I wonder what this looks like if you break it down by industry and firm size. It seems odd that this sort of thing can persist (and increase) over time since you'd expect competition within industries to drive this down over time.
Just to flip your assumptions around here's an idea; no personal knowledge here, just a potential alternate narrative.
Perhaps competition drives executives salaries faster than general workers. There is intense competition for those who can have a large impact on the bottom line. In tougher/faster paced competitive environment the demand for qualified/experienced individuals must be intense.
I imagine much of the explanation is firm size growing.
You don't have to scrape out a lot of Walmart's revenues to get a huge salary. You have to scrape out a pretty big chunk of the revenue of a 50 person firm to get a large salary, never mind a huge one.
I'm under the impression from anecdotes that competition is decreasing in the American economy (though I would love to see data on it). Industries have been consolidating and even startups seem to avoid actually competitive markets as they are less profitable.
I feel like there is a fairly heavy executive... club that is happy to hire their buddies and keep paying each other.... they're also on the boards that make these decisions.
I think that forces driving the market are often, these same guys who are getting paid.
Executive pay is not set by "the market". Executive pay is set by other executives sitting on each others boards.
How surprising this executive class somehow consistently votes to give their fellow executives a greater and greater share of their corporations' value.
If I was looking for a job, no open-office policy and ,,private spaces for teams of 3-6'' would be a great benefit.
Hopefully at some point companies will use this benefit in their recruitment practices (though I'm not keeping my hopes up, as office space is expensive).
If these guys where not so often basically preventing the kind of growth they are paid for- maybe this would be a acceptable state of affairs.
But looking at the patent-machinery, the lawsuit-crusades and their murderous buying sprees into any space where a challenger could grow- these guys are really expensive, for humanity as a total.
Also take note, that the agreements to not enter bids for software developers - basically limiting wage growth, seems not to apply for CEOs.
When you marginalize people, they'll look more and more outside of society's box.
The US is luck in that there are plenty of opportunities for non-workers without advanced education to make their life, but there is no way their inequality can keep increasing without those opportunities disappearing (as they depend on a middle class). When they disappear, the only thing out of society's box will be crime.
If you want to know how the US will become once it gets more similar to Brazil, take a look at Brazil.
If I put my shareholder hat on I can believe that competence at the CEO level is 312x more valuable than at the worker level.
Personally, I'm suspicious that all the extra money won't correlate with any sort of useful increase in performance. How is paying these people more going to encourage better decisions? It just means they'll have more comfortable holidays. I've seen head-office politics, and believe that the system used for promotions can tell great from terrible. But there is no way it has the capability of picking who would be best choice to run a company out of 50 senior management figures. There is a lot of pot luck in whether the market conditions are favorable in any given CEOs tenure. Anyone 3-4 levels away from the frontline probably has a reasonable shot at being the best choice to manage a large company.
I think the pot luck you describe combined with it being super hard to evaluate who is a valuable executive and who isn't ... just makes it a very muddy / weird market.
Maybe it's just me, but I'm not really mad at how much the CEO of the big tech company I work at makes, it really has no impact on me. If we took his compensation and spread it around, no-one would feel it.
I was much more irked by the difference between founder/early employee stakes at a startup where the magnitude of the difference was much smaller than 312x, but redistributing their stake would actually have been felt due to the smaller size.
Consider the salary they could have made at a large company and that they effectively invested 100% of that at seed-stage multiples. (Assuming they were taking zero salary early on). There was significant risk the founders investment in the form of time could have gone to zero, they deserve some return on that risk.
Iirc studies have shown very little correlation between executive compensation and company productivity/profitability.
The CEO is worth more than the typical janitor or manual laborer, you’d be pretty hard pressed to prove otherwise. But the current compensation scheme seems to be way out of wack with what each employee actually brings to the table.
I think this study has the same problem as the argument that hedge funds are a waste of time because hedge funds don't make money on average. Imaging the average return of hedge funds was 50%, what would happen? people would open up more and more less and less competent hedge funds until it was a flat return and no longer attractive.
You're measuring the results post (arguably) a market force which has impacted the results. If paying managers more than the current average showed obvious results, the average would go up. You also have correlation/causation.
I'm not sure if i'm pro bosses mental pay or whether I think it makes any difference just don't buy this argument/study.
Not making money on average like I'm trying to say is a true but meaningless statement.
But there's a difference between the statement:
"I can't make money on average by putting money into this system (this system isn't undervalued)"
and "This system is worthless" which is kind of conflated. Like the system will always expand to the point that there's no free cash on the table, so looking at it and saying "on average paying more for CEOs or putting money into a random hedge fund doesn't move the dial" has no bearing on whether executive pay being high or hedge funds existing is keeping money off the table (if they were smaller/lower there would be gain to expanding).
The gradient at the equilibrium is always zero, "We found that paying developers more or less doesn't impact the average success of a firm". Yeah because there's an equilibrium where the firms/market has decided roughly what a developer costs, and everyone is paid close to that. That's not an argument that developer pay should be wildly less, because if the average was moved to "developers make $10k per year" than at THAT point, far from the equilibrium, you'd see a big gradient that firms who paid developers more (ergo probably got better devs) did far better.
To add. I am always amazed at how often top levels get fired and life just goes on. Every time one of those emails goes out to all staff saying so and so has decided to pursue other interests in life is actually code for so and so got kicked out of the high earnings club. I do think capitalism is the best of the whole lot but the hyperbole used to justify executive earnings is something that the world needs to focus on. We have created such complex systems such that no one person can really claim to be the reason things succeed or fail
One of the more interesting books I’d read was “Dream Hoarders”, which is about the top 20% setting up a system that prevents them or their children from ever leaving this top quintile. College in particular does more to protect low competency rich kids than it does to promote high competency poor kids, sadly.
As a tidbit from the book, most of the top 1% are actually a rotating cast of the top 20% having a good year (the ultra rich like the Kochs excepted). Most of the top quintile will get a year or two in the top 1% in their lifetimes. But once you focus on the top 20%, you start seeing a very stable clique that’s holding onto power.
Personally, I think of the 312x multiple (or other obscene comp number) as a mind-controlling poison a board likes to force upon a CEO. The compensation is so high that the executive is forced to adopt a "company/profit-first" mindset. The multiplier helps dissuade humanist thinking.
Another informative metric might be the ratio of pay of a manager to all managed employee salaries. So as companies grow and consolidate, you have a single CEO managing the employee force of a dozen acquired companies (or what could be separated out into many different companies).
Just seems like CEOs today are something like the CEO of multiple CEOs, companies have grown so large. Should the person who is skilled at managing CEOs be paid more than the CEO that is skilled at managing business units? The market says 'yes'.
Maybe CEOs should just explain that they have x jobs, one for each business unit. And then get paid independently for each one.
I am still of the opinion that you need to look at the overall compensation of the company versus how much the bosses are taking in. this type of comparison can be made in many industries from sports to movies as well. there are always people at the top of the food chain but for some reason we single out corporate leaders rather than sports and movie stars. heck we could sit back and compare the pay and benefits of the leaders in politics to the rank and file at the bottom of their party or typing pools too.
my local university pays over a million plus benefits to its chancellor/president, how does that compare to the cafeteria workers or sanitation people of the university? a public funded university.
it is all perspective, you are being led by the nose to look everywhere but behind the curtain. behind that curtain you will find many who want to slap others with rules they will quietly excuse themselves from or word in such a way as to miss them. it is exploitation of jealousy for political benefit
Average Walmart worker earned $19,177 in 2017 while CEO Doug McMillon took home $22.8m – a ratio of 1,188-to-one. Yes its a big number, however I don't see anything wrong here. Walmart has around 2.3m workers, Doug's salary is roughly $10 per worker per year. Also, $23M is chump change as he is doing a great job in moving Walmart (just this morning Walmart stock increased 10% == $26B - 1000x his salary).
Salaries are only part of the equation. For example, Drew Houston (founder of Dropbox) is worth $3 billion while an software developer at Dropbox has net equity of less than $1 million. Thats 3000-to-1.
How the stock moves is not of relevance to the daily operation of a company; stock loses its direct benefit after the point of first sale. Actually I see that one could argue that stock becomes a negative benefit if executives become obsessed with watching it e.g. Mr Musk
So what about the fact that the average worker earned a salary low enough to qualify them for foodstamps (given a household size of 2)? Basically walmart is paying these low wages and getting subsidized by the federal government so that their workers can eat.
Or when you say "I don't see anything wrong here" are you really just limiting yourself to the difference between average worker salary and ceo pay?
Worker pay is a function of the available supply of people capable and willing to work the job and the opportunity cost of not filling the position.
The opportunity cost of not filling a low paying job is generally quite low. Likewise, the wages for such jobs vary quite a bit, moreso than cost-of-living differences would account for.
If you want to price wages based on some moral virtue, you will risk losing investors, or hurt poor people (aka your customers) by raising prices. In your scenario, it isn't Walmart that's being subsidized, it's a community with so many people desperate for work but not qualified enough to get a better job that they're willing to take a job that doesn't pay enough.
Time and place matter. He was there at the right time, sold himself and got a contract that essentially guarantees someone can't just come in and undercut him in a month.
There certainly are. Some of them might even have the experience that would lead the board to believe that they could do it successfully.
What's the point? CEO positions should be chosen by random lottery? The company either offered a large enough chunk of money to attract the most talented / experienced individual they could, or Doug negotiated strongly enough to convince them that hiring him to CEO would be worth paying him that much.
You're describing the system we currently have, one of many possible systems, not some natural law. Our system is rigged to require people to work in order to survive, guaranteeing a perpetual high supply of labor, which, not coincidentally, guarantees a race to the bottom in terms of wages.
That is a very strange thing to say following a comment about natural law, considering there is nothing about nature that guarantees you a right to live.
Rather, specialization of economy and and social safety nets means that it's a hell of a lot easier to survive working even a low paying job than it is to try otherwise.
As it stands right now, even if you taxed 100% of the income reported by the top 1% of earners, we might not close the government's budget gap, let alone expand the government's budget to guarantee survival for all citizens (not to mention the economic chaos that would result in taxing 100% of all income earned by anyone).
> That is a very strange thing to say following a comment about natural law, considering there is nothing about nature that guarantees you a right to live.
I think we agree there is no natural law when it comes to macroeconomics, which is a human invention, and the various economic systems that each come with their own strengths and weaknesses. What we have now is better than primitive hunter-gatherer economy, but we seem to be stuck with this belief that only "more extreme capitalism" can make things better.
