Examining Income Inequality and Value

[Leevan]

Income inequality is a recent point of focus in the news flavored opinion media. Wages for most of the population have stagnated or slightly declined while the "1%" have seen their profits grow. This is provoking tensions among the people. As politicos and pundits on the far left stoke the embers of envy and resentment, they tempt an all-consuming blaze. Well-meaning but misguided groups are emerging in an attempt to claim what they believe they deserve. Masked men threaten digital domination. Unions are attempting to expand their tentacles to the fast-food industry. And communism/socialism/liberalism/leftist/democratic policies and politicians are coming into vogue.

 

I don't challenge the claims of growing income inequality. It is a fact. I do, however, disagree with the reactions provoked by highlighting it. Those who are concerned with stagnating or falling wages are misplacing their energy and efforts. Their go-to argument is that productivity has increased and that wages should mirror that growth. This is just not a fact within the bounds of our economic reality. While it is true that in the past productivity and wages were correlated, this was only the case because productivity and employee value were in close relation. This is no longer the case.

 

Two centuries ago ten women could make ten blankets in ten days. Today, ten women are not as limited as they were in the past. Ten women might have access to ten machines that can create ten blankets every ten minutes. Technology vastly increases an individual's productivity while decreasing their value.

Trade is an exchange of value. Labor creates value for an employer. The employer trades money for the value that the employee provides. (Money is [supposed to] represent value. Rather than bartering what we value, we use money. When one has enough money, or accumulated value, one can exchange it for something of equal value.)

Value, of course, is subjective, but its subjectivity is predictable within a free market. In a free society, I can assure you, most of the jobs of today would pay much, much less. However, this would spur innovation and progress, things might equalize, and society would evolve at a faster rate.

 

If you feel as if you are underpaid, you should express that sentiment to your boss. If he refuses to raise your pay, and you are unable to find a position that pays what you feel you deserve, your current compensation adequately matches the value that you provide. The only ways to increase your pay is either by force or by increasing the value that you provide. 

 

If you want more, if you want financial security, if you want to grow, you have to increase the value that you provide to your employer and your fellow man.

[Ken Cotton]

Hitler once said "The basic feature of our economic theory is that we have no theory at all."

 

Economy is all resource trading. Whether your job is mining, manufacturing, or gathering berries. The principle role of the economy is to meet the basic needs of the people and to fairly compensate people for their efforts. Anything short of an economy that does this is just complex extortion. However, this runs counter to the unrealistic fairy tale that most people have been taught about equality. Equality under the law has been confused with equality among people, which is simply nonsensical. Unskilled workers are not worth as much as CEOs and shouldn't be paid the same. That being said, the gap between a CEO and an unskilled worker is worth investigating.

 

This tends to bring us to the root issue, which Stefan at least covers in the UPB and peaceful parenting rather than pretending it doesn't exist. At its root, investors of multi-national corporations have no real tie to the people that work for their companies. If you are a transient billionaire globalist that has 100 different houses around the world and visits them, you've completely forgone most of the practical concerns of nationalism. You aren't really a citizen of say, the United States of America or of China, you just happen to spend some time of the year living there. From the lowliest fast food worker in the USA to the slave laborers of China you have no real attachment to their circumstance. There is no pressing need or incentive to do anything for them other than the barest amount possible. This is why a large amount of resources and jobs have shifted away from North America and overseas.

 

I had a boss that used to go above and beyond for his employees. It made his business more competitive in a variety of ways. However, in an era of multinational corps and digital money ( this being a major key issue ) these kinds of tactile connections are less and less important. We can see how this is negatively affecting economies around the world. There are practically invisible industries like the transfer of wealth ( armored cars for bills/change ) that are hit by the ability to transfer wealth digitally. You can have millions of dollars or billions of dollars flow around all over the place like water sloshing around in a bucket. The money moves faster than the resources, assets, and manpower that it represents. It sneaks off into offshore accounts and into politician's pockets.

 

 

As we step away from nationalism, the value of people plummets. The value of a person will always only be as strong as your connection to them. Your chances of improving your value to an investor or CEO you'll never meet are incredibly slim.

[Pepin]

I'd agree with your post. Though I do acknowledge that there may be various barriers in obtaining a higher wage, I always act to improve my value as an employee. So far as a result, I've been promoted to supervisor and have gotten a pay higher to those who have been there far longer.

 

 believe a large factor in income inequality is inflation. New money is received first by banks and then by their lenders, which are typically large corporations. The money is moving throughout the economy very slowly, which is resulting in a slower inflation rate. I don't think banks or corporations actually have any additional wealth, rather that they just have the pre-inflation advantage.

 

It is like if I printed up a million units in a fictional economy, which when spent would cause a 90% loss of value in the currency. I would look far better before I caused the inflation by spending the money as the current value of the money is quite high. But after the inflation, having that same million units is like having a hundred thousand units previously. Perhaps a clunky example, but I think it helps to explain a lot.

