I never saw exceptional “hard work” or “intelligence” among the members of the class I was born into.
I was asked to write this essay to comment on the myth that wealthy people work harder than others and therefore have “earned” their immense incomes and fortunes. This is a world I’m very familiar with: my father is a CEO of a private corporation; I grew up in an upper-class neighbourhood in North Vancouver, and attended two different affluent high schools in West Vancouver. Last year, I wrote an essay for The Walrus titled “I’m Part of the 0.1 Percent and I Want a Wealth Tax.”
While it obviously doesn’t take a person born into wealth to point out that rich people don’t deserve their money, my aim here is to dissect this particular defence from the inside.
Passage
I Was Born Wealthy, And Know Rich People Don’t Work Harder Than You - Meghan Bell
33 comments:
Another truth revealed by MMT.
Once you switch the denomination to the underlying 'Specie' of all productive nations you realise that both the rich and the poor have exactly the same number of hours to spend in a week.
And very likely the poor will spend more of them than the rich working.
If there were a meritocracy, the author could not have been born wealthy. Her inheritance would have been confiscated as a matter of policy.
re: the fallacy of decomposition
There are many economic fallacies. The idea that wages are tied to personal effort and productivity is one of those fallacies. I hope I can put that fallacy to rest.
Currently, there are migrants attempting to enter into the US. If they are successful, their wages will rise by a multiple of what they earn in their home countries for the same effort and productivity. Is there something magical that happens at the US border that causes a rise in their productivity commensurate with their rise in wages?
Since the 1960s, we have seen a great improvement in the productivity of computer programmers. Burger flippers, not so much. Yet the latter have seen an increase in their real wage in every single year since then.
Paradoxically, an increase in productivity can actually lower wages. Think farmers here. Despite the tremendous increases in productivity in farming, the excess supply they produce drives down prices and lowers their wages, which is why they constantly struggle.
Average wages in a society are a function of the average productivity in that society. The fallacy of decomposition is thinking that you can devolve that effect down to the individual level.
The following quote expresses the idea in a better way. I encourage you to read the whole article, as it has really clarified my thinking about productivity and wages.
Theory – Industry Wage Levels
Those who believe that there is a connection between labour productivity and wages within an industry (or occupation) implicitly assume the following: When output per worker increases, workers’ contributions to firm revenue increase causing demand for workers to increase also. As wages are determined by supply and demand, an increase in demand will imply an increase in wages.
This “theory” is wrong for two reasons. First, there is no necessary connection between output per worker and revenue per worker. As was pointed out above, if demand for the industry’s product is decreasing, the price that can be charged for that product will also be decreasing. Hence, even if output per worker rises, revenue per worker may fall.
Furthermore, when output per worker increases, the industry will have to sell additional units of output; that is, industry supply will rise. But, by the laws of supply and demand, when supply increases, prices decrease. That is, the increase in worker productivity may cause a decrease in prices.
In some cases, this decrease in prices is so extreme that an increase in worker productivity may actually cause a decrease in revenue per worker. The clearest example of this phenomenon has occurred in agriculture, where farm incomes are under constant downward pressure even though productivity gains have been greater in that sector than in most other industries.
Second, even if an increase in labour productivity does lead to an increase in revenues generated per worker, it is not necessarily the case that the consequent increase in demand will be associated with a long run increase in wages (relative to other industries). The reason for this is that, in the long run, additional workers can be supplied to that industry, which offsets the upward pressure on wages. That is, when demand for an industry’s workers increases, wages in that industry do not rise relative to wages in other industries. Rather, it is employment in the high productivity industry that will rise relative to employment in other industries.
Assume, for example, that there is a large group of workers who would be approximately indifferent between working as plumbers, carpenters, and electricians. Assume also that, initially, all three receive the same wage rate. Now, if productivity rises among electricians, there will be an increase in demand for electricians. In the short run, say a year or two, it will not be possible to train additional electricians and wages may be bid up.
But, when wages are higher among electricians than among plumbers and carpenters, students graduating from high school will prefer to train as electricians. Soon, the supply of new electricians will increase and the supply of new carpenters and plumbers will decrease. Wages will fall among electricians and will rise among plumbers and carpenters.
