heavily in favour of just emotional outbursts against rich greedy assholes that get upvoted by online pitchforked mobs ready for the revolution. These main lines of thought spawn mini threads that swirl like like pools of attention suckage in a steady stream of water. What I think would be interesting would be for some kind of automatic moderation that parses out the main arguments, prevents de-railments, crushes duplication, and forces the true competing arguments to face each other head on in the rational arena.
The evidence is in your favor where the CEO compensation just went up, up, up even as they used every justification in the world to pay workers less. The workers whose actions generated the revenues.
In most companies I've worked, the CEO's mostly just made simple or random choices based on what data people under them were producing. The companies with established models could mostly run on autopilot. They have at times in between senior management or executives. There's also been little evidence their performance is tied to their pay much outside financial manipulations with many taking golden parachutes on way out of companies doing poorly. Add in the interlocking boards effect on compensation grants, you have every reason to believe the pay gap is an artificial construct by a privileged few to further enrich themselves at the expense of the many. These other explanations are either of little effect or smoke screens to keep people from attacking the root causes of what their doing.
It's not like they hide it when talking among themselves that this is a system designed for the exclusive benefit of the rich as much as they can make it. See the leaked Citigroup memos about the plutonomy and such that they tried to take off the Internet.
It would be interesting to see how much CEO compensation has increased when you control for firm size. My guess is it's still increased but not as dramatically. Given growing firm size and industry consolidation it makes sense that CEOs would get paid more. There's fewer of them and their responsibilities are larger.
I also disagree that CEOs are unskilled. Try putting a random Ivy League graduate in charge of Goldman Sachs. I don't think they would succeed.
There's undoubtedly rising inequality, but I don't think there's a single cause, nor a simple solution.
That would be interesting as I expect the gap to be with larger firms with more politics and administrative overhead in general. Far as skill, I'm not saying they're unskilled so much as not that much more skilled than managers or specialists that make tiny fractions of what they make.
Goldman Sachs is so unusual I wouldn't use them for extrapolating general trends. They do hire tons of people much smarter than their CEO to do the work that leads to CEO's decisions but make way less. It fits my model as a data point. They do pay some of their clever employees small fortunes a lot more than some other companies, though. They also lobby Congress and infiltrate regulators which is how they negotiated the bailout. They're more scheming that most creating wage gaps. On a whole, nother level of creating problems. ;)
Btw, been a long time. Hope you've been doing well, Jeffrey.
Even if this is true, you're limiting your options by not trying to understand the technicalities behind it. Why don't the people at the top want to share? What are we even sharing? How does sharing happen? By what means does sharing occur?
The only reason you believe the people at the top don't want to share is because of centuries of thinking that has lead you to see the structure of the world in a way that this is useful. Summing up centuries of thought into a single phrase, and then throwing out the data and ideas that got you there is...risk at best.
There are people like that in every wealth bracket. The difference is, the people at the top are uniquely empowered to make it happen.
As Dana Meadows warned us over 40 years ago, the numerous "[more] success to the successful" feedback loops in our society have overcome the wealth-equalizing negative feedback loops, with the (predictable) result being runaway exponential wealth concentration.[1] Limits to Growth, despite its convenient "debunking" in the popular zeitgeist, is tracking well with real-world data.[2]
"The study of money, above all other fields in economics, is the one in which complexity is used to disguise truth or to evade truth, not to reveal it."
-Money: Whence it Came, Where it Went, John Kenneth Galbraith
>Why don't the people at the top want to share?
Ideology and power
>What are we even sharing?
Money
>How does sharing happen?
>By what means does sharing occur?
Computer databases
>The only reason you believe the people at the top don't want to share is because of centuries of thinking that has lead you to see the structure of the world in a way that this is useful.
The history of union busting in the US clearly shows that many people don't want to share their wealth.
But what is wealth, and how do you want to share it? It's not a zero sum game. Let's say a billionaire wants to part his ways with $500M. They need to:
1. Sell $500M of shares they are keeping, hence dropping the price of the companies they are invested in. Employees of these companies lose.
2. Give the $500M, but to whom? Can be to "the poor", but what will be generated this way? The people will be better off temporarily (some of them permanently, of course), but the money will randomly radiate away to the whole economy. But you can alternatively give the money by investing in e.g. startups, incubators, hence magnifying the potential success of ideas you believe in, and people who can statistically get things done better that the average person. The side effect is that you'll be probably richer from the new investments.
Money is not a static resource rotated around the world.
- It's a measure of capability/intelligence/luck/circumstances of birth.
- It can be generated out of (generally) 'getting things done'. Two people creating things out of nowhere are both richer.
- It's a magnifying glass you can use to advance ideas you believe in.
- It flows from those who spend it, to those who generate more than spending (so, by definition, are able generate more of it by using it - the statistically "rich")
> Capability and intelligence are starkly contrasted by luck and birth, and this is a problem. One creates meritocracy, the other monarchy
Yes, and that is unfortunate. I don't have the numbers at hand, but at least in US, it's still on capability side, if I remember well. Not sure about Europe.
> It can also be generated out of nothing, and by destroying wealth a la broken window fallacy.
Sure, it can. Yet an interventional/evil government must be taken outside of this argument I think, just as e.g. thermonuclear war. The rules indeed break down then.
It really comes down to supply and demand. In areas where there is a shortage of supply of workers that have a particular skill that businesses value wages do rise. However, if there is plenty of supply for certain kinds of jobs then the market will not pay them as much.
I do think that automation/increased productivity plays a part if you automate things out where more people are now capable of doing a particular job it will deflate the wage of that role since there is a greater supply that can now perform that role.
Is there evidence that this explanation is more true now than in the past? It's probably worth at least examining whether they have become more capable of acting out that preference.
"they have become more capable of acting out that preference" is exactly the key point of such discussion - with increased automation, companies need more capital and less labor.
This means that the labor (ordinary workers) gets less leverage and capital (owners/managers) get more leverage, i.e., increased ability to ensure that they get a larger share of the pie.
The ancient dictator needed his slaves to work to build his pyramids. The feudal lord needed his serfs to work his fields. They needed to ensure that they are kept from rebelling but also can live well enough so that their numbers (and thus the lords' power) increase.