> As it stands right now, even if you taxed 100% of the income reported by the top 1% of earners, we might not close the government's budget gap, let alone expand the government's budget to guarantee survival for all citizens (not to mention the economic chaos that would result in taxing 100% of all income earned by anyone).
I don't think anyone proposed taxing 100% of anyone's income. A 100% marginal tax after a certain AGI sounds intriguing, and is not far from what was implemented in the USA back in the mid 20th century, to no apparent detrimental effect on the economy.
There were "no apparent detrimental effects" because so very few people actually paid those taxes. Part of the problem with the soak-the-rich idea is that they're the ones who can readily adjust their wealth strategies if taxes on, say, earned income rise to obscene levels. Not much different than sin taxes (alcohol, tobacco, etc), though probably even more effective at discouraging behavior.
Heck, I knew a couple who would retire for a few years, work for a few years, retire for a few years. Sometimes it was for fun, sometimes just a reaction to an increase or decrease in local / state/ federal taxes.
> or hurt poor people (aka your customers) by raising prices.
This is bullshit. Walmart profits are such that they could pay higher wages without changing prices. Sure, i'll accept you'll piss of investors by paying higher wages. If your only judgement of whether something is good or not is how much money it makes for investors, then that's the thing to optimize for. If your goal is to have functioning communities, perhaps that would lead to a different analysis.
Not to mention that the reason walmart is able to get away with paying lower wages is because of those subsidies. If their workers can't eat, they would be forced to do something else. Don't ignore that relationship
It's simple: workers have less bargaining power than they used to have so they can't demand a share of the profits the way that those at the top can. I'm not a fan of unions because they have the same power-structure problems that any large organizations have, but the rise in pay inequality clearly coincides with the decline of unions.
No idea what the answer is. Whether it's some version of ensuring a worker advocate is on the board of a corporation or that some kind of coop ownership scheme gives employees voting rights, hell I have no idea, but pay inequality won't change on its own.
Workers that have done well are those who can either draw a direct line between their contribution and profits (sales) or are scarce enough to demand high compensation (tech workers). Most everybody else is shit out of luck from a negotiation perspective, at least without some form of collective action.
Unions have to make a comeback. Look at German unions. They are organized over a whole industry, not just companies, have a seat on the board of directors. I think this system works really well.
Why would they though? This doesn't magically happen and unions didn't magically disappear. There are strong disincentives towards forming unions (i.e. the ability to offshore labor) and as long as those exist, nothing will change.
Yeah, but that's in Germany. They evolved that system over a long period of time, just like we've evolved our current (dysfunctional) system over a long period of time. You can't just change; that's like telling a devout religious person to just stop believing in that religion and adopt a secular worldview. Sure, the German system may work very well according to actual measurable metrics as seen by multiple independent observers, but extremely religious people don't care about evidence and won't change their beliefs because of it. That's where we are as a society.
I'm not confident that Unions would work for huge issue that is coming up - Mass Mechanization. There will be very few jobs Robotics will not be able to replace in a decade or so. This will easily facilitate few people owning large chunks of means of production. I don't see any serious solutions to this issue on the horizon.
==Whether it's some version of ensuring a worker advocate is on the board of a corporation or that some kind of coop ownership scheme gives employees voting rights, hell I have no idea, but pay inequality won't change on its own.==
Senator Elizabeth Warren is proposing a bill [1] that hits pretty close to these points. It's a unique way to tackle inequality without mandating wage hikes or raising taxes.
Unions seem like a good answer to increasing consolidation of businesses. Even in tech there has been wage/benefit reducing collusion/monopoly behavior.
Why are people so anti-union? Would opt-in collective bargaining work better?
In the beginning unions were heroes & did great things. In the end they were doing fewer great things and more negative things.
Many people alive today were not around to remember the beginning stage, they only read about it in history books, while they lived the end stage. It could be that simple.
I think now that unions are disappearing and people in jobs that used to be unionized see their wages and benefits decrease, those people are slowly realizing unions are still doing heroic and great things for their members.
Too many people just assumed workers financial situations would continue to improve without unions, which is not really turning out to be true.
Unions are good at providing collective benefits but not so good at individual ones. If you want a retirement package - something that everyone gets without regard to performance. Or vacation days. Unions are the way to go. If you want a raise... this is an unpolitic opinion but unions are not so good at that. They will try to give everyone a raise. This leaves almost everyone unhappy because almost everyone feels they're doing a good job and then slacker they work with is a layabout who should be happy they're not getting fired. And everyone intuitively understands that there's a limited pot of money for salaries - it's a zero sum game. In truth retirement benefits aren't really much different but they aren't viewed that way. Same with vacation.
Not one of the posters in this thread, but I can offer my perspective. I am not anti-union per se, if people want to bargain collectively - let them! The one and only aspect I do not like about the unions is that if I - as an individual - want to work for a unionized corporation, I am obligated to join the union. I understand why it is done this way, but this is something that I find as limiting my freedom.
Disclaimer: apart from my student and TA years, I have never been in unionized industry/hired by a corporation for a unionized position, so I may not know the full reality.
"Opt-in collective bargaining" sounds suspiciously like "right to work" laws. I don't think you meant it like that, but it sounds like that.
In case someone isn't aware, a union shop, has a union that negotiates a contract with management. It sets wages, benefits, safety, all sorts of stuff. Most importantly, it negotiates for all workers at the shop. The reason why it negotiates for all workers (or more precisely all workers that qualify for union (e.g. all pilots, all janitors, all machinists, etc.) is that 1) it increases bargaining power, and 2) it simplifies things for the company. As a result, in a union shop, if you work there in a capacity that is union eligible, you're compelled to pay dues to union for the purposes of contract negotiating. (Dues for other purposes are not compelled.) Everyone benefits from the contract. Everyone pays to negotiate said contract.
"Right to work" laws say that you can't be compelled to pay dues to negotiate contracts, and yet you still benefit from the contracts. It's a legal carve out for free riders, with the purpose to starve unions of money and thus negotiating power. This isn't a side effect of this policy, it's its purpose. That's why you find pro-management groups and politicians advocating for these laws, while denigrating unions.
Decades of propaganda telling them that unions are responsible for all the ills of labor right now, instead of having the company own up to their own misgivings.
> Even in tech there has been wage/benefit reducing collusion/monopoly behavior.
> Why are people so anti-union?
You realize that unions are cartels/monopolies on labor, right? You already recognize that monopolies distort markets, promote corruption and rent-seeking, and produce bad outcomes for society. Why would it be any different with unions?
By that logic every company is already a monopoly in its own labor and a union is just a second monopoly with equivalent bargaining power as a counter balance.
One answer is to accept that unions, like other human organizations, will always have power-structure problems but that on balance, we do better when workers have actual bargaining power.
Most of the problems with unions could be mitigated by enforced transparency - same as with corporations and governments.
on balance, we do better when workers have actual bargaining power.
I don't know, look at some of the cities around the country going bankrupt as the bill comes due for union-imposed obligations. I'm not against collective bargaining, but it seems like unions as they were known fifty years ago were destined to eventually collapse and/or make their communities eventually collapse.
Now, collective bargaining could just be a cyclical thing- power to the bosses, power to the workers, power back to the bosses. We could be approaching the swing back in the other direction.
That can just as easily be explained by government officials not doing their duty, and not funding the obligations they promised. During the boom times, they assumed growth would always be huge, so they diverted money meant to go to these funds to cover other shortfalls in budget.
This doesn't tell the whole story. In states like Illinois, the pension assumptions were unrealistic to begin with. From what I've read, they assumed 7% annual growth and included 3% annual increases to account for inflation. Even if government officials had property invested the funds, we still would've ended up with a massive shortfall compounded over several decades.
Unions are incentivized to bargain for as much compensation as possible and politicians are incentivized to give it to them if union workers make up a significant chunk of votes. Politicians don't have to be concerned with whether or not those obligations are realistic because they'll be out of office by the time the whole thing falls apart.
"Unions are incentivized to bargain for as much compensation as possible"
Yes, they are. And companies are incentivized to bargain for as much profit and as little employee compensation as possible, yet people here seem to consider that a moral imperative. I cannot, and will not begrudge unions for trying to get the best deal for their members while that is the case.
The problem isn't so much that unions are incentivized to bargain for as much as possible. Every one who participates in the economy is trying to get the best deal for themselves. The problem is that politicians aren't restrained by cost. If a union demands that hole diggers be paid $100 an hour instead of $10 an hour, a politician will gladly give it to them even if it will bankrupt the state.
Edit: I think I should note that I'm specifically referring to unionized government workers.
>companies are incentivized to bargain for as much profit and as little employee compensation as possible
Not necessarily, especially when employees are in high demand. Netflix has done quite well by paying employees well above average in order to effectively have their pick of the talent.
Paying employees poorly can increase training costs, recruiting costs, cause negative customer perception, etc.
Well, with most unions, I as a worker have the ability to affect union leadership and policy. I have very little or zero ability to affect management policy.
The answer is open shop unionization. The US is closed shop, which means you can only have one choice of union, take it or leave it.
With open shops, the unions have to compete for your membership so they actually have to do stuff in your interest, or you can make your own union to replace them.
With closed shop, you get stuff like the UAW pushing for pay caps on graduate students (really).
In the US, "closed shop" means the company can only hire union members, which is illegal. "Open shop" means the union has to represent non-members but they don't have to pay for it. It sounds like you're talking about members-only unions.
I agree. It seems that much of society is running on fumes and that there is this persistent narrative that if you just try harder and work more hours while doing these 5 self-help steps that somehow that will lead to wealth. Part of my background was in evaluating credit risk of millions of loan applicants and it was very concerning to see the state of economic stability in the country.
If I’d had that job, I probably would’ve ended up buying a mountain cabin stuffed with MRIs and guns. Dunno how you could look at all that stuff and not basically say “welp, we’re fucked”.
With the MRIs you could start a potentially successful Dr. practice and perhaps not have to worry about the licensing because of the upheaval. JK I know you probably meant MREs. Yes, I just hope that eventually the narratives shift towards recognizing and dealing with these types of issues. My outdoors skills could use some serious improvement.
It’s obvious that some level of inequality is tolerable, all stable countries today handle a certain amount of it. I wonder what’s the point of inequality where democracy, or maybe even society itself, just falls apart?
It's well beyond that already. There is just a lag between the condition and its effect. But if you look at American politics, it seems we might be in the midst of the destabilization process.
One thing that helps is that the super-rich live separate lives then the poor so it isn't thrown in your face. The super rich in their enclaves can enjoy their fancy cars, food, etc while the poor don't have to see all that excess. The poor don't even know that type of excess exists except for a glimmer on tv occasionally.