Ultimately, the wages of all three occupations will equalize. All three will enjoy higher wages than they did initially. But, among plumbers and carpenters this will have occurred without any increase in productivity. And, among electricians, the wage increase will have been much smaller than the productivity increase, because the effect of that increase will have been diluted by the influx of workers from other occupations.
The Connection between Labour Productivity and Wages
So what does set wages? Supply and demand.
As for CEO salaries, the usual argument is as follows:
The idea that there is rent extraction going on depends upon the idea of the principal/agent problem. The varied and scattered stockholder base of these major companies means that any executive who does manage to get into the corner office can then, to be not very polite about it, start to rook those stockholders by demanding vast sums of money in pay. This could be true as well. So we would like to test whether it is and the way to do that is to look at executive pay in companies where we know there is not that same principal/agent problem: in private equity owned companies. Something that has been done here:
Except in that private equity, we see the following to continue the above quote:
The level of CEO pay in companies owned by private equity firms is statistically indistinguishable from the level of pay in comparison firms.
As yourself, this question: If CEO talent was commonplace, why would a private equity firm pay $20 million for a CEO when they could get an equivalent CEO for a couple of million dollars, or maybe a few hundred thousand dollars like in Japan?
Quotes source: CEO Pay Is 303 Times That Of The Average Worker Says New EPI Report
Is a CEO an employee?
Is a CEO an employee?
Yes. The CEO answers to the Board of Directors, who in turn answer to the shareholders.
”If CEO talent was commonplace, why would a private equity firm pay $20 million for a CEO when they could get an equivalent CEO for a couple of million dollars, or maybe a few hundred thousand dollars like in Japan?”
It's a rigged system where those becoming CEOs have shown to be loyal to all kinds of shady things. That’s how it works.
It’s amazing how much copy and paste one person can do and then avoid productivity gains regarding CEOs.
You will find that people who have high salaries will claim their fame to productivity gains but never ever show their own part in it in detail so it can be comparable to others. It’s smoke and mirrors.
Yes. The CEO answers to the Board of Directors, who in turn answer to the shareholders.
If that were true, a CEO would receive a management level salary.
In reality, a CEO functions as a rainmaker, when directors can't be bothered to 'direct' the firm themselves. The CEO is given a cut of the spoils; the rest goes to the board; and it is up to the board to determine what shareholders will receive.
When you set aside the legalities of who is entitled to the profits, the board of directors are parasites, with a CEO being an invitee.
I agree that a CEO works harder than those who "hire" them.
" I encourage you to read the whole article, as it has really clarified my thinking about productivity and wages."
Unfortunately it gets lost in the illusion of money.
Wage increases are not nominal. They are real and expressed in the time denomination.
If you have 37.5 hours worked, then you get about 37.5 hours of output in your hands. That might be a lot of stuff if productivity has reduced the time in a thing from an hour to five minutes. "Wage increases" under neoliberalism shows up via cheaper stuff - which people allegedly have an insatiable desire for.
When you redenominate in time the alleged increase in the wages of concert violinists makes sense. It still takes the same amount of time to produce a concert as it did centuries ago.
It's all about time.
“ It's a rigged system where those becoming CEOs have shown to be loyal to all kinds of shady things. That’s how it works.”
Why the conspiracy theory all the time?
Maybe it’s just a bad business practice… and they don’t get paid very much… they mostly make their money thru stock options if the stock price goes up…
Look at Musk currently…. TSLA is at $1T probably going to $2T eventually …. if he survives he’s going to blow out any personal wealth records via his stock options/ownership…
https://www.forbes.com/sites/sergeiklebnikov/2021/05/06/elon-musk-made-billions-in-2020-every-other-ceo-made-millions/?sh=315750886f93
Musk is the founder of Tesla. He can bestow as many titles on himself as he wants.
Outside of Tesla, he's the Vaporware King.
NeilW,
"Wage increases" under neoliberalism shows up via cheaper stuff
Yes, this is the way it mostly happens. As I was writing my comments, I was thinking along the lines of Baumol's Cost Disease, which isn't really a disease, but simply how things work.
A teacher teaches 30 students. They get a wage increase of 3% a year, 2% for inflation, and 1% for productivity improvements in the general economy. This despite the fact that the next year, they will be teaching exactly the same 30 students.