The industrial capitalist needs to keep the working class somewhat satisfied (bread and circuses?) - they are absolutely vital to his needs, and if they self-organize and start striking, he loses.
However, in the far future when everything is automated, whoever controls the means of production doesn't need the underclass in any way whatsoever. They may care about their community, but letting the underclass to starve or machinegunning them isn't an impossible "solution" anymore. Neither the slaver, nor the feudal lord, nor the industrialist could afford to eliminate everyone who's discontent, even if they physically could do so after crushing a rebellion - they needed their labor. In the future, that won't be the case; the only thing preventing a ruling regime having their robot army slaughter the unneccessariat is if they choose not to do so and choose to share the wealth instead.
I don't have quantitative evidence, but I do feel there was a cultural shift in the 1970s-80s in the corporate world. "shareholder value" became the dominant view of what companies were for (rather than say, social value), activities that most corporate leaders would have been ashamed of in the past -
extremely high compensation relative to their employees (100x or more), layoffs to cut costs even when profitable, etc. - became acceptable or even sources of pride.
Sure, how about the massive wave of increasing power and centralization at the heart of where money/wages originate: the finance sector. As well as declining union participation rates
> So the basic question is: why are wages stagnating in the face of increased productivity?
Wages are set by what people are willing to accept when compared with what people are willing to pay to perform a function. Wages really aren't related to productivity, except that increased productivity limits the number of hires.
In the same way that you most likely don't share all your income with others, employers do not share all their income with workers.
Because automation means that there is less need for other people in a business venture. We need more entrepreneurs automating niches and reeping all the rewards.
That's a very narrow short term analysis, as compared to the broader long term analysis detailed in the discussion of this article. Also consider that your article's starting point is 2009, right after the massive global economic crash.
What about the disconnecting of currency from the gold standard (1971/1973). Productivity gains that rippled through the economy based on a capped unit of accounting were now more likely to end up in the banking vaults of the institutions overseeing the money issuance and those close to the source - while the rest of the workforce sat on inflating paper.
Not sure why this comment wasn't upvoted higher. Inflation has effectively been a slow-moving tax increase to the middle class, as tax brackets don't change with the decreasing value of the US dollar. A $100,000 salary in 2018 was equivalent to a $65,000 salary in 2000, meaning much more of one's 2018 income is pushed into the higher 25% bracket rather than the lower 15% bracket.
Also coincides nicely with the demand on families to go from one partner working and able to sustain a family of 4-5 (lots more kids in the 50s/60s) to both parents having to work and smaller family size over the past 50 years.
Glad to see this proven out somewhat, since in the back of my mind I've been thinking it all along, every time someone claims automation is going to eliminate more jobs. That's not how it works. When cars are made more fuel-efficient it results in our collectively using more gas, because of more miles driven. (The phenomenon has a name that I'm forgetting.)
Obviously there are myriad ways of obfuscating what's really happening, and blaming technology is one of them.
EDIT: The Jevons Paradox, thank you belated memory cells.
Exactly. Timber industry (successfully) blamed the spotted owl for laying off workers. Rather than automation, foreign competition, reduced demand, etc.
Especially because technology drives automation, and automation pushes us ever closer to a very difficult question: What, exactly, will happen when all jobs which can be automated, are automated?
Everyone will work in new jobs that are not yet automated.
It is the fundamental of capitalism that we will find new ways to earn money (because we have to).
I have no data on this, but I wouldn't be surprised if more than 50% of the jobs that existed in 1960 are automated today. That doens't mean 50% of the workforce are unemployed today.
> It is the fundamental of capitalism that we will find new ways to earn money
You're fundamentally misunderstanding capitalism. Jobs are a negative side effect of a business making money. If, as a business owner, I can make money without employing anyone, I will happily do so.
The fact that you need a job to make a living has no bearing on whether or not my business will employ you.
When the automobile was invented, horses didn't get new jobs. We butchered them into horse steaks and glue.
Yes, jobs are a negative side effect, but the profits shareholders make from the savings when their companies automate jobs are spent or reinvested into demand-generating areas.
The horses were labor, and were fired once their labour was automated. Capital doesn't require pay every day - people and horses do.
> Yes, jobs are a negative side effect, but the profits shareholders make from the savings when their companies automate jobs are spent or reinvested into demand-generating areas.
It really doesn't.
Say you replace your employees with robots. Obviously, this generates demand, because someone needs to build and repair the robots.
But you know what generates demand?
Paying your non-automated workers.
Replacing them with robots generates less demand then just paying paying your employees. If replacing them weren't a cost savings, you wouldn't have done it!
Productivity gains do result in demand growth, if you pass your cost savings on to customers, but only to a limited extent.
Consider this example: I own a car.
If automobile manufacturing became 10x more efficient, and cars dropped in price by a factor of ten, I wouldn't buy 9 new cars.
This would reduce the amount of money that goes towards salaries of auto workers, or salaries of auto suppliers (Or salaries of auto robot suppliers) - without generating any extra demand.
I won't argue the second point; you might be right about some of it, and there isn't time space to hash it out.
But horses are definitely not labor by economic standards. They have no will or ability to negotiate their work hours. They are owned. They do not require pay. They require maintenance; their feed and care is like oiling a tool or allowing a motor to cool. They are and always were property with a special exemption against cruelty for recognition that they have sentience.
Why are we still doing this in 2018! The jury isn't out on this one - the voodoo tricke-down economic experiment is over and the results are in - it is nothing more than a sensationalized way for the rich to piss on the poor. If you don't believe me try this: Go on google.com - type "rich piss on the poor" - the click "I'm feeling lucky". I rest my case lol
A more constructive debate should focus on how to first mitigate, reverse and then prevent.
There was just a post on a related topic, technological unemployment, on SlateStarCodex. Quoting the conclusion below:
Here are some tentative conclusions:
1. Technological unemployment is not happening right now, at least not more so than previous eras. The official statistics are confusing, but they show no signs of increases in this phenomenon. (70% confidence)
2. On the other hand, there are signs of technological underemployment – robots taking middle-skill jobs and then pushing people into other jobs. Although some people will be “pushed” into higher-skill jobs, many will be pushed into lower-skill jobs. This seems to be what happened to the manufacturing industry recently. (70% confidence)
3. This sort of thing has been happening for centuries and in theory everyone should eventually adjust, but there are some signs that they aren’t. This may have as much to do with changes to the educational, political, and economic system as with the nature of robots per se. (60% confidence)
4. Economists are genuinely divided on how this is going to end up, and whether this will just be a temporary blip while people develop new skills, or the new normal. (~100% confidence)
5. Technology seems poised to disrupt lots of new industries very soon, and could replace humans entirely sometime within the next hundred years. (???)