Seriously? A glimmer? TV is a wasteland of shows glorifying the lives of the wealthy. There's even an entire genre of reality TV called "Real Housewives of...". Or, you know, the Kardashians, who literally multiplied their net worth by filming a TV show about their wealthy, drama filled lives...
I think we may already be past that point. Within the past few years we’ve had Brexit, Donald Trump, and a series of populist candidates winning throughout Europe.
For the sake of keeping things civil, I’ll refrain from stating my opinions on whether these are good or bad events, but these elections indicate that people want big changes. The Western world as a whole seems desperate for a radical reworking of the way we do things.
Whether the new system will be better or worse is anyone’s guess. We live in interesting times.
What are the chances that this has anything to do with merit? It's just another example of the same thing happening everywhere else in the American economy: people who are already rich taking more and more money for themselves, leaving much less for the rest of it. Of course there are people whose job it is to tell us that yes, these CEOs actually deserve this and have earned it, but that's just another part of the scam.
"the bosses of America’s largest companies got an average pay rise of 17.6% in 2017, taking home an average of $18.9m in compensation while their employees’ wages stalled, rising just 0.3% over the year."
That's the worst part of it. Companies are split up in two sections. One that benefits from the company's success while others get almost nothing. I see that in my company. In meetings they celebrate increased revenue and earnings. When I look around almost nobody except a few top guys I see benefits from that success and instead has to wonder when his job goes to India.
There was a discussion here about increasing employee participation. I really think we should get away from the belief that only shareholders count but also acknowledge that employees and even the communities where the company has its buildings have a stake.
It seems as though there are two competing issues tied to pay inequality:
1) Increasing inequality of social power between the mega rich and the common person
2) A feeling of unfairness as business leaders take home the lions share of profits
#1 is a true issue, but, let's be honest here, the average CEO's level pay isn't contributing to increasing inequality. That McDonald's CEO had a yearly take home pay of 21.7m. That's unbelievable peanuts compared to the wealth of the mega-rich. It is the multi-billionaires flexing their political muscles and exerting influence that leads to the nasty consequences of pay inequality.
As to #2, I understand the unfairness, but fail to understand the social consequences of it. In other words - what harm to society is being done by a manager getting paid more than a line employee? You mentioned offshoring jobs, but that is a separate issue, not tied to pay inequality.
> what harm to society is being done by a manager getting paid more than a line employee?
Since you're being downvoted without any responses, I'll try to add my take. To me, it's not that a manager is getting paid more. It's that he's getting paid 312x more when the average worker in America struggling to afford healthcare, an education for their kids, and probably has to take in two salaries just to make ends meet. That's when income inequality is a problem -- when it's so unequal that one side gets everything, and the other is left to a battle royale.
Then it appears the issue is stagnant wages, not inequality in pay. Let's say that all pay of big bosses gets capped at 200k across the nation tomorrow. Does that solve any issues with healthcare, education, etc? It seems as though the assumption is that higher pay for bosses comes solely at the expense of line workers. I don't think cutting pay of one party is going to magically increase pay of another party.
Nobody is suggesting there's anything magical here.
We're seeing increasing profits, increasing wages for high level management, and static wages for most employees.
The second isn't an intrinsic issue itself, but we don't have just the second, we have all three, and _that_ is the problem. If profits and wages were both stagnant, then we would be having a different problem, but that isn't the world we live in. We live in the world where profits are going up, and all of it is going to people other than the workers.
This implies a significant arbitrage opportunity for competitors. If workers really are producing the lion-share of the value, then smaller competitors should be able to gain market share by taking the best workers, paying them slightly more than the incumbent companies, and still reap significant profits.
As an example, McDonald's has a net income of of $4.686 billion. The CEO gets paid 21.7 million of that, or 0.4%. That's net income, not revenue, which was $24.6 billion. Let's be honest, the money is there to pay workers more money, and the CEO's pay does not redirect any meaningful amount of that available cash away from employees.
To be clear, my issue is not that workers shouldn't be paid more, it is that justification for higher worker pay shouldn't be "my boss gets paid more than me."
I think it absolutely should be. They're benefitting from the company doing better (in fact, in many cases, they're benefitting despite the company doing shitty), why should the actual workers doing the actual work not benefit as well?
> It seems as though the assumption is that higher pay for bosses comes solely at the expense of line workers.
This assumption comes from evidence in our not-so-distant past. In the 1940s-60s, income was taxed at a much higher rate in the higher brackets (50-80%+ depending on the time); this served a similar function of the executive pay cap in your hypothetical. After the highest earners in a company reached the top brackets, it didn't make much sense for the company to further increase their pay (much of it would be lost to taxes so the ROI wasn't great).
So now you have all this leftover profit that, in 2018, would have went to CEO pay or bonuses. What is there to do with it? Invest in the company of course: give the best performing line-level employees raises, start internal training programs, kickstart moonshot R&D ideas, and so on.
(Unions also helped in ensuring that the rank and file got pay increases commensurate with management's raises)
Don't get me wrong, the highest earners were still very wealthy (and had plenty of yachts/summer homes/other symbols we associate with the 0.1%) and it was common to give them raises every year, but the higher marginal rates really did help in "forcing" profits downward.
The problem with wealth inequality is that it's the same distorting forces of a monopoly. A small cadre use their wealth an influence to shape politics to serve their interests. Markets chase after small lucrative pools of customers. (For example, luxury condos get built, but affordable housing does not.) Education gets warped as the wealthy concentrate in small neighborhoods and thus improving those schools, while the rest fall farther and farther behind. The macroeconomy becomes more unstable as it's driven by the fads whims of the few. This instability and political disenfranchisement then leads to political instabilities and eventually sudden political upheavals where entire political, social, and economic systems are overthrown for sake of reform, but at the same time just leads to more extreme instability.
Until ironically, the wealthy simply leave (because who wants to stay in an a dangerous unstable place, when you can afford to leave), and let place that they set on fire burn to the ground, click their tongues and say, "Who knew this would happen?"
To think of it another way, no one puts all bets on a single investment. You diversify. That's what spreading the wealth does. It diversifies opportunity.
"he wealthy simply leave (because they can afford to), and let place that they set on fire burn to the ground,"
There was a movie while ago where the rich people lived in space in beautiful habitats, had technology that could heal anybody while the rest had to labor on Earth under terrible conditions. Don't remember the name but maybe the move isn't that fictitious.
Great movie. I liked the way the regular citizens (the non leadership) of Elysium were portrayed as largely oblivious or lacking in any care to the sufferings on Earth.
>(For example, luxury condos get built, but affordable housing does not.)
One think to think about, in a lot of areas where only luxury condos are being built, there tend to be pretty limited numbers of condos being built. If you are a developer and you know you will only be allowed to build 50 units, you are going to build the most expensive units you can so you can maximize your gross profit even if the marginal profit rate isn't as good. If you were allowed to build 1000 units, you might choose to build affordable housing that has a better marginal profit since the larger number of units allows you to have a higher gross profit.
True, but who is setting the 50 unit limit? It's the people that already live there and don't want the riff-raff moving in and driving down their property values.
At the same time, if you own an lot full of RVs and mobile mobile homes in a rich suburb, you might end up running the numbers and deciding to throw all those people out, and put up some luxury condos, because you can make a lot more money per square foot.
" A feeling of unfairness as business leaders take home the lions share of profits"
The social consequences of unfairness are huge. Once people feel they work in an unfair society they become cynical and lose motivation. I would argue a sense of fairness is the number one ingredient for a successful society.
Not just a social consequence, it affects the business too but it's hard to measure, because you'd need the productivity numbers from an alternate reality. It's similar to problems caused around having less testing. There's nothing to compare to.
Actually, Executive pay is one of the primary drivers of income inequality growth. This is further driven by the shift from cash compensation for executives to cash and stock.
I'm old enough to recall the business/philosophical discussions about CEO compensation to favor stock so that the long term interests of the CEO were aligned with the long term interests of the company. When I see profits of the company being piled into buybacks, I think that whole movement failed.
Companies should be returning dividends to owners. Buybacks are a workaround for bizarre tax laws that favor speculation (profit from dumping) over investment (profit from holding).
Companies were also supposed to be efficient engines of production which also returned value to society through some element of reducing costs to customers too. Informally, it was supposed to result in a whole-society win-win. That is also failing.
Edit: I should be a bit more specific. I think in some stages of development, it has and still is succeeding very well (developing nations). In other areas like developed nations, there is a regression to inequality that is occurring that is figuratively and literally headed to destabilizing the world.
I think the problem with that is, in the US at least, once a company starts issuing a dividend, it is expected to keep issuing that dividend, no matter what. And not only to keep issuing the dividend, but to increase it over time, too. Companies are expected to cut almost anything else, even taking on debt or laying off workers, before thinking of cutting the dividend.
Man I hate that too. We throw parties to celebrate the company's financials if they're above target, but we don't get pay raises for it. Yet when the company is still profitable but misses revenue targets by 0.5%, we get told no pay raises because we missed targets and you're just lucky you're not getting laid off because we only made $9.95b in profits, not the $10b we wanted.
No. This is horribly, horribly naive. Not everyone is in the position where they can just up and quit like that. Does that mean those people should get fucked over?
Should? Hard to answer and not too practically relevant.
It is certainly why they are getting screwed though. People should aggressively save, so they are treated properly.
People also sometimes willingly make themselves exploitable, through their own fault, by adding tons of debt and liabilities (children, houses, vehicles) into the equation. One would be a fool to think people aren't looking at those to assess your risk tolerance
"Should? Hard to answer and not too practically relevant."
Considering that's kinda what you're arguing for when you say that they should just quit, yes, I would consider it relevant.
"People also sometimes willingly make themselves exploitable, through their own fault, by adding tons of debt and liabilities (children, houses, vehicles) into the equation. One would be a fool to think people aren't looking at those to assess your risk tolerance"
No. The fault for exploitation is ALWAYS entirely on those doing the exploiting. Always. They are the ones actively choosing to fuck people over.
I love those company parties. They're so...awkward! The big shots up on stage with microphones yelling "OUR STOCK PRICE IS UP 150% THIS YEAR! WOOOOOOOOO!!! PARTY ON!" And the rest of the employees standing around shrugging or pretending to be excited as they at least get some free food.
It’s a problem of motivation, alright? Now if I work my ass off and Initech ships a few extra units, I don’t see another dime, so where’s the motivation? And here’s another thing, I have eight different bosses right now.
If I am reading the charts on page 3 right [0] the Bureau of Labor Statistics says that labor productivity raised ~1% in 2017 while unit costs of labor raised ~2%. Going off the assumption that labor should be paid in proportion to the value they produce, wages should increase when productivity growth outpaces cost growth. Thus since that didn't happen in 2017 wages should be about flat.