How come no one complains about that? Why don't we say that people who work in service industries receive only that 2% inflation increase and no more, so the people who actually make the productivity improvements get the full amount.
As an aside, I'm not complaining about how the economy actually works, but that people should be logically consistent.
With apologies to S400, a quote about Baumol's Cost Disease:
Baumol's cost disease (or the Baumol effect) is the rise of salaries in jobs that have experienced no or low increase of labor productivity, in response to rising salaries in other jobs that have experienced higher labor productivity growth. The phenomenon was described by William J. Baumol and William G. Bowen in the 1960s and is an example of cross elasticity of demand.
The rise of wages in jobs without productivity gains derives from the requirement to compete for employees with jobs that have experienced gains and so can naturally pay higher salaries, just as classical economics predicts. For instance, if the retail sector pays its managers 19th-century-style salaries, the managers may decide to quit to get a job at an automobile factory, where salaries are higher because of high labor productivity. Thus, managers' salaries are increased not by labor productivity increases in the retail sector but by productivity and corresponding wage increases in other industries. —Wikipedia
re: no casserole funerals
A "no casserole funeral" is what they call it in farming communities when you attend a funeral of a farmer who has killed themselves.
A few days back at CES 2022, John Deere introduced a fully autonomous tractor. Here's a press release:
John Deere Reveals Fully Autonomous Tractor at CES 2022
This will make farmers more productive, which will lower food prices, and drive farmers out of work. A few more farmers will kill themselves.
The rest of people will, because of those cheaper food prices, see a rise in their real wages.
With apologies to S400, a quote about farmers' suicides:
Farmers' suicides in the United States refers to the national occurrences of farmers taking their own lives, largely since the 1980s, partly due to their falling into debt. In the Midwest alone, over 1,500 farmers have taken their own lives since the 1980s. It mirrors a crisis happening globally: in Australia, a farmer dies by suicide every four days; in the United Kingdom, one farmer a week takes their own life; and in France it is one every two days. In India more than 270,000 farmers have died by suicide since 1995.
Farmers are among the most likely to die by suicide, in comparison to other occupations, according to a study published in January 2020 by the Centers for Disease Control and Prevention (CDC). Researchers at the University of Iowa found that farmers, and others in the agricultural trade, had the highest suicide rate of all occupations from 1992 to 2010, the years they studied in 2017. The rate was 3.5 times that of the general population. This echoed a study conducted the previous year by the CDC. —Wikipedia
Reality bites hard. The people who are doing the most to improve our quality of living are suffering the most.
“As I was writing my comments”
Endless copying is now “writing my comment”
What you do is arguing indirectly through copies of others texts written in another context than for this thread.
It is making it unclear what you are actually want to say or stand for. That copy/paste is of course also smoke and mirrors.
“ It is making it unclear what you are actually want to say or stand for.”
lol he’s technically trained not an Art Degree moron… we test hypothesis FIRST and THEN come up with a thesis…
Not like you idiots who START with the Thesis FIRST and then dialogue with other morons like yourselves to see who wins the argument without ever testing anything…
“Out of money! … no! We’re not out of money!”
“Money is blah blah blah! … no! Money is bleh bleh bleh!”
You’re morons…
Ahmed is simply studying the situation … and ofc doesn’t have a thesis… he’ll have to come up with a hypothesis then test it…
Stick with your conspiracy theories they are more entertaining…
What do Ahmed's posts have to do with the article in question?
“Productivity”
“ Outside of Tesla, he's the Vaporware King.”
He’s gonna put the wood to OPEC+ which is more than Pocahontas could ever get done…
“ Ahmed is simply studying the situation”
Lol! He’s copying and pasting and hide behind it. And you add to that charade with your endless ascribing shit.
On a personal note, I used to work for a local school board repairing computers. I used to get about four computers a day to repair and because I was good at it, I'd have them repaired by noon. The foreman had to give me work with things like cleaning the storeroom, etc. but he had a limited budget for that and told me that eventually, he'd have to start sending me home early which would mean reduced pay.
So here I was in a situation where the more productive I became, the less I would earn. My productivity helped the schools as they would have more money for other things. It also helped the taxpayers because they would have to pay less to maintain their computers. Yet, by being productive, I was hurting myself.