This is a very depressing conclusion. If technology didn’t cause problems, that would be great. If technology made lots of people unemployed, that would be hard to miss, and the government might eventually be willing to subsidize something like a universal basic income. But we won’t get that. We’ll just get people being pushed into worse and worse jobs, in a way that does not inspire widespread sympathy or collective action. The prospect of educational, social, or political intervention remains murky.
> 2. On the other hand, there are signs of technological underemployment – robots taking middle-skill jobs and then pushing people into other jobs. Although some people will be “pushed” into higher-skill jobs, many will be pushed into lower-skill jobs. This seems to be what happened to the manufacturing industry recently. (70% confidence)
There's a couple research papers from the NBER that I think show this has been happening since the early 90's.
The graphs of for the jobless recoveries are particularly telling. One thing the authors suggest is that before the 90's after a recession we recovered the jobs that were lost due to the slowdown, but after the 90's companies could outsource or automate during the recession to deal with the economic pressures, so when the economy recovered those jobs weren't around to come back to.
> In particular, we have argued that after two decades of growth in the demand for occupations high in cognitive tasks, the US economy reversed and experienced a decline in the demand for such skills. The demand for cognitive tasks was to a large extent the motor of the US labor market prior to 2000. Once this motor reversed, the employment rate in the US economy started to contract. As we have emphasized, while this demand for cognitive tasks directly effects mainly high skilled workers, we have provided evidence that it has indirectly affected lower skill workers by pushing them out of jobs that have been taken up by higher skilled worker displaced from cognitive occupations. This has resulted in high growth in employment in low skilled manual jobs with declining wages in those occupations, and has pushed many low skill individual's out of the labor market.
Moreover, the early 90's are about the same time we see a rise in disability benefits, especially for children. There's a big increase that starts in the early 90's. Some of this is probably from the welfare reform that happened around that time, but http://apps.npr.org/unfit-for-work/ has some pretty interesting insights and that was written in 2011. They end the article with
> Somewhere around 30 years ago, the economy started changing in some fundamental ways. There are now millions of Americans who do not have the skills or education to make it in this country.
And as you mentioned, we don't have any programs to bridge that gap between low and high skilled jobs. It used to be that you could work your way up, training on the job and gaining new skills. Instead we turn to formal training or education, but those have capital costs that create a barrier of entry into the higher paid labor market. If you're already working one or more low income jobs then it's not just the monetary but also the time capital required to retrain. Either you spend most of your time working and training/studying or you take the opportunity cost of quitting your job in the hopes of improving your skills to find a new one. It seems many are taking a third route of going to a doctor and getting on disability benefits, and while I can't find it I read an article a while ago where one of the doctors straight up said that they include education in the decision, seeing some people as unemployable with their level of education. I think doctors making that judgement call is it's own discussion, but just furthers the point.
I think we're only just realizing this now, but I pretty much agree with your sentiment that we're not ready to handle this. Even if we could fix the issues with cheap foreign and domestic labor that's not going to stop automation and IMO we're already in the post-automation future, just with globalization providing a similar effect.
> might eventually be willing to subsidize something like a universal basic income.
I'm kinda interested if there's any studies that use disability benefits as a kind of natural experiment for basic income since in a way it's already a form of UBI. There's some obvious differences, but one of the assumptions of SSDI is that you're incapable of working and that's similar to one of the criticisms of UBI that it would incentivize people not to work, which could have negative social consequences. I'm sure there's something we could learn from looking at people on disability benefits about that.
> Then you've got companies like Dollar General betting on America having a "permanent underclass", their own words
Interesting quote, thanks for that. However it's not "in their own words". The quote comes from Garrick Brown, director for retail research at a commercial real estate company. Here's the original source:
>Even if we could fix the issues with cheap foreign and domestic labor that's not going to stop automation
It'd straightforward enough for the government to keep spending money until everybody is employed. This is how stuff like LAX and the triborough bridge was built in the 30s - the last time there was an unemployment problem allegedly caused by automation.
Judging by the number of potholes out there, it's not robots fixing US infrastructure, it's nobody.
Where does this idea come from that if a worker is granted a novel piece of technology which makes him/her more productive, he/she is entitled to a raise, without necessarily demonstrating any personal improvement or additional contribution to the company?
This attitude reeks of entitlement, to me.
Edit: to clarify, I believe that articles like these, which do not differentiate between what I would call intrinsic and extrinsic productivity. If a worker picks up a new language and automates away a portion of his job, his intrinsic productivity has increased, making him more valuable on the market.
If I retool a station on an automotive assembly line and extrinsically increase the productivity of a worker, it doesn't make sense to presume that he is deserving in a share of that increased profit, because his value has not changed.
I think there is a certain hesitation in polite [non business] society regarding this kind of measurement of human value, and so we find ourselves with what is only a puzzle in appearance. The bottom line is that a worker's compensation on average is determined by how useful he is with a certain set of tools, not how useful his tools are.
Hasn’t their pay expanded by thousands of percent while workers wages haven’t expanded at all in 40 years? Why is asking for more money now considered such a sin?
It’s argued very frequently that the CPI vastly underestimates inflation by not including things like rent and healthcare, so workers wages are dropping if anything.
What makes companies entitled to think they don’t have to address this? Why can they buy technology that delivers higher results, not raise wages, and then wind up lowering wages?
Eventually there will be a “#metoo” moment in business and many, many people will find themselves blacklisted for years for what is now being called “economic hate crimes”.
I'm not arguing that this is the way it SHOULD be, but as far as I can tell the difference stems from a perceived difference in "area of effect". For example, an assembly line worker's job is to physically make as many widgets per hour as possible at high quality. Maybe the limit of human ability is 100 widgets/hr. If the company CEO replaces half of the workers with robots that can make 1,000 widgets/hr, the workers won't benefit from that because they're still making 100 widgets/hr, while the executive just 5x'd the factory's output, which is likely to be worth a bonus.