Can you give an alternative reason on why average wages should increase?
Thank you for providing that link. It seems like that the divergence started in 1973 and was clear by 1980. Do you have any ideas on what changed in that time phrase that caused the divergence?
My pleasure! Another link from EPI explains it better than I can.
>The Economic Policy Institute’s earlier paper, Raising America’s Pay: Why It’s Our Central Economic Policy Challenge, presented a thorough analysis of income and wage trends, documented rising wage inequality, and provided strong evidence that wage stagnation is largely the result of policy choices that boosted the bargaining power of those with the most wealth and power (Bivens et al. 2014). As we argued, better policy choices, made with low- and moderate-wage earners in mind, can lead to more widespread wage growth and strengthen and expand the middle class.
I skimmed it and the closest I could get to find an answer to my question was
>Finally, it also seems worth noting that this decoupling coincided with the passage of many policies that explicitly aimed to erode the bargaining power of low- and moderate-wage workers in the labor market.
I am in my 20's I was not alive in the 70's. What did Nixon, Ford, and Carter change in that time that eroded the bargaining power of wage workers?
This is a pet topic of mine. Here are some interesting breadcrumbs, although a sister post by dv_dt above was a far better summary than I could give, there are some things I think are illuminating specifically. While not specifically from the presidents you mention, I ascribe to a theory that there were broad cultural and economic shifts that caused the results you see.
I don't like seeing posts like this downvoted, as you seem genuinely curious about the issue, but to each his own, I guess.
dv_dt and existencebox hit it well - cultural more than technical. But, the cultural changes impacted policy. I've posted the following article in the past, but it provides a clear image of the issue - from one of the people who set the wheels in motion.
>But there is a theme that threads through and ties together all the strands: many of the most talented, driven Americans used what makes America great–the First Amendment, due process, financial and legal ingenuity, free markets and free trade, meritocracy, even democracy itself–to chase the American Dream. And they won it, for themselves. Then, in a way unprecedented in history, they were able to consolidate their winnings, outsmart and co-opt the forces that might have reined them in, and pull up the ladder so more could not share in their success or challenge their primacy.
>By continuing to get better at what they do, by knocking away the guardrails limiting their winnings, aggressively engineering changes in the political landscape, and by dint of the often unanticipated consequences of their innovations, they created a nation of moats that protected them from accountability and from the damage their triumphs caused in the larger community. Most of the time, our elected and appointed representatives were no match for these overachievers. As a result of their savvy, their drive and their resources (and a certain degree of privilege, as these strivers may have come from humble circumstances but are mostly white men), America all but abandoned its most ambitious and proudest ideal: the never perfect, always debated and perpetually sought after balance between the energizing inequality of achievement in a competitive economy and the community-binding equality promised by democracy. In a battle that began a half-century ago, the achievers won.
IMHO, there was never a set of hard rules that enforced the split to any particular value. Business philosophy changed from a paternalistic profits + play a part-of-society view to the very literal greed-is-good view by the 1980s.
There was also a generational shift from business leaders who had been alive to feel the effects of the depression as well as when the rich weren't so insulated from the poor, to those where born well after those effects firsthand.
Getting a big payout is not the problem. Getting a big payout that's disproportional to the company's performance or profitability is. Getting a golden parachute while the plane is diving should not be an option. Bonus/malus.
Agreed. I'd wager that most people on this board, if they fuck up at their job and get fired, are not going to get any kind of golden parachute. They're just going to be kicked out on their ass.
Even as a troll, that shit isn’t funny here. I’ve seen college students at Tulane trying to “finance their education” by selling Cutco. These guys are not from poor families.
This is only the 350 highest paid CEOs in the US -- there are >50k enterprises of substantial size in the US. The median pay for CEOs per the government is less than many medical professionals. Some CEOs receive lavish compensation but most work for wages of a Silicon Valley software engineer.
I'd much rather work as a software engineer than a CEO.
Can the person who down-voted me explain why asking for a source on a fact-based statement is worth a down-vote? Just curious why that's offensive? I could have googled it myself, but it's not my source, it's the OPs I was interested in.
One of my issues with the discussions of reducing wealth inequality is that people talk about the negatives of having billionaires but often propose measures that would negatively affect millionaires. Also, it would be nice to see more discussion about how to improve the wealth building ability of those at the bottom.
Often times the argument starts with something like "rich people have to much money" and then talks about how we should take more money from them. I had a lot of respect for Bernie Sanders because he started with "we should do X good thing for society" and then he proposed a specific tax to pay for that thing. I think that is much better rhetoric than arguing that some people have to much.
I have no issues with income / wealth inequality, per se. But I have some issues as to why that inequality happens. Some important rationales are the following:
A) Taxing high income will cause capital / investment flight.
B) Wealth trickles down.
A: could be true, but it does not warrant letting private investors take all profits without incurring in the necessary expenses, which are currently funded by the tax payer (disproportionately low-medium income workers), or simply not covered (health care).
B: This is, after several decades of lying to the electorate, patently false.
I'd venture a guess based on B) that GP believes that inequality happens in part due to tax laws that support the idea that wealth trickles down, while GP believes (as do I), that it absolutely does not. A proposed fix would be to stop giving tax cuts to the rich/businesses in hopes that the not rich will somehow magically get some trickled down benefit and instead do things that actively benefit the lower economic classes.
>A proposed fix would be to stop giving tax cuts to the rich/businesses in hopes that the not rich will somehow magically get some trickled down benefit and instead do things that actively benefit the lower economic classes.
So it seems like you are saying, tax the rich and do something to benefit the lower economic classes. What specific policies to you support that would benefit the lower economic classes?
> So it seems like you are saying, tax the rich and do something to benefit the lower economic classes. What specific policies to you support that would benefit the lower economic classes?
The simplest one would be to reduce taxes which disproportionately impact those classes; moving the trust fund contributions currently made out of the employer share of payroll taxes to be drawn from general revenue would be one example.
Even though it's technically a business tax cut, is directly on a cost of employing people, making employing workers at any given wage cheaper for the employer, so that more of the employer cost goes to the employee.
As I see it the problem is that profits from speculation and rent seeking results in concentration of wealth providing even more leverage for speculation and rent seeking. Thus forming an accelerating feedback loop.
A particular elegant way to address that is to realize that most of this wealth accumulation is expressed in terms of property. Fundamentally a relationship between two parties, the non-owners, and the current owner. The former who takes the opperunity cost of not having, and the owner who extracts the rent-value from having.
So one way to adress the fundamental issue is to compensate the former group for their opperynity cost cost by taxing the owner. The difference between the opportunity cost and extracted rent can be seen as the unique contribution of the current owner, but the rest could be distributed fairly among the non-owners as a dividend.
The way I like to look at it: What "societal goods" and "societal bads" come from a wealth distribution like we have today, where a vanishingly tiny number of people hold close to all the country's wealth. If the bads outweigh the goods, that in itself should be enough of an argument to do away with the distribution.
It looks like what your saying makes sense... until you start to control for location. Look at the chart titled, "Metropolitan areas with the highest employment level in this occupation" for both pages, and you'll see that for every locale included in both places, CEO pay is higher than GPs.
This is most likely because CEOs aren't evenly distributed with the population like GPs are (you can have one CEO at the top of 50k employees, but you need many more GPs than that for the same number of people).
Yeah I work at a F500 and there are VP's with hundreds to thousands of people in their org chart for them earn about the same as SWE at Google including stock and bonuses.
Median CEO salary: $183k[1]
Median software engineer, in SF: $111k according to PayScale[2]
Median Sr. software eng salary, SF: $144k according to GlassDoor[3]
Median Software Engineer Salary, Bay Area: $120k according to LinkedIn[4]
At best, your CEOs are getting an extra $40k per-year. Furthermore, your CEO salary is across the entire US, whereas your Bay Area engineers are going to be bleeding a significant chunk of their earning paying for rent compared to the median CEO; median national monthly rent for a one bedroom is ~$1k[5], but in San Jose, that's $2.1k[6]; so your CEO has another $13.2k per year
A median CEO nationally makes $50-70k more per year than your median SV software engineer.
"The society that puts equality before freedom will end up with neither. The society that puts freedom before equality will end up with a great measure of both."
To some extent, though I'd argue that many of the failures of the current system are either orthogonal to or directly in conflict with Friedman's own policies.
He would have a hard time justifying that in the face of historical fact. Historically speaking, people who have gained power have used that power to limit the freedom of others. I think history is pretty clear that optimizing for "most freedom" means "allow people lucky enough to gain power the freedom to exercise it over others."
Maximizing for freedom is great if you're part of a group that tends to hold power. It's not so great if you're part of a group that tends to not.
I can appreciate what you're saying, but please don't ignore the countless counter-examples.
Compare health outcomes of countries with socialized medicine to those without, for example.
How many regulations exist because private companies couldn't be trusted to do the right thing on their own?
The Civil Rights act.
Sure, you can point out that soviet russia failed economically, especially compared to the US, but there is nothing about that fact that contradicts the point that "freer" economic structures have also led to serious power imbalances between employers and employees, and that many of the rights employees have today in the US are only due to regulation imposed by governments.
> Compare health outcomes of countries with socialized medicine to those without, for example.
Socialized medicine is likely better than the current state of US healthcare, but US healthcare is by no means a free market. In fact, it's probably the most regulated and otherwise distorted by government policy. It all started with the introduction of medicare and the wage caps of the WWII era leading to employer-linked insurance. Before that, it was much more affordable.
> How many regulations exist because private companies couldn't be trusted to do the right thing on their own? The Civil Rights act.
The civil rights act was created as a response to other state distortions, like Jim Crow laws and segregation. It isn't necessary to prevent discrimination: incentives against that already exist in the marketplace.
Give me an example of a regulation, and I'll tell you why it is either unnecessary or actively harmful.
> the point that "freer" economic structures have also led to serious power imbalances between employers and employees
To the contrary, freer economies led to the reduction of child labor and improvements to worker's lives before any policy actions were implemented.
> many of the rights employees have today in the US are only due to regulation imposed by governments
Milton Friedman was one of a few economists responsible for what would become the neoliberal economic policies that free markets are infallible that we have today.
Policies that have benefitted primarily the already wealthy amassers of capital and which are in large part responsible for the massive income inequality and erosion of labour rights that is present for the first time since the Gilded Age.
His idea of human beings as rational, self-interested economic actors that is a ludicrously narrow model of the human being and has been disastrous for the working and middle classes all over the developed world.