Some other workers advised me to work slower if I wanted to keep my job. So I curbed my own labor productivity down to the level of other workers. I would take two hours to repair a computer that I knew only required one hour.
I should mention that it was a union job where everyone was paid the same union rate regardless of productivity. One of the many reasons I don't like unions.
It's paradoxical, but there it is.
S400,
I use quotations because if, for example, I referenced the Baumol Effect, some readers might not be familiar with it. I could simply provide a link, but sometimes the relevant part is only a part of that article. Also, even for those who understand the Baumol Effect, reminding them of that is still useful.
As an aside, the fact that you are obsessing with my commenting style on the internet speaks to some kind of pathology. I would advise you to do a little self-reflection on that.
It would be much simpler for you to simply ignore my comments. That's what I generally do with yours. Also, it's been said that "Profanity is the effort of a feeble brain to express itself forcibly.". You might want to reflect on that also.
Here, have a quote to that effect:
Profanity is the effort of a feeble brain to express itself forcibly.
re: productivity
“Productivity isn't everything, but, in the long run, it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.” Paul Krugman's conclusion about the importance of productivity is widely shared among economists.
In one of my previous comments, I mentioned a 1% increase in yearly productivity. Historically, it's actually been about 2%. Using the Rule of 72, a 2% increase in productivity means that the economy doubles in size roughly every 35 years.
That means that in 70 years, an economy that grew at 2% per year would be four times larger than compared to an economy that didn't grow. Teachers, for example, where there has been no increases in productivity, would have seen a fourfold increase in wages over that time due to the Baumol Effect.
This is why economists obsess over productivity. It lifts everyone's standard of living.
Ahmed,
Some businesses will pay according to piecework. If you do a two hour task in one hour, you get paid for two hours.
In agriculture, farmers and workers prefer piecework. No one wants to putz around when you can pick crops quickly and earn more than minimum wage.
Want to improve productivity among salespersons? Pay them a commission.
None of this has anything to do with the article.
Yo, The article is about productivity…
The trust fund female that wrote the article asserts that she and others like her are not productive….
I’m assuming single with no kids…. AOC type but with munnie…
The article is about meritocracy.
The article is trying to say there is a disconnect between productivity and income, which is another way of talking about merit. All three words are in the article.
The first sentence I wrote above:
There are many economic fallacies. The idea that wages are tied to personal effort and productivity is one of those fallacies. I hope I can put that fallacy to rest.
Merit was implied.
Merit and meritocracy are not economic fallacies, they are ideological bullshit.
From the article:
Modern English is fascinating in how it limits critical thought: “Earned” means both to “obtain money” in return for labour, as an award, or as interest or profit, and to “gain deservedly in return for one’s behaviour or achievements.” The equivocation of these two ideas gives us meritocracy, the “bootstrap” ideology of the current ruling class.
One of the core issues of this ideology is that assuming merit is the main pathway to wealth and success means people will infer the opposite to also be true — that wealth is proof of merit. This can lead to the false conclusion that one’s income is a measure of the value added to society, when it’s better understood as a measure of the amount extracted.
Meritocracy as a concept is relatively new, an evolution of the Protestant work ethic that was spawned in part by popular, justified contempt for lazy aristocrats and rent-seeking capitalists. Since extreme inequality can only be sustained through what economist Thomas Piketty refers to as an “apparatus of justification,” when inequality increases, so too must rationalizations as to why this inequality is just. Meritocracy has served as this rationalization since at least the late 1970s, as it insulates the new highly-educated and remunerated professional class from traditional left-wing criticisms, even though this class also increasingly extracts wealth from rents.
As for economic fallacies:
Productivity and talent don't determine compensation levels. The relevant factors are 1) supply and demand 2) the legalities of the contract entered into.
The owners of a firm may dispose of their property (and the fruits thereof) as they see fit, because the law grants them that privilege.
Incentives to raise productivity are no great mystery. I mentioned one example earlier; making labour more expensive is another approach that could be taken if there were a job guarantee.
“ that wealth is proof of merit.”
Trump’s Achilles heel….
Ok, self reflection isn’t Ahmed strong side either. Got it.
Bull shitting is and THAT became so much clearer when he actually had to explain something with his own words.
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