That's simple enough, but there's a problem with this line of reasoning. What if, rather than replacing the workers, the CEO gives half of them a WidgetTool3000, which allows workers to make 1,000 widgets/hr with no extra training or effort? From the executive's position, she just did the same thing: She adjusted the process to 5x the factory's output by adding a piece of technology. But half of the workers are now producing 10x more widgets, so shouldn't they get a piece of the newly created wealth too?
(Here's where I toss in the disclaimer of "this is how it works, but I'm not going to comment on the morality of it")
The answer is no, according to corporate tradition. The market has already determined that the value of a worker with a set level of training and ability is $X. Amplifying the worker's output doesn't change anything about the value of the worker (in fact, nothing has changed about the worker at all. He could be swapped with someone not using a WidgetTool with no loss in value for the company) - the WidgetTool is what has created the extra value for the company - it doesn't matter who uses it.
On the other hand, it sure as hell feels like crap to be the guy making 10x the widgets for the same pay.
>If the company CEO replaces half of the workers with robots that can make 1,000 widgets/hr, the workers won't benefit from that because they're still making 100 widgets/hr, while the executive just 5x'd the factory's output, which is likely to be worth a bonus.
Where's the value add of the CEO here? They didn't create the robot. They are not operating it. They're a middleman.
Middlemen should typically have very low margins in an efficient market.
You're getting at the heart of it here, I think. The CEO's job in this case was to gather the information necessary to make a good decision about which robot to purchase, then use her (hopefully) experienced judgement to make the best possible decision for the value of the company. There's definitely some value to that process, but I think most people would agree that it's not worth the multi-million dollar bonus she'd probably get from the 5x productivity increase.
Executive pay being tied to company performance is a good thing for the health of the company (no comment on whether that's "good" or "bad" overall) as long as the metrics are defined correctly, but at some point the absolute amount of compensation lost its relationship with the actual effect the CEO has on the company. But that makes sense... I mean what do you expect to happen when people essentially set their own pay? The "in" club of board membership is very much a real thing, and responsible behavior at the expense of other board members is easy enough to punish at another company's board meeting where the pecking order is reversed.
Depending on the scale of the increase, I have no problem with her multi-million dollar bonus as a result of superior business outcomes generated under her leadership. Hell, I don’t even care if she was originally opposed to buying the robots and only decided to after a compelling presentation from the COO. The buck stops with her and if she generates superior results in 8-10 figures, multi-million payouts aren’t hard for me to swallow as a shareholder, employee, or customer.
That would make sense if CEOs had some downside to failure, but they don't anymore. All though CEOs who have golden parachutes to cover their failure, and massive salaries to cover their successes mean there is no connection between performance and pay. They just get a lot all of the time
The CEO is not a middleman. The CEO is the one who does the market research to decide if the market can absorb making 1000 widgets/hr, or if it will saturate and cause him to be unable to make payments on the robot and thus go bankrupt. The CEO is the one who decides if they put R&D into making widget 2.0 (which the robot wouldn't be able to make but the humans can), or if widget 2.0 couldn't be enough better to be worth the R&D and thus isn't worth it. The CEO is the one who sees competition coming from China and realizing he cannot compete and comes up with a plan to do something else so that as China is ramping up he is ramping down and transitioning.
The above is a very hard job with hundreds of places where some decision could be wrong. A good CEO generally makes enough good decisions that the company stays open for years, while a bad CEO will make decisions that cause the company to go out of business.
Of course many ceos are a negative on the company. There are many studies on ceos, high priced ones generally are bad, while the unknown insider who moved up the ranks is probably good.
That's assuming a static system. Large increases in output and margin attract competitors which reduces margin. Things will reach a steady state again where the margin matches the opportunity cost. It's very difficult for a company to sustain a margin advantage.
Also, productivity increases lead to price reductions, which lead to the increased output per labor not necessarily meaning the labor value goes up.
So let's say that you and I go into business together making artificial flowers. Initially we are both sewing them entirely by hand and selling them. We're barely making enough to scrape by, working twelve hours a day. It kind of sucks.
One day, I win a thousand bucks in the lottery and buy a couple of sewing machines for us to use. We can now make, oh, fifty flowers in the time it took us to make one.
Let's assume that the demand for artificial flowers is far higher than we can fulfill. We could work as many hours as we used to and start selling fifty times as many flowers. But instead we work a little less and sell thirty times as many. We're still we're making a lot more money than we used to.
Now. Since I bought the sewing machines with my own money, clearly I should be the one reaping all of the benefits of this new order. I'll take all the money and pay you exactly the same amount of money you were making when we were both sewing flowers by hand. So I'm getting about fifty-nine times as much as you are.
"Hey, Egypt," you say. "Thanks to those sewing machines, I'm creating a lot more value than I used to. Maybe I should be getting, I dunno, twice what I used to get? Or a hell of a lot more?"
And I sneer down at you from atop my golden toilet. "Your attitude reeks of entitlement," I say. "Get back to your sewing machine, Thenews."
Three weeks later, you're fired, and replaced by a guy living in a tent under the Interstate who'll make flowers for half of what you were paying. It's my sewing machines, after all.
But if you have access to machines, then so do your competitors. You won't be generating 50x more profit, perhaps you'll be generating a few percent higher until the market reaches equilibrium and then the owner will make the same as or slightly higher than what he was before depending on how quickly he adapted. The end benefit is the economy as a whole because garments now will cost a whole lot less. Whichever competitor stitches by hand will go out of business within a year so the baseline to make even a cent of profit is with the machine.
Also, the owner took a huge risk and big loans purchasing the machine. If something goes wrong, he's on the hook for it. If the next year, the country decides to implement NAFTA, then the machine is worthless because it can be made in Mexico far cheaper than in his own town, forcing owner to go out of business and eat the costs. Meanwhile, the worker who gets laid off loses no money in his transition to a new job. The economy, however, benifits again because garments are even cheaper than before.
It's also your idea, your implementation, your risk. You made the operation more productive, and that is worth money. It's perfectly fair, after all, your partner can also buy a sewing machine and start his own business competing with you. The fact that he does not is indicative that you provided the value, not him.
that you've also got to maintain, insure, save funds to replace at the end of their life, etc. all while not earning 7% on the original $1000 by letting it sit in the stock market long term.