Quotes from Friedman are worth nothing to me, personally.
> His idea of human beings as rational, self-interested economic actors that is a ludicrously narrow model of the human being
Sure, but in order to understand human behavior on the scale of millions of people making billions of transactions, you need to start with a simple axiom and move on from there. I think people hear the word "self-interest" and think "greed", and assume that mainstream economics must be predicted on a very cynical view of human beings. That's not the case at all. We all want to survive. We can't possibly understand the individual needs of other people outside of a small circle of people that we love and care about. None of us are omniscient. The beautiful thing about markets is that none of us need to have perfect information in order to participate. By simply buying the things we need and selling things the things we don't, prices emerge in a totally decentralized way.
If you can think of a more accurate way to describe human economic motives, I'd like to hear it.
> has been disastrous for the working and middle classes all over the developed world.
Capitalism has lifted billions out of poverty. Sure, there's a large gap between the richest and poorest, but the poorest people of the world are also materially better off than at any other point in human history. I don't see how this is a bad thing.
That doesn't mean Capitalism can't do better. I'm extremely tired of this "Capitalism did good things once! Why are you criticizing Capitalism?" trope when talking about the very obvious flaws of it.
I agree. It's definitely not perfect, and I do view the rising inequality and stagnant wages as a serious issue. I just find it alarming that when people criticize capitalism, they usually advocate for some variety of full blown socialism, which has been tried many times before and failed disastrously every single time.
I don't know what the solution is. Every government intervention has the potential to distort the market and create corrupt/perverse incentives. Rent control is a great example of something that sounds nice on paper but ends up increasing housing costs as a result. I'm generally in favor of expanding the welfare state but I think we should be extremely cautious in doing so.
Unfortunately, we seem to be stuck in this situation where we can't muster up the political will to try anything that has any elements of the dreaded "socialism". It's like a ratchet that can only go one acceptable way: More capitalism.
Yeah, it's unfortunate that the word "socialism" has completely lost it's meaning in the US. I don't think Americans truly comprehend how radical Socialism actually is. To compare increasing the minimum wage with Socialism is beyond absurd. Terms like "welfare state" are also loaded with negative connotations.
Concepts like "socialism" and "unions" have sustained a relentless smear campaign orchestrated by the right for decades. The propaganda is so bad that it's probably worse to be labeled a socialist than to be labeled a pedophile in the USA.
>I just find it alarming that when people criticize capitalism, they usually advocate for some variety of full blown socialism, which has been tried many times before and failed disastrously every single time.
And yet something less than full blown socialism seems to work fine just about everywhere.
"I just find it alarming that when people criticize capitalism, they usually advocate for some variety of full blown socialism, which has been tried many times before and failed disastrously every single time."
Scandinavia says hi. And those "disastrous" times you're talking about are more the result of dictators, than any economic system used.
Idk, maybe I'm spending too much on the internet but it seems like the discussion around inequality has shifted from "let's increase the welfare state" to "let's dismantle capitalism and give socialism a try". There seem to be a lot of people these days that call themselves Marxists or capital-S Socialists, and even some who are apologists for the likes of Stalin and Mao. These people are everywhere on Reddit and HackerNews.
I'm all for the Scandinavian model (which, to be clear, is capitalism with a large welfare state and a sovereign wealth fund, not socialism), but do I want a planned economy or a dictatorship of the proletariat? No, because it doesn't work.
> And those "disastrous" times you're talking about are more the result of dictators, than any economic system used.
Socialists use this argument a lot but I can't think of a scenario in which socialism doesn't eventually devolve into fascism. Even if the means of production are owned by the workers, the workplaces are run democratically, and resources are allocated by direct consensus, you'll still need to use coercion to force people to participate in the economy. If people in village A need more grain and the farmers in village B don't want to produce more grain, do you point a gun to the farmers' heads and make them produce more grain? Disagreements will still happen in Socialist societies. People will still fundamentally be selfish. People will still want to barter with each other and enrich themselves through their labor, intellect, and unique talents. How do you seize peoples' property, prevent them from bartering and hoarding, and force them to participate in a planned economy without a massive and violent state apparatus?
The great thing about capitalism is that it recognizes the inherent self-interestedness of human beings and channels it into something that is (mostly) positive for society. Socialism starts with the premise that human beings would behave in higher-minded way if only they had more economic power, which I think is a flawed assumption and the reason why socialist economies will always fail.
"Idk, maybe I'm spending too much on the internet but it seems like the discussion around inequality has shifted from "let's increase the welfare state" to "let's dismantle capitalism and give socialism a try". "
Given how shitty capitalism is treating people right now, that's a pretty valid viewpoint.
"There seem to be a lot of people these days that call themselves Marxists or capital-S Socialists, and even some who are apologists for the likes of Stalin and Mao. These people are everywhere on Reddit and HackerNews."
So what?
"Socialists use this argument a lot but I can't think of a scenario in which socialism doesn't eventually devolve into fascism."
I can't really think of a scenario in which capitalism doesn't either.
"The great thing about capitalism is that it recognizes the inherent self-interestedness of human beings and channels it into something that is (mostly) positive for society."
This isn't a positive, and it does not channel it into positives for society. Captialism encourages things like dumping waste into rivers. How is that a positive for society?
You're acting as if his policy suggestions were enacted across the board. In reality, we've had growing regulatory burden and other government distortion in the economy. This includes healthcare, tariffs, copyright/patents, monetary policy, endless war, the drug war, immigration restrictions, complicated tax policy, agricultural subsidies, welfare traps, and much more.
Yeah, on some magical world where there being a couple of powerful people on your area that decide if you'll have enough to eat or will starve isn't an obstacle for personal freedom.
I wouldn't get lifetips from Friedman. Has was an important economist, and certainly pushed our knowledge forward... but I don't think there is any of his personal opinions on the theory that wasn't proven false already.
That reminds me of a study about the ancient Rome by Walter Schiedel et Steven Friesen (The Size of the Economy and the Distribution of Income in the Roman Empire) Link there : https://doi.org/10.3815/007543509789745223
To sum it up, they studied the economy of that time and noticed a few things : the "elite" (1,5% of pop.) had about 20% of the state wealth, they studied the other classes, and reached the conclusion that the economy structure could not allow for more concentration of the wealth. And if you analyze the numbers, the inequality in the USA is more important today than it was in Rome. That's quite striking when you remember that in Rome, they had slaves, their kind of nobility, domination of vast lands and resources...
I don't know where, but I read something else about Rome, and the parallels with today :
- the candidate elected to an office was the one who spend the more money on 90% of the time
- the draft abolition led to distancing the citizens to the blood shed in wars, and there was a rise in the use of mercenaries ("private contractors")
- the empire expanding, being a citizen was not being simply a white guy born close to the country.
All those three points were true for Rome and they are today true also for most of the Western countries.
In Rome, it led first to the fall of the Republic, the rise of the empire, the growth of inequalities and its fall.
So my guess is that all Western countries should think about it, because they all have some similarities with this society evolution course.
The elite also retreated into their estates, away from the law. This led to perverse insentives where they would withhold fighting men from the state, illegally, as the empire desperately needed men to replenish losses.
There are many parallels to draw, not all are valid given the 1500 year difference, but... Yeah.
I'll be flamed or downvoted or both, but food for thought:
After a long time (most of my adult life) as a small-l libertarian believing in the rationality of free markets, the rule of the invisible hand, and heck, the sheer morality of profitability, after seeing what wreckage that has brought to societal institutions, the internet, the environment, and generally speaking, what growthism has done to our ability to plan long-term as a species, as nations, societies, and what selfishness and greed has led us all to, I have gradually come to the conclusion that the world should institute an overall personal wealth cap that specifically targets the people at the top. Concretely, I think that no human should be allowed to have personal assets of more than $~100 million in any way, shape or form.
Yeah, I know, it's unworkable. Unfair! Impossible to enforce! It won't fix our financial mess! It'll suppress growth and innovation! How do you expect people to motivate themselves if they can't make a billion dollars!?
Well I'll humbly submit that anybody who feels driven to earn a billion dollars--that's enough greenbacks that if you thumbed through them, one a second every second of every single day of every day of the year, it'd take you 30 years just to count them--has a severe mental illness called greed. A billion dollars is 100 lifetimes of living 100 years at $100,000/yr living standard. It's just insane to think that we're OK with this because they "earned it". Horseshit. Jeff Bezos's $150 billion is 15,000 lifetimes worth.
Billionaires are accidents. They are artifacts of hierarchy that we endure, cowed, because we don't have stomach to see how empty our souls are and do something about it. No billionaire has ever earned 100 lifetimes of wealth.
To put the 15,000 lifetimes in perspective... there has been 7,500 generations of humans since the emergence of Homosapiens. Civilization started only 500 generations ago..
The problem, as always, is that there are no apparent penalties for being Worst CEO Ever, except “fewer millions of dollars”. And the screw-ups are the ones that make workers say “hell, pay me 1/100th of what you paid him and I can make bad decisions too!”.
Worse, there is a scale of effect here. If you take a million dollars away from even an above-average worker, his life savings is gone and he’s screwed and in debt. If you take it away from an overpaid exec, he’s just a little pissed but he’ll be fine. Heck, the excellent PR alone should make it a good idea for companies to spread extra millions among workers, as it is unquestionably the right thing to do morally (besides: the workers probably deserve it due to inflation alone, the company will do better due to worker motivation, etc.).
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[ 5.0 ms ] story [ 283 ms ] threadPerhaps competition drives executives salaries faster than general workers. There is intense competition for those who can have a large impact on the bottom line. In tougher/faster paced competitive environment the demand for qualified/experienced individuals must be intense.
You don't have to scrape out a lot of Walmart's revenues to get a huge salary. You have to scrape out a pretty big chunk of the revenue of a 50 person firm to get a large salary, never mind a huge one.
I think that forces driving the market are often, these same guys who are getting paid.
https://lwp.law.harvard.edu/files/lwp/files/webpage_material...
Executive pay is not set by "the market". Executive pay is set by other executives sitting on each others boards.
How surprising this executive class somehow consistently votes to give their fellow executives a greater and greater share of their corporations' value.
Hopefully at some point companies will use this benefit in their recruitment practices (though I'm not keeping my hopes up, as office space is expensive).
But looking at the patent-machinery, the lawsuit-crusades and their murderous buying sprees into any space where a challenger could grow- these guys are really expensive, for humanity as a total.
Also take note, that the agreements to not enter bids for software developers - basically limiting wage growth, seems not to apply for CEOs.
The claim is highly misleading. Bezos owns a large amount of Amazon stocks. The stock value growth is a huge extra to his salary.