[dsayers]

Exposing the gun in the room is paramount. The so-called 1% only flourish the way they do because they're able to grab a hold of the giant gun called the State and point it at anybody who would compete against them. Most of the expectations of those claiming to not get what they "deserve" are misguided. It's not an employer's job to provide health insurance, a minimum wage, etc. That said, they are justified in being frustrated with their lack of worth. They spend 12 years in government schools and aren't fit to take orders at McDonald's. But again, it's important to understand that this is because of the coercion of the State.

 

I think these are really important things to understand because a lot of the disgruntled are either doing random things as if they're addressing the problem or *gasp* actually turning to the State for help! They don't realize how ridiculous it is to report your captor to your captor, expecting them to liberate you from themselves. You can't fix a problem you can't identify as problematic.

[Leevan]

One can control his value. He can educate himself. He can improve. He can innovate. I just wish people would stop whining about what they don't have and started working toward what they want. People have been convinced that they are being cheated, and it's unhealthy on multiple levels.

[Leevan]

I'd agree with your post. Though I do acknowledge that there may be various barriers in obtaining a higher wage, I always act to improve my value as an employee. So far as a result, I've been promoted to supervisor and have gotten a pay higher to those who have been there far longer.

 

 believe a large factor in income inequality is inflation. New money is received first by banks and then by their lenders, which are typically large corporations. The money is moving throughout the economy very slowly, which is resulting in a slower inflation rate. I don't think banks or corporations actually have any additional wealth, rather that they just have the pre-inflation advantage.

 

It is like if I printed up a million units in a fictional economy, which when spent would cause a 90% loss of value in the currency. I would look far better before I caused the inflation by spending the money as the current value of the money is quite high. But after the inflation, having that same million units is like having a hundred thousand units previously. Perhaps a clunky example, but I think it helps to explain a lot.

 

Even with inflation though, the employee can't be undercompensated for long. The unit of exchange is perceived as a constant from both perspectives. The employer values the pay as much as the employee values it. While everything you said is certainly true, I don't really see how it applies to income inequality. Like, perhaps, if we were all living off savings accounts, inflation would be a significant factor in inequality. But income is a constant. Income must constantly reflect the value of labor. If labor is undercompensated, labor can stop. If labor cannot stop, for need of the compensation and lack of other oppurtunities, labor's compensation is adequate. If it is not a "iving wage", it is the responsibility of the employee to provide reason for an increase in pay.

[Daniel Unplugged]

I have a theory as to why wages have stagnated for 40 or so years in the USA.

 

In the 70's or about that time, someone invented the shipping container, greatly reducing the cost of international shipping. This, along with (to take the most obvious example) China opening up it's economy to the world, enabled a massive boom in world trade. Naturally, China, with it's vast amount of unskilled labor, began to export it's unskilled labor (via manufactured goods) to the USA. The USA with it's vast amount of capital and highly skilled workforce, began to export its technology, machines, capital goods and highly skilled services. Eco 101 tells us that if a something is exported, its price will rise in the country of origin, and its price will fall in the destination country. America has imported a great amount of labor, causing the price of labor in America to fall. This effect has also caused the price of capital and skills, (what America exports) to increase, thus ensuring higher profits and higher incomes for highly skilled workers, and an increase in inequality. Remember, the net effect of free trade is always positive, so the net benefits to businesses and highly skilled workers is greater than the loss to unskilled workers.

 

Of course, in China, from where labor has been exported, the average worker is vastly better off now compared to 1970 (I'm going to guess that his wage is now 10x what it was in 1970).

 

To be sure, there have also been other factors at play; the growth of the welfare state, employment regulations, the fed enabling trade deficits year after year, the enabling of credit for consumption instead of investment (the fed again), all of which have been very effective at wiping out the middle class in America, and none of which are likely to change until it all comes crashing down.

[Leevan]

Under the theory of value, which I presented, it stands to reason that wages probably should stagnate or fall. In order for wages to actually rise, actual value must increase via the workers. As time creeps along, this becomes more difficult. Add to that technology, and how it erodes labor's value, yes, I would suspect stagnate wages is a society with a state and falling wages in an entirely free market economy.

[dsayers]

Add to that technology, and how it erodes labor's value

 

I've never understood this belief. Technology displaces labor, it doesn't replace it. Somebody's labor designed that technology. Somebody's labor manufactures it, distributes it, services it, etc.

[Daniel Unplugged]

I would suspect stagnate wages is a society with a state and falling wages in an entirely free market economy.

What would you call the period from 1800 to 1970 in which wages increased 50 fold, if not one of the above?

[shirgall]

What would you call the period from 1800 to 1970 in which wages increased 50 fold, if not one of the above?

 

Inflation.

 

Look at the cost of labor in terms of of a timeless commodity (like ounces of silver) sometime. Peter Schiff has talked about this on his radio show occasionally. Admittedly most of the loss has come in the years since 1972.

 

Check out http://www.westegg.com/inflation/infl.cgi It has inflation figures that start in 1800.

 

 

 

What cost $100 in 1800 would cost $227.93 in 1970.

Also, if you were to buy exactly the same products in 1970 and 1800,

they would cost you $100 and $46.46 respectively.

 

And...

 

 

 

What cost $100 in 1970 would cost $591.98 in 2013.

Also, if you were to buy exactly the same products in 2013 and 1970,

they would cost you $100 and $16.19 respectively.