Let's put it another way: why shouldn't workers try to hold back and/or destroy any sign of automation? Why should they not vandalize any attempt at using technology to make things more efficient? There are way more of them than there are innovators or CEO's, either one.
The reason is, the same reason that everything else in society works: we all have a stake in this, because if society is better off, we are all better off. But, what if when more is produced, I don't get more, but now you have more to push housing prices in my neighborhood out of my reach?
Society, and especially free-markets, rely on widespread support. A society of 50% thieves will collapse; a society of 10% thieves will probably not do much better. You need broad consensus to maintain the conditions necessary for a free market and innovation. You don't get that broad consensus, if all the gains in productivity go to the top.
Workers aren't paid what they deserve, they're paid as much (or as little) as they're able to negotiate.
Why shouldn't workers, either individually, as a union, a trade guild, or society as a whole, attempt to negotiate higher wages when productivity increases make more wealth available for distribution?
>Workers aren't paid what they deserve, they're paid as much (or as little) as they're able to negotiate.
Deserve is a tricky notion. The capitalist will argue that workers deserve precisely their market rate, e.g. what they are able to negotiate (collectively or otherwise).
capitalists, at least in America, were very effective at destroying unions (known as union busting) and pro-worker political movements starting back in the 1940s.
Monopolies and cartels are also busted, and for the same reason. They distort markets and lead to worse outcomes for consumers and the country at large.
I think you mean 'were also busted.' Trust busting in America happened under Roosevelt, 110 years ago. The FTC does not actively prevent cartels or monopolies today.
> They distort markets and lead to worse outcomes for consumers and the country at large.
If by country at large you mean shareholders, sure. Not to stray too far from home, software companies colluded to suppress software engineering wages - certainly a market distortion.
Personally I prefer to keep free market ideologies where they belong, the classrooms and textbooks of the Chicago School of Economics.
They should be able to try, but the guy who picks up the golden egg hatched by a chicken isn't going to be able to successfully negotiate a cut of the gold.
Automation makes jobs more complex. Going from 100 workers at a factory to 50 workers means the 50 workers remaining have harder and more valuable jobs. In a hypothetical case of a single worker at a factory they need to know how everything works vs a single station.
Really it's not automation that's destroying the middle class. It's information, a doctor can in theory look up symptoms without sending you to a specialist. In the case of information asymmetry the side with more information tends to collect more value and it's not workers who have gained the most information.
Kevin Phillips' book Wealth and Democracy: A Political History of the American Rich http://a.co/1wny0Iz details how the creation of the middle class was (three times) a deliberate policy choice. As we're now seeing, Freedom Markets™ leads to inequality, consolidation, monopolies, destruction of the middle class.
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I subscribe to Scott Galloway's (L2 Inc) views on our winner takes all economy.
We've given FANG and a few others an extended tax holiday. Because apparently they're just that awesome.
The remedy (radical cachectomy, restoration of capitalism) will happen when all the other corporations, who somehow manage to carry their own weight, finally band together and demand fair treatment.
Can't believe we're now dependent on the likes of Walmart coming to our rescue.
>Going from 100 workers at a factory to 50 workers means the 50 workers remaining have harder and more valuable jobs.
This is not necessarily true. It could mean turning 100 people doing skilled labor and turning them into 50 workers doing visual inspection (QA) at likely lower pay.
Maybe, my point is that isn't not a 'win' for the laborer like you seem to suggest, that maybe 50% of the people losing their jobs get to work better jobs. The people losing their jobs that are lucky enough to not be laid off are more likely be relegated to lower paying and lower skill inspection jobs rather than the higher skilled machine maintenance/development.
IMO, the most likely outcome of your scenario is: 19/100 of the workers become visual inspection team, (maybe) 1/100 of the workers becomes a manager for visual inspection team, 5 external machine specialists get hired, 80/100 of the workers get laid off and 75/80 of those will continue same line of work for even less pay (supply/demand) and 5/80 will burn through any personal savings/credit to retrain themselves with the hopes of becoming one of the '5 external machine specialists' hired somewhere else.
These numbers are definitely made up by me based on my own world view. From the original 100 laborers, 94/100 of the original people are worse off than before and in exchange we have 5 (maybe 6) new skilled positions.
I'm not against automation or productivity or higher skilled work, I'm personally invested in all three, I just think that if we aren't aware of all the consequences that we are likely to be blind-sided by a resurgence of Luddite riots.
I would suggest you actually try and base things on facts not gut feelings. Because that's not what actually happens at a factory. I have no objection to saying the 50 people laid off will likely be worse off for the next few years. But, automation tends to reduce the need for visual inspections a machine that did it correct on a random sample of 5 / 1000 is likely to do a good job on the other 995. Someone might glance at the rest but that's ~1% of the effort of making something and likely 1 job out of the 100.
At really high levels of automation say 10,000 people replaced by 50 that might be a different story, but I am taking about gradual shits not massive and very rare disruptions.
The question of what happens to everyone else is interesting, but the standard of living has generally increased slightly with increased efficiency. Healthcare may be expensive today, but it was not available 200 years ago. Look back say 20 years and you can get basically all the top drugs from 1997 for cheap today.
Even land is not that bad, you can get an acre of farm land for in some parts of the US for under 1,000$, look at remittances from day labor's and the early American dream is within reach of just about anyone. The real change is people's expectations not their absolute earnings.
PS: Now, what separates factory jobs from most work is the power of Unions and the ability to strike effectively. Unions tend to increase worker pay irrespective of the free market, but that's a different story.
> Where does this idea come from that if a worker is granted a novel piece of technology which makes him/her more productive...
I think the first half of your first sentence shows... something. A bias? A misconception? I think it appears most strongly in the word "granted".
Technology isn't like getting buffs in a video game. Workers aren't just "granted" new tools. They have to learn how to use them. In doing so, the workers become more productive, and therefore more valuable.
A new tool improves productivity. That productivity creates more money. That money needs - deserves - to get shared in three different directions. Some goes to the tool maker. Some goes to the tool owner (the one who paid to get the tool). And some goes to the workers who use the tool. It seems to me that leaving any of the three out is unjust.