The US is luck in that there are plenty of opportunities for non-workers without advanced education to make their life, but there is no way their inequality can keep increasing without those opportunities disappearing (as they depend on a middle class). When they disappear, the only thing out of society's box will be crime.
If you want to know how the US will become once it gets more similar to Brazil, take a look at Brazil.
Personally, I'm suspicious that all the extra money won't correlate with any sort of useful increase in performance. How is paying these people more going to encourage better decisions? It just means they'll have more comfortable holidays. I've seen head-office politics, and believe that the system used for promotions can tell great from terrible. But there is no way it has the capability of picking who would be best choice to run a company out of 50 senior management figures. There is a lot of pot luck in whether the market conditions are favorable in any given CEOs tenure. Anyone 3-4 levels away from the frontline probably has a reasonable shot at being the best choice to manage a large company.
I was much more irked by the difference between founder/early employee stakes at a startup where the magnitude of the difference was much smaller than 312x, but redistributing their stake would actually have been felt due to the smaller size.
Consider the salary they could have made at a large company and that they effectively invested 100% of that at seed-stage multiples. (Assuming they were taking zero salary early on). There was significant risk the founders investment in the form of time could have gone to zero, they deserve some return on that risk.
The CEO is worth more than the typical janitor or manual laborer, you’d be pretty hard pressed to prove otherwise. But the current compensation scheme seems to be way out of wack with what each employee actually brings to the table.
You're measuring the results post (arguably) a market force which has impacted the results. If paying managers more than the current average showed obvious results, the average would go up. You also have correlation/causation.
I'm not sure if i'm pro bosses mental pay or whether I think it makes any difference just don't buy this argument/study.
Maybe they are a waste of time, on average?
But there's a difference between the statement:
"I can't make money on average by putting money into this system (this system isn't undervalued)"
and "This system is worthless" which is kind of conflated. Like the system will always expand to the point that there's no free cash on the table, so looking at it and saying "on average paying more for CEOs or putting money into a random hedge fund doesn't move the dial" has no bearing on whether executive pay being high or hedge funds existing is keeping money off the table (if they were smaller/lower there would be gain to expanding).
The gradient at the equilibrium is always zero, "We found that paying developers more or less doesn't impact the average success of a firm". Yeah because there's an equilibrium where the firms/market has decided roughly what a developer costs, and everyone is paid close to that. That's not an argument that developer pay should be wildly less, because if the average was moved to "developers make $10k per year" than at THAT point, far from the equilibrium, you'd see a big gradient that firms who paid developers more (ergo probably got better devs) did far better.
... Usually to join another high earnings club
As a tidbit from the book, most of the top 1% are actually a rotating cast of the top 20% having a good year (the ultra rich like the Kochs excepted). Most of the top quintile will get a year or two in the top 1% in their lifetimes. But once you focus on the top 20%, you start seeing a very stable clique that’s holding onto power.
Just seems like CEOs today are something like the CEO of multiple CEOs, companies have grown so large. Should the person who is skilled at managing CEOs be paid more than the CEO that is skilled at managing business units? The market says 'yes'.
Maybe CEOs should just explain that they have x jobs, one for each business unit. And then get paid independently for each one.
my local university pays over a million plus benefits to its chancellor/president, how does that compare to the cafeteria workers or sanitation people of the university? a public funded university.
it is all perspective, you are being led by the nose to look everywhere but behind the curtain. behind that curtain you will find many who want to slap others with rules they will quietly excuse themselves from or word in such a way as to miss them. it is exploitation of jealousy for political benefit
Salaries are only part of the equation. For example, Drew Houston (founder of Dropbox) is worth $3 billion while an software developer at Dropbox has net equity of less than $1 million. Thats 3000-to-1.
Or when you say "I don't see anything wrong here" are you really just limiting yourself to the difference between average worker salary and ceo pay?
The opportunity cost of not filling a low paying job is generally quite low. Likewise, the wages for such jobs vary quite a bit, moreso than cost-of-living differences would account for.
If you want to price wages based on some moral virtue, you will risk losing investors, or hurt poor people (aka your customers) by raising prices. In your scenario, it isn't Walmart that's being subsidized, it's a community with so many people desperate for work but not qualified enough to get a better job that they're willing to take a job that doesn't pay enough.
Time and place matter. He was there at the right time, sold himself and got a contract that essentially guarantees someone can't just come in and undercut him in a month.
What's the point? CEO positions should be chosen by random lottery? The company either offered a large enough chunk of money to attract the most talented / experienced individual they could, or Doug negotiated strongly enough to convince them that hiring him to CEO would be worth paying him that much.
That is a very strange thing to say following a comment about natural law, considering there is nothing about nature that guarantees you a right to live.
Rather, specialization of economy and and social safety nets means that it's a hell of a lot easier to survive working even a low paying job than it is to try otherwise.
As it stands right now, even if you taxed 100% of the income reported by the top 1% of earners, we might not close the government's budget gap, let alone expand the government's budget to guarantee survival for all citizens (not to mention the economic chaos that would result in taxing 100% of all income earned by anyone).
I think we agree there is no natural law when it comes to macroeconomics, which is a human invention, and the various economic systems that each come with their own strengths and weaknesses. What we have now is better than primitive hunter-gatherer economy, but we seem to be stuck with this belief that only "more extreme capitalism" can make things better.
> As it stands right now, even if you taxed 100% of the income reported by the top 1% of earners, we might not close the government's budget gap, let alone expand the government's budget to guarantee survival for all citizens (not to mention the economic chaos that would result in taxing 100% of all income earned by anyone).
I don't think anyone proposed taxing 100% of anyone's income. A 100% marginal tax after a certain AGI sounds intriguing, and is not far from what was implemented in the USA back in the mid 20th century, to no apparent detrimental effect on the economy.
I was merely trying to make a point, not suggesting that it was something someone wanted to do. However, you may be interested in some light reading.
http://teachinghistory.org/history-content/ask-a-historian/2...
https://taxfoundation.org/taxes-rich-1950-not-high/
There were "no apparent detrimental effects" because so very few people actually paid those taxes. Part of the problem with the soak-the-rich idea is that they're the ones who can readily adjust their wealth strategies if taxes on, say, earned income rise to obscene levels. Not much different than sin taxes (alcohol, tobacco, etc), though probably even more effective at discouraging behavior.
Heck, I knew a couple who would retire for a few years, work for a few years, retire for a few years. Sometimes it was for fun, sometimes just a reaction to an increase or decrease in local / state/ federal taxes.
This is bullshit. Walmart profits are such that they could pay higher wages without changing prices. Sure, i'll accept you'll piss of investors by paying higher wages. If your only judgement of whether something is good or not is how much money it makes for investors, then that's the thing to optimize for. If your goal is to have functioning communities, perhaps that would lead to a different analysis.
Not to mention that the reason walmart is able to get away with paying lower wages is because of those subsidies. If their workers can't eat, they would be forced to do something else. Don't ignore that relationship
And? You said that Walmart has 2.3m employees. Why do you attribute that stock increase to one of the employees?
You don't see anything wrong with a CEO taking home insane amounts of money while his average employee can qualify for food stamps?
No idea what the answer is. Whether it's some version of ensuring a worker advocate is on the board of a corporation or that some kind of coop ownership scheme gives employees voting rights, hell I have no idea, but pay inequality won't change on its own.
Workers that have done well are those who can either draw a direct line between their contribution and profits (sales) or are scarce enough to demand high compensation (tech workers). Most everybody else is shit out of luck from a negotiation perspective, at least without some form of collective action.
Senator Elizabeth Warren is proposing a bill [1] that hits pretty close to these points. It's a unique way to tackle inequality without mandating wage hikes or raising taxes.
[1] https://www.vox.com/2018/8/15/17683022/elizabeth-warren-acco...
Unions?
Why are people so anti-union? Would opt-in collective bargaining work better?
Because big corporations hate unions, and big corporations run the US media and own most US politicians.
Many people alive today were not around to remember the beginning stage, they only read about it in history books, while they lived the end stage. It could be that simple.
Too many people just assumed workers financial situations would continue to improve without unions, which is not really turning out to be true.
Disclaimer: apart from my student and TA years, I have never been in unionized industry/hired by a corporation for a unionized position, so I may not know the full reality.
What freedom do you see as being limited?
In case someone isn't aware, a union shop, has a union that negotiates a contract with management. It sets wages, benefits, safety, all sorts of stuff. Most importantly, it negotiates for all workers at the shop. The reason why it negotiates for all workers (or more precisely all workers that qualify for union (e.g. all pilots, all janitors, all machinists, etc.) is that 1) it increases bargaining power, and 2) it simplifies things for the company. As a result, in a union shop, if you work there in a capacity that is union eligible, you're compelled to pay dues to union for the purposes of contract negotiating. (Dues for other purposes are not compelled.) Everyone benefits from the contract. Everyone pays to negotiate said contract.
"Right to work" laws say that you can't be compelled to pay dues to negotiate contracts, and yet you still benefit from the contracts. It's a legal carve out for free riders, with the purpose to starve unions of money and thus negotiating power. This isn't a side effect of this policy, it's its purpose. That's why you find pro-management groups and politicians advocating for these laws, while denigrating unions.
You realize that unions are cartels/monopolies on labor, right? You already recognize that monopolies distort markets, promote corruption and rent-seeking, and produce bad outcomes for society. Why would it be any different with unions?
They're no different than businesses that sell commodities other than labor.
Most of the problems with unions could be mitigated by enforced transparency - same as with corporations and governments.
I don't know, look at some of the cities around the country going bankrupt as the bill comes due for union-imposed obligations. I'm not against collective bargaining, but it seems like unions as they were known fifty years ago were destined to eventually collapse and/or make their communities eventually collapse.
Now, collective bargaining could just be a cyclical thing- power to the bosses, power to the workers, power back to the bosses. We could be approaching the swing back in the other direction.
Unions are incentivized to bargain for as much compensation as possible and politicians are incentivized to give it to them if union workers make up a significant chunk of votes. Politicians don't have to be concerned with whether or not those obligations are realistic because they'll be out of office by the time the whole thing falls apart.
Yes, they are. And companies are incentivized to bargain for as much profit and as little employee compensation as possible, yet people here seem to consider that a moral imperative. I cannot, and will not begrudge unions for trying to get the best deal for their members while that is the case.
Edit: I think I should note that I'm specifically referring to unionized government workers.
Not necessarily, especially when employees are in high demand. Netflix has done quite well by paying employees well above average in order to effectively have their pick of the talent.
Paying employees poorly can increase training costs, recruiting costs, cause negative customer perception, etc.