Leaving anybody out of the gains is also likely to lead to fewer new tools being created and put into use, which means lower productivity gains, which means a lower level for the economy as a whole, which means lower standards of living.
I guess the problem comes when the tool is so good that it no longer requires the worker who uses it, i.e. automation.
When all jobs that can be automated are automated, where are we left? As a society?
Do we argue against automation because it destroys jobs? Then you're into government-paying-people-to-dig-holes-then-refill-them land.
Do we just let the majority languish in poverty while the owners of the capital continuously concentrate their wealth? That's no way to build a future, or a healthy nation.
Do we say everyone gets "mincome"? That's pretty-darn socialist, which is something many Americans have... extremely strong feelings about.
I think of this differently. I think in terms of "spending" people instead of "employing" them.
As a society, you've only got so many people. What are you going to spend them on? Well, traditionally, the answer was that you had to spend a lot of them on your food supply. But we found that, with better tools, we could spend only something like 3% of our people on food supply, and the rest could do something else. Some of them had to make the tools that the farmers used. Some could make a whole range of other new things. And we - the whole society - got richer as a result.
Now we're finding that, with newer tools, we don't have to spend as many people in factories. We can do something else with them. The whole society can become richer as a result - if we can find something useful for them to do.
I'm optimistic, but I must admit that I see the problems. We seem to be losing a lot of people into despair and poverty and feelings of uselessness. (I don't know if the same was true at the start of the industrial revolution, so I don't know if this is something to kind of expect at a transition, or whether this is something new.) I see that the income distribution is way out of whack. (I'm pretty sure that was true at the start of the industrial revolution, and it got corrected, but it took unionisation to do it.)
Do we spend most of our people on space exploration? On better medical care? On herding robots? I don't know. But I'm optimistic that there will be something useful for them to do, which will improve our society as a whole. I don't know what it will be, though. (If you wish to maintain pessimism, there's your opening...)
> Now we're finding that, with newer tools, we don't have to spend as many people in factories.
actually, at least in the US, we found out that we could take massive amounts of manufacturing jobs and move it somewhere else, with more lenient labor laws and cheaper labor. bonuses all around for the everyone involved with that strategic initiative.
> (If you wish to maintain pessimism, there's your opening...)
with history as my evidence, eventually purposelessness will get worse and inequality so massive with no answers from State or Business that a revolution will take place. unfortunately all of the municipal police have military grade weaponry now, so that day will be an interesting one.
To me, the attitude reeking of entitlement is that you shouldn't have to pay more for a worker who is providing more value for your business. And regardless, someone who is more productive is providing more value. Don't believe so? Simple test: Are you now bringing in more revenue, producing more product, or reducing the cost of your product? Then more value has been produced.
The alternative, which sadly has been taken all too often, is that management pockets that difference.
It depends on how you frame the issue, if you look at an individual worker it is easy to ask if they are deserving, but if you look at broader society a more natural question should be whether we think the benefits of technology should be spread across the majority of our society or concentrated in the hands of the few.
I don't know about you, but my techno-utopian fantasy involves everyone living off the labor of robots rather than struggling to house and feed themselves and their families because the elites no longer need the labor they can provide.
Well you know Marx said it was inevitable so maybe we're hitting on a contradiction in capitalism that is too big to handle - the desire of individual firms to automate away their labor on a micro scale has the macro scale effect of eliminating all your consumers. It's not even good for business within a capitalist system.
Possibly because he was so catastrophically wrong about the form of the society that would inevitably follow from state socialism?
In a sense he was partly right i.e. almost all state socialist societies transformed in a very similar way. It was just that they transformed into totalitarian dictatorships rather than stateless utopia.
The following is just my opinion: Marx certainly used logic to reach his conclusions about the sunset of capitalism in advanced societies, and the dawn of a communal society in which abundant resources remove incentive for competition. He was very explicit about this being a "natural" progression, far removed from the ideological regimes past-and-present which impose the system by force.
My problem with Marx isn't the conclusions he draws, it's more about the factors which he excludes that lead him to those very conclusions. That's another way of saying that it's not his answers that I have a problem with (like I said, he's being logical), it's a matter of the question itself being fundamentally flawed.
My interpretation is that he did not fully account for the nature of humankind: the will to power; the drive to improve your position in life; the need to nurture and manifest one's unique abilities in this world, which leads to massive satisfaction (and a nice dopamine hit!).
I think that those properties exist within us all, to a degree, and can lead us towards doing good and bad, depending on how they are integrated into our personality and value-systems. One employee might earn a well-deserved promotion after toiling hard for his boss and colleagues, and enjoy the swell of pride in his work and himself. Another may scheme and politick his way to the same promotion, feeling a similar sense of satisfaction that could be described as the "ugly twin" of the other aforementioned employee.
The question I ask myself is this: which of the two hypothetical persons mentioned above does a centrally-planned communist system facilitate and reward, in a society without massive abundance of resources? The first employee's innovation and superior work, his "ability", would have no effect on his "need", so there is no justification for rewarding him, and his family, monetarily under the value system. The second person would have more options to improve their station, wether by artificially increasing their perceived "need", or climbing the power-structure of a government which has exclusive control over distribution. In fact, I believe the system itself would force the former to behave like the latter out of sheer necessity, or risk perishing.
Assuming that everything menial can be automated, we're left with very few "real jobs". So where do the non-creative non-entrepreneurial types land?
Do they live in some dystopian future where they have to dig holes for the sake of "having a job" then filling them back in again? Or do you argue for "mincome"?
Yes, and also -- where do the really creative types land? Do we get rid of art? (we are doing a great job at that these days) If our public education systems serve mainly to train "workers" or increasingly "soldiers", we aren't educating toward the future. we have been educating (in public school) toward the past for a long time. That means we favor what had been practical in the (increasingly distant) past and devalue ( really have zero idea or vision concerning) what skills will be useful in the future. It turns out that it doesn't make sense to train kids and people to behave more like robots when we are building an army of much better, tireless robots. Our public education systems in the US avoid intellectualism, creativity, and the arts (shaping the arts for the future isn't an option- we just cut them from the curriculum).
Here is an analogy. Do you pay for the air that you breath? No. It is free, because air is so abundant, so avaliable, that nobody would possibly charge for it.
Imagine if the qualities that apply to air, apply to other things. As they are already doing so. There are tons of free software, for example.
Now, imagine that food and housing became so abundant, so available for anyone to take as much as they want, that nobody would even think to charge for it.
Such a society is still capitalist. It is just full of abundance.
Not arguing for anything, was just noting that those arguments are not new, being central to Marx's theory.
Yes, we speak of robots and AI now and the rate at which jobs are destroyed has certainly surpassed the rate at which new jobs get created, but the means of production being in the hands of the few (the bourgeoisie), along with automation, these have been happening ever since the dawn of the industrial age and is what animated Karl Marx.
Read "The Communist Manifesto", it will ring a bell.
But all this has given us communism, with disastrous results. And yeah, there are always people arguing that communism wasn't "implemented right", which is what you get with any rotten theories.
So what I'm proposing is:
(1) awareness that these arguments are essentially Marxism and
(2) be prepared to defend them by coming up with a theory for why it could work this time.
This is a good point and shouldn't be downvoted. (I assume that was for tone?)
We shouldn't expect that a productivity improvement purely due to capital should result in higher real worker compensation [1]. If the lawnomatic can mow one lawn per hour, and an upgrade permits it to mow two lawns per hour, then the labor of pressing its activation button isn't somehow more valuable.
[1] Technically, it should result in employers bidding more for workers, but in a way that's far less than proportional to the total gain in output.
But why should management then expect to see increases in revenues? If labor is not going to see increased wages, then why are they now doing more work?
What do you mean "more work"? It's the same amount of work, just with more results.
The fair market wage for a worker operating the "old lawnomatic" that can mow one lawn per hour is not meaningfully affected by the value of the mowed lawn but by how cheaply the company can find a different worker to do the same thing. If there's another potential worker waiting to do the job for $x/hour, then $x/hour is the ceiling of what you can ask for the job, no matter how much value that job produces (assuming that there are some barriers to entry and you can't just compete with the company directly).
If the "new lawnomatic" can mow two lawns per hour, but is as easy to operate (i.e. the company could still hire the same currently unemployed person for $x/hour) then the workers have no leverage to get increased wages.
If anything, the new lawnomatic can result in lower wages. If there aren't any more customers, then mowing lawns needs half as many employees - so the company can ask which employees would be still willing to work for x-1 dollars per hour; if half of them say yes and half say no, well, they just fire the expensive ones and keep those who are more desperate/vulnerable.
>But why should management then expect to see increases in revenues?
There's no universal answer, but in the canonical example of better machines, then part of the higher productivity is likely due to the judgment in recognizing where machines could be deployed, which is managerial labor.
>If labor is not going to see increased wages, then why are they now doing more work?
I'm not sure what you mean, but I was just explaining why we shouldn't expect higher total output to mean proportionally higher wages; it all depends on the cause of the productivity. If the worker is pushing the same buttons and the machine is doing more, wages should not be expected to increase and there's no mystery. If the productivity is from workers becoming more versatile and able to handle a bigger variety of situations with the same capital, then we should expect higher wages without a higher return to capital.
"There's no universal answer, but in the canonical example of better machines, then part of the higher productivity is likely due to the judgment in recognizing where machines could be deployed, which is managerial labor."
And using those machines was labor labor.
"but I was just explaining why we shouldn't expect higher total output to mean proportionally higher wages"
But why not?
"If the worker is pushing the same buttons and the machine is doing more, wages should not be expected to increase and there's no mystery."
Why not? The company is doing better; why shouldn't those who contributed, including the workers who made the widgets, share in that?
"If the productivity is from workers becoming more versatile and able to handle a bigger variety of situations with the same capital, then we should expect higher wages without a higher return to capital."
And I just explained why (what you're unhelpfully calling) "labor labor" did not add more value than before, while managerial labor did.
>>but I was just explaining why we shouldn't expect higher total output to mean proportionally higher wages
>But why not?
For the reason I just implied by analogy: pushing a button is just as easy before and after, but finding the productivity improvement was non-trivial.
>Why not? The company is doing better; why shouldn't those who contributed, including the workers who made the widgets, share in that?
For the same reason (if it's not clear from the analogy) why Target shouldn't pay more for boxes of cereal from wholesalers if they have a better year than Walmart.
"And I just explained why (what you're unhelpfully calling) "labor labor" did not add more value than before, while managerial labor did."
But you didn't. You claimed they didn't add anything, without backing it up. More work was done, more widgets were produced. You need to justify why labor should not share in that.
And saying "labor labor" is no more unhelpful than you talking about "managerial labor."
"For the reason I just implied by analogy: pushing a button is just as easy before and after, but finding the productivity improvement was non-trivial.
You've not proven that, however. And, again, the labor is producing more, thus helping the company to be more successful. Without them, the company wouldn't be able to do any of that.
"For the same reason (if it's not clear from the analogy) why Target shouldn't pay more for boxes of cereal from wholesalers if they have a better year than Walmart."
That's not the same situation at all. In your situation, Target is paying the same amount of money, and getting the same amount of goods in return as they were before. Not at all applicable to the current situation.
Generally the market will pay someone what their productivity is or some other company will poach that worker. This is an oversimplification but in general the market should price workers at roughly what their productivity is, assuming the market is working correctly
Employees are not merely selling time (actually that’s the most precious a living person has) but their ability to turn it - through the mastering of technology - into valuable goods.
That they’re not entitled to a fair share, but just to whatever was agreed back in the day, without demonstrable acts of servile devotion, reeks of... dunno, feudalism?
Prices are useful to indicate whether or not supply should be increased or decreased. Decreasing prices (wages in this conversation) indicate that people should be looking to sell their product (time and effort) to another market or buyer.
Rather than force buyers to pay more than what the market says, the better option would be for societies to provide opportunities for people to re-tool and become more valuable again, for where this sufficient demand.
Where does this idea come from that we must delegate all moral decision making to the market and anyone who desires to break out of market-allocated morality is entitled?
I wonder how much of this stagnation can be attributed to fewer people performing "real work"... that is producing something that actually adds value. Just thinking of the sheer number of people and resources used in advertising, movie CGI, useless chat apps, etc. that are basically a net negative to real economic output, it makes me think that maybe these people are the ones getting paid with the productivity gains of those who produce real output.