You have it completely backwards. The rise in inequality coincides with the rise of unions, because unions favor cash profit sharing over equity.
Gonna need a citation on that one.
With open shops, the unions have to compete for your membership so they actually have to do stuff in your interest, or you can make your own union to replace them.
With closed shop, you get stuff like the UAW pushing for pay caps on graduate students (really).
See also https://twitter.com/simongerman600/status/102716377897728000... which was recently mentionned on HN
It’s obvious that some level of inequality is tolerable, all stable countries today handle a certain amount of it. I wonder what’s the point of inequality where democracy, or maybe even society itself, just falls apart?
I expect it is actually mostly banal despite the staggering level of resources they and theirs casually consume.
For the sake of keeping things civil, I’ll refrain from stating my opinions on whether these are good or bad events, but these elections indicate that people want big changes. The Western world as a whole seems desperate for a radical reworking of the way we do things.
Whether the new system will be better or worse is anyone’s guess. We live in interesting times.
That's the worst part of it. Companies are split up in two sections. One that benefits from the company's success while others get almost nothing. I see that in my company. In meetings they celebrate increased revenue and earnings. When I look around almost nobody except a few top guys I see benefits from that success and instead has to wonder when his job goes to India.
There was a discussion here about increasing employee participation. I really think we should get away from the belief that only shareholders count but also acknowledge that employees and even the communities where the company has its buildings have a stake.
1) Increasing inequality of social power between the mega rich and the common person
2) A feeling of unfairness as business leaders take home the lions share of profits
#1 is a true issue, but, let's be honest here, the average CEO's level pay isn't contributing to increasing inequality. That McDonald's CEO had a yearly take home pay of 21.7m. That's unbelievable peanuts compared to the wealth of the mega-rich. It is the multi-billionaires flexing their political muscles and exerting influence that leads to the nasty consequences of pay inequality.
As to #2, I understand the unfairness, but fail to understand the social consequences of it. In other words - what harm to society is being done by a manager getting paid more than a line employee? You mentioned offshoring jobs, but that is a separate issue, not tied to pay inequality.
Since you're being downvoted without any responses, I'll try to add my take. To me, it's not that a manager is getting paid more. It's that he's getting paid 312x more when the average worker in America struggling to afford healthcare, an education for their kids, and probably has to take in two salaries just to make ends meet. That's when income inequality is a problem -- when it's so unequal that one side gets everything, and the other is left to a battle royale.
We're seeing increasing profits, increasing wages for high level management, and static wages for most employees.
The second isn't an intrinsic issue itself, but we don't have just the second, we have all three, and _that_ is the problem. If profits and wages were both stagnant, then we would be having a different problem, but that isn't the world we live in. We live in the world where profits are going up, and all of it is going to people other than the workers.
Yeah, it does. Money given to bosses and shareholders is money not available to pay workers.
To be clear, my issue is not that workers shouldn't be paid more, it is that justification for higher worker pay shouldn't be "my boss gets paid more than me."
"We took all the increased profits, so there's none left for you."
This assumption comes from evidence in our not-so-distant past. In the 1940s-60s, income was taxed at a much higher rate in the higher brackets (50-80%+ depending on the time); this served a similar function of the executive pay cap in your hypothetical. After the highest earners in a company reached the top brackets, it didn't make much sense for the company to further increase their pay (much of it would be lost to taxes so the ROI wasn't great).
So now you have all this leftover profit that, in 2018, would have went to CEO pay or bonuses. What is there to do with it? Invest in the company of course: give the best performing line-level employees raises, start internal training programs, kickstart moonshot R&D ideas, and so on.
(Unions also helped in ensuring that the rank and file got pay increases commensurate with management's raises)
Don't get me wrong, the highest earners were still very wealthy (and had plenty of yachts/summer homes/other symbols we associate with the 0.1%) and it was common to give them raises every year, but the higher marginal rates really did help in "forcing" profits downward.
Until ironically, the wealthy simply leave (because who wants to stay in an a dangerous unstable place, when you can afford to leave), and let place that they set on fire burn to the ground, click their tongues and say, "Who knew this would happen?"
To think of it another way, no one puts all bets on a single investment. You diversify. That's what spreading the wealth does. It diversifies opportunity.
There was a movie while ago where the rich people lived in space in beautiful habitats, had technology that could heal anybody while the rest had to labor on Earth under terrible conditions. Don't remember the name but maybe the move isn't that fictitious.
Elysium is the film.
https://globalperipheries.wordpress.com/2011/06/30/the-favel...
But a version of this is present in America too. With areas without drinkable water, and areas w/o even a working sanitation system.
Of course, he could just copy Petey Thiel and the rest of wretch and move to New Zealand.
https://www.theguardian.com/technology/2017/jan/29/silicon-v...
One think to think about, in a lot of areas where only luxury condos are being built, there tend to be pretty limited numbers of condos being built. If you are a developer and you know you will only be allowed to build 50 units, you are going to build the most expensive units you can so you can maximize your gross profit even if the marginal profit rate isn't as good. If you were allowed to build 1000 units, you might choose to build affordable housing that has a better marginal profit since the larger number of units allows you to have a higher gross profit.
At the same time, if you own an lot full of RVs and mobile mobile homes in a rich suburb, you might end up running the numbers and deciding to throw all those people out, and put up some luxury condos, because you can make a lot more money per square foot.
The social consequences of unfairness are huge. Once people feel they work in an unfair society they become cynical and lose motivation. I would argue a sense of fairness is the number one ingredient for a successful society.
Edit: I should be a bit more specific. I think in some stages of development, it has and still is succeeding very well (developing nations). In other areas like developed nations, there is a regression to inequality that is occurring that is figuratively and literally headed to destabilizing the world.
If you think you are truly worth that money, then build your own business.
AAGMF has becoming a massive juggernaut taking in insane amount of talent and sometimes directing them towards mundane causes.
Quitting is always an option.
It is certainly why they are getting screwed though. People should aggressively save, so they are treated properly.
People also sometimes willingly make themselves exploitable, through their own fault, by adding tons of debt and liabilities (children, houses, vehicles) into the equation. One would be a fool to think people aren't looking at those to assess your risk tolerance
Considering that's kinda what you're arguing for when you say that they should just quit, yes, I would consider it relevant.
"People also sometimes willingly make themselves exploitable, through their own fault, by adding tons of debt and liabilities (children, houses, vehicles) into the equation. One would be a fool to think people aren't looking at those to assess your risk tolerance"
No. The fault for exploitation is ALWAYS entirely on those doing the exploiting. Always. They are the ones actively choosing to fuck people over.
I always said that until the 2003 downturn. Things can change very quickly.
Can you give an alternative reason on why average wages should increase?
[0]https://www.bls.gov/news.release/pdf/prod2.pdf
https://www.epi.org/productivity-pay-gap/
>The Economic Policy Institute’s earlier paper, Raising America’s Pay: Why It’s Our Central Economic Policy Challenge, presented a thorough analysis of income and wage trends, documented rising wage inequality, and provided strong evidence that wage stagnation is largely the result of policy choices that boosted the bargaining power of those with the most wealth and power (Bivens et al. 2014). As we argued, better policy choices, made with low- and moderate-wage earners in mind, can lead to more widespread wage growth and strengthen and expand the middle class.
https://www.epi.org/publication/understanding-the-historic-d...
>Finally, it also seems worth noting that this decoupling coincided with the passage of many policies that explicitly aimed to erode the bargaining power of low- and moderate-wage workers in the labor market.
I am in my 20's I was not alive in the 70's. What did Nixon, Ford, and Carter change in that time that eroded the bargaining power of wage workers?
- The Powell Memo in 1971 [0]
- Rise of corporate raiding ~1980 [1]
- CPI inflection in 1970s [2]
[0] https://en.wikipedia.org/wiki/Lewis_F._Powell_Jr.#Powell_Mem...
[1]https://en.wikipedia.org/wiki/Corporate_raid
[2]https://en.wikipedia.org/wiki/Consumer_price_index#/media/Fi...
dv_dt and existencebox hit it well - cultural more than technical. But, the cultural changes impacted policy. I've posted the following article in the past, but it provides a clear image of the issue - from one of the people who set the wheels in motion.
>But there is a theme that threads through and ties together all the strands: many of the most talented, driven Americans used what makes America great–the First Amendment, due process, financial and legal ingenuity, free markets and free trade, meritocracy, even democracy itself–to chase the American Dream. And they won it, for themselves. Then, in a way unprecedented in history, they were able to consolidate their winnings, outsmart and co-opt the forces that might have reined them in, and pull up the ladder so more could not share in their success or challenge their primacy.
>By continuing to get better at what they do, by knocking away the guardrails limiting their winnings, aggressively engineering changes in the political landscape, and by dint of the often unanticipated consequences of their innovations, they created a nation of moats that protected them from accountability and from the damage their triumphs caused in the larger community. Most of the time, our elected and appointed representatives were no match for these overachievers. As a result of their savvy, their drive and their resources (and a certain degree of privilege, as these strivers may have come from humble circumstances but are mostly white men), America all but abandoned its most ambitious and proudest ideal: the never perfect, always debated and perpetually sought after balance between the energizing inequality of achievement in a competitive economy and the community-binding equality promised by democracy. In a battle that began a half-century ago, the achievers won.
http://time.com/5280446/baby-boomer-generation-america-steve...
There was also a generational shift from business leaders who had been alive to feel the effects of the depression as well as when the rich weren't so insulated from the poor, to those where born well after those effects firsthand.
[0] https://www.statista.com/statistics/424159/pay-gap-between-c...
I'd much rather work as a software engineer than a CEO.
https://www.bls.gov/oes/current/oes111011.htm
1) The percent of income that those 350 CEOs have of the whole employee's income.
And more importantly:
2) The percent of wealth that those 350 CEOs have, compared to the whole US population.
And even more importantly:
3) How is wealth distributed in the US? Those CEOs are probably outclassed by other categories.
All this to say that trickle down does not work, at all.
Often times the argument starts with something like "rich people have to much money" and then talks about how we should take more money from them. I had a lot of respect for Bernie Sanders because he started with "we should do X good thing for society" and then he proposed a specific tax to pay for that thing. I think that is much better rhetoric than arguing that some people have to much.
A) Taxing high income will cause capital / investment flight.
B) Wealth trickles down.
A: could be true, but it does not warrant letting private investors take all profits without incurring in the necessary expenses, which are currently funded by the tax payer (disproportionately low-medium income workers), or simply not covered (health care).
B: This is, after several decades of lying to the electorate, patently false.
Can you expand on why inequality happens and some ideas to change/fix the causes?
So it seems like you are saying, tax the rich and do something to benefit the lower economic classes. What specific policies to you support that would benefit the lower economic classes?
The simplest one would be to reduce taxes which disproportionately impact those classes; moving the trust fund contributions currently made out of the employer share of payroll taxes to be drawn from general revenue would be one example.
Even though it's technically a business tax cut, is directly on a cost of employing people, making employing workers at any given wage cheaper for the employer, so that more of the employer cost goes to the employee.
A particular elegant way to address that is to realize that most of this wealth accumulation is expressed in terms of property. Fundamentally a relationship between two parties, the non-owners, and the current owner. The former who takes the opperunity cost of not having, and the owner who extracts the rent-value from having.
So one way to adress the fundamental issue is to compensate the former group for their opperynity cost cost by taxing the owner. The difference between the opportunity cost and extracted rent can be seen as the unique contribution of the current owner, but the rest could be distributed fairly among the non-owners as a dividend.
It looks like what your saying makes sense... until you start to control for location. Look at the chart titled, "Metropolitan areas with the highest employment level in this occupation" for both pages, and you'll see that for every locale included in both places, CEO pay is higher than GPs.
This is most likely because CEOs aren't evenly distributed with the population like GPs are (you can have one CEO at the top of 50k employees, but you need many more GPs than that for the same number of people).
At best, your CEOs are getting an extra $40k per-year. Furthermore, your CEO salary is across the entire US, whereas your Bay Area engineers are going to be bleeding a significant chunk of their earning paying for rent compared to the median CEO; median national monthly rent for a one bedroom is ~$1k[5], but in San Jose, that's $2.1k[6]; so your CEO has another $13.2k per year
A median CEO nationally makes $50-70k more per year than your median SV software engineer.
[1]: https://www.bls.gov/oes/current/oes111011.htm
[2]: https://www.payscale.com/research/US/Job=Software_Engineer/S...
[3]: https://www.glassdoor.com/Salaries/san-francisco-senior-soft...
[4]: https://www.linkedin.com/salary/software-engineer-salaries-i...
[5]: https://www.abodo.com/blog/2017-annual-rent-report/
[6]: https://www.apartmentlist.com/rentonomics/national-rent-data...
- Milton Friedman
Maximizing for freedom is great if you're part of a group that tends to hold power. It's not so great if you're part of a group that tends to not.
- Countries which add restrictions the the economy see slower wealth growth and more inequality
- Countries which free up their economy see acceleration in growth and more equality
- Countries with free economies outperform neighboring, similar countries which are more restrictive
- Industries which are more free are more innovative, and become cheaper, faster than heavily regulated industries
Compare health outcomes of countries with socialized medicine to those without, for example.
How many regulations exist because private companies couldn't be trusted to do the right thing on their own?
The Civil Rights act.
Sure, you can point out that soviet russia failed economically, especially compared to the US, but there is nothing about that fact that contradicts the point that "freer" economic structures have also led to serious power imbalances between employers and employees, and that many of the rights employees have today in the US are only due to regulation imposed by governments.
Socialized medicine is likely better than the current state of US healthcare, but US healthcare is by no means a free market. In fact, it's probably the most regulated and otherwise distorted by government policy. It all started with the introduction of medicare and the wage caps of the WWII era leading to employer-linked insurance. Before that, it was much more affordable.
> How many regulations exist because private companies couldn't be trusted to do the right thing on their own? The Civil Rights act.
The civil rights act was created as a response to other state distortions, like Jim Crow laws and segregation. It isn't necessary to prevent discrimination: incentives against that already exist in the marketplace.
Give me an example of a regulation, and I'll tell you why it is either unnecessary or actively harmful.
> the point that "freer" economic structures have also led to serious power imbalances between employers and employees
To the contrary, freer economies led to the reduction of child labor and improvements to worker's lives before any policy actions were implemented.
> many of the rights employees have today in the US are only due to regulation imposed by governments
If by rights, you mean privileges.
The various requirements to wear a life jacket.
Fire codes.
Removing lead from gasoline.
Policies that have benefitted primarily the already wealthy amassers of capital and which are in large part responsible for the massive income inequality and erosion of labour rights that is present for the first time since the Gilded Age.
His idea of human beings as rational, self-interested economic actors that is a ludicrously narrow model of the human being and has been disastrous for the working and middle classes all over the developed world.
Quotes from Friedman are worth nothing to me, personally.
Sure, but in order to understand human behavior on the scale of millions of people making billions of transactions, you need to start with a simple axiom and move on from there. I think people hear the word "self-interest" and think "greed", and assume that mainstream economics must be predicted on a very cynical view of human beings. That's not the case at all. We all want to survive. We can't possibly understand the individual needs of other people outside of a small circle of people that we love and care about. None of us are omniscient. The beautiful thing about markets is that none of us need to have perfect information in order to participate. By simply buying the things we need and selling things the things we don't, prices emerge in a totally decentralized way.
If you can think of a more accurate way to describe human economic motives, I'd like to hear it.
> has been disastrous for the working and middle classes all over the developed world.
Capitalism has lifted billions out of poverty. Sure, there's a large gap between the richest and poorest, but the poorest people of the world are also materially better off than at any other point in human history. I don't see how this is a bad thing.
I don't know what the solution is. Every government intervention has the potential to distort the market and create corrupt/perverse incentives. Rent control is a great example of something that sounds nice on paper but ends up increasing housing costs as a result. I'm generally in favor of expanding the welfare state but I think we should be extremely cautious in doing so.
And yet something less than full blown socialism seems to work fine just about everywhere.
Scandinavia says hi. And those "disastrous" times you're talking about are more the result of dictators, than any economic system used.
Idk, maybe I'm spending too much on the internet but it seems like the discussion around inequality has shifted from "let's increase the welfare state" to "let's dismantle capitalism and give socialism a try". There seem to be a lot of people these days that call themselves Marxists or capital-S Socialists, and even some who are apologists for the likes of Stalin and Mao. These people are everywhere on Reddit and HackerNews.
I'm all for the Scandinavian model (which, to be clear, is capitalism with a large welfare state and a sovereign wealth fund, not socialism), but do I want a planned economy or a dictatorship of the proletariat? No, because it doesn't work.
> And those "disastrous" times you're talking about are more the result of dictators, than any economic system used.
Socialists use this argument a lot but I can't think of a scenario in which socialism doesn't eventually devolve into fascism. Even if the means of production are owned by the workers, the workplaces are run democratically, and resources are allocated by direct consensus, you'll still need to use coercion to force people to participate in the economy. If people in village A need more grain and the farmers in village B don't want to produce more grain, do you point a gun to the farmers' heads and make them produce more grain? Disagreements will still happen in Socialist societies. People will still fundamentally be selfish. People will still want to barter with each other and enrich themselves through their labor, intellect, and unique talents. How do you seize peoples' property, prevent them from bartering and hoarding, and force them to participate in a planned economy without a massive and violent state apparatus?
The great thing about capitalism is that it recognizes the inherent self-interestedness of human beings and channels it into something that is (mostly) positive for society. Socialism starts with the premise that human beings would behave in higher-minded way if only they had more economic power, which I think is a flawed assumption and the reason why socialist economies will always fail.
Given how shitty capitalism is treating people right now, that's a pretty valid viewpoint.
"There seem to be a lot of people these days that call themselves Marxists or capital-S Socialists, and even some who are apologists for the likes of Stalin and Mao. These people are everywhere on Reddit and HackerNews."
So what?
"Socialists use this argument a lot but I can't think of a scenario in which socialism doesn't eventually devolve into fascism."
I can't really think of a scenario in which capitalism doesn't either.
"The great thing about capitalism is that it recognizes the inherent self-interestedness of human beings and channels it into something that is (mostly) positive for society."
This isn't a positive, and it does not channel it into positives for society. Captialism encourages things like dumping waste into rivers. How is that a positive for society?
I wouldn't get lifetips from Friedman. Has was an important economist, and certainly pushed our knowledge forward... but I don't think there is any of his personal opinions on the theory that wasn't proven false already.
I don't know where, but I read something else about Rome, and the parallels with today :
- the candidate elected to an office was the one who spend the more money on 90% of the time
- the draft abolition led to distancing the citizens to the blood shed in wars, and there was a rise in the use of mercenaries ("private contractors")
- the empire expanding, being a citizen was not being simply a white guy born close to the country.
All those three points were true for Rome and they are today true also for most of the Western countries. In Rome, it led first to the fall of the Republic, the rise of the empire, the growth of inequalities and its fall. So my guess is that all Western countries should think about it, because they all have some similarities with this society evolution course.
There are many parallels to draw, not all are valid given the 1500 year difference, but... Yeah.
Pretty, sure most people don't understand what it takes to be a good CEO, so they'll be crying inequality. Inequality comes from the nature.
After a long time (most of my adult life) as a small-l libertarian believing in the rationality of free markets, the rule of the invisible hand, and heck, the sheer morality of profitability, after seeing what wreckage that has brought to societal institutions, the internet, the environment, and generally speaking, what growthism has done to our ability to plan long-term as a species, as nations, societies, and what selfishness and greed has led us all to, I have gradually come to the conclusion that the world should institute an overall personal wealth cap that specifically targets the people at the top. Concretely, I think that no human should be allowed to have personal assets of more than $~100 million in any way, shape or form.
Yeah, I know, it's unworkable. Unfair! Impossible to enforce! It won't fix our financial mess! It'll suppress growth and innovation! How do you expect people to motivate themselves if they can't make a billion dollars!?
Well I'll humbly submit that anybody who feels driven to earn a billion dollars--that's enough greenbacks that if you thumbed through them, one a second every second of every single day of every day of the year, it'd take you 30 years just to count them--has a severe mental illness called greed. A billion dollars is 100 lifetimes of living 100 years at $100,000/yr living standard. It's just insane to think that we're OK with this because they "earned it". Horseshit. Jeff Bezos's $150 billion is 15,000 lifetimes worth.
Billionaires are accidents. They are artifacts of hierarchy that we endure, cowed, because we don't have stomach to see how empty our souls are and do something about it. No billionaire has ever earned 100 lifetimes of wealth.
Worse, there is a scale of effect here. If you take a million dollars away from even an above-average worker, his life savings is gone and he’s screwed and in debt. If you take it away from an overpaid exec, he’s just a little pissed but he’ll be fine. Heck, the excellent PR alone should make it a good idea for companies to spread extra millions among workers, as it is unquestionably the right thing to do morally (besides: the workers probably deserve it due to inflation alone, the company will do better due to worker motivation, etc.).