Not trying to put anyone down here, it's just I can't see a lot of economic benefit in a team of 10 engineers modeling the hair of the next Assassin's Creed character... and where do you think this money comes from?
"Not trying to put anyone down here, it's just I can't see a lot of economic benefit in a team of 10 engineers modeling the hair of the next Assassin's Creed character... and where do you think this money comes from?"
Errr - doesn't it come from the people buying the Assassin's Creed games? That particularly series earns hundreds of millions of dollars each game, and at least some of that value is created by the engineers modeling the character's hair.
There's obviously a difference between industries like agriculture, oil and gas, steel-making, etc. and something like a game company. Some industries are crucial to the functioning of society, while others are a pleasant way to spend time.
The world would be culturally poorer without music, art, etc., but it would still function. That's not true if you got rid of those other industries.
Is that valuable? Sure it is work and effort and all that, but is it valuable? Would we be better off without movies and video games? There are many in the "bible belt" who will argue that we are (the Amish are the most famous but there are plenty of others).
If something creates zero value for many (most) people but some value to others, then yes, that is valuable.
If I get a haircut, that's not valuable to at least 7 billion people worldwide, but it is valuable to me, so it is some positive value created.
In a similar manner, if a million gamers like some game (or a satanic black metal song) and the whole of bible belt does not, well, that's a lot of positive value created anyway; assuming no actual negative externalities where someone else gets harmed by it. Individual value is subjective, but it can be aggregated - if you consider that playing a particular videogame has negative value and don't play it, then the impact is zero; if I consider that playing the same game has positive value to me and do it, then it adds a positive contribution to the global value created; I got something I liked, and that's valuable by itself, asssuming noone else got hurt by this.
The money earned from Assassin's Creed isn't by creating value, it's given by others who are creating value. I'm genuinely surprised I'm getting so many people disagreeing with this idea.
That's because the implication is that entertainment has no value, and that sort of argument can be reduced to absurdity. Do we really need any comfort? Sounds like the whole clothing industry other than wool and cotton shirt/pant producers are useless and even then only for what's needed in cold weather.
Most dyes are useless,colors are only useful to write signage.
The only cars that are useful are the ones that have the currently most fuel efficient setup.
Do we really need safety features? We already have enough people and any dead ones can be replaced.
Does getting people addicted to heroin add value? Because people will exchange their dollars for that too.
Just because people pay money for something doesn't mean it adds value or creates wealth. Rolling Stones is a tough case, some entertainment is necessary, but at what level and cost is up for debate, it's not like I have all the answers.
Necessities is a fixed amount, wants are (nearly) boundless. As we are able to afford things beyond bare necessities, pretty much all value create and consumed isn't 'necessary' - it's one or other kind of comfort, desire, status, entertainment, etc. Those things do add value and do create wealth - if getting enough nutrients and bare minimum of shelter takes just 10% of my resources, then 90% of my wealth is something that's not necessary.
If people prefer hearing a song over getting an (extra) loaf of bread, then hearing that song is by definition more valuable (more valued by that person) as that loaf of bread. There's not much debate needed about Rolling Stones - millions of people have expressed their values, and their choices illustrate that the music of Rolling Stones is literally more valuable than a billion loaves of bread; people have intentionally allocated a billion bread-loaves worth resources towards Rolling Stones because they valued Rolling Stones more than other alternatives.
People paying money for something doesn't necessarily mean it adds value or creates wealth, there are all kinds of edge cases like fraud, exploitation, addiction, etc, but in general, in the vast majority of cases it does mean exactly that - if people genuinely freely wanted to pay money for something and did so, then that's very informative about what they actually value; this is far more informative and truthful than, for example, what they claim they value.
If by "real work" you mean force time distance, then suuuure. The entire software industry does very little "real work", since it doesn't take very much force to move the keys on a keyboard only a little bit down.
By real work I mean the process of actual wealth creation. I'm arguing that certain types of work are net positive wealth creation while others are net negative, meaning that more useful resources are consumed in the process of creating that good/service than the benefit to the system that this good/service provides.
Take my Assassin's Creed example. Consider all the electricity used to run their computers, the food and shelter needed for engineers and marketers, the raw materials needed for game parts and distribution. These resources are essentially burned or are outflows of the system, while providing very little inflow (that is directly or indirectly contributing to the creation of real wealth). The result is a net outflow of real wealth of the system.
As more and more people shift to such jobs, productivity gains in "net inflow" work will be partially distributed to those working in "net outflow" jobs.
I'm also not arguing that all software jobs are net outflow. Something like Google for example, could be argued as a net inflow, because fast information retrieval and distribution can greatly improve the overall efficiencies of the economic system.
Getting people to buy something doesn't always mean you provided them value. Some methods of making a buck are exploitative, like if they rely on deception, for example. There are scenarios where "middlemen" exist to take part of the wealth and not create any. Or where people are paid to be destructive for various reasons. A corrupt politician paid (in campaign donations, whatever) to pass a law to create a barrier to a market is being destructive, not constructive. It is a net loss overall.
A little hand-wavy but I will try to give some sort of definition.
If we assume that wealth can be measured with a non-negative real number, then we will set the zero point of the scale at total human extinction. If we set such a zero point, then we will assume that moving away from zero, that is moving away from extinction, is moving in a positive direction. Therefore, anything which contributes to the robustness and stability of the system could be argued as "wealth" or "valuable".
I wasn't drawing a line. You could argue that entertainment keeps people from going crazy and is a net positive to the efficiency of the system. Marvel CGI doesn't apply IMO
I don't understand why every post of yours in this thread it getting downvoted. I guess by downvoting you they can pretend that what you're saying isn't true.
Agriculture and manufacturing are the drivers of economic growth. Without them there's no point in having all those other industries.
I’m really surprised you’re being downvoted, even though I’m not quite sure you think art doesn’t have value. The value I receive from seeing a movie with a friend or playing a video game usually exceeds the dollars I spent for the entertainment.
I agree that making “things” that people “need” is a lot different though, and that’s reflected in their markets.
https://www.economist.com/news/finance-and-economics/2171710...
France and Germany have works council that gives labor a voice in business decisions (a seat on the board). Maybe the solution is as easy as giving workers a voice.