"Creating wealth" is such a loaded term. Do people like the Walton family and the Koch brothers personally create billions in wealth every year? No. They depend on millions of people who work for them. They merely reap a ridiculously outsized share of the benefits for being the owners of all the capital.
Not necessarily. Soon they will replace all those workers with machines, and they won't depend on workers anymore.
In the past they did create wealth, by actually founding those successful businesses. Of course that might have been luck and markets aren't perfectly fair, so maybe they don't deserve 100% of the profits. But still they did create something of value, at one point in time. A thing which continues to produce value today. It's not like Walmart just materialized out of the aether and Sam Walton just happened to find it first.
Of course deontological arguments are silly and it's impossible to know who "deserves" what. I think a consequentialist argument is much stronger, that taxing rich people and redistributing the money to everyone, creates more benefit to society than it harms.
Consider the case where worker Fred creates $100/hr in value yet earns only $10/hr. Me, as a greedy capitalist, wants a piece of that action. I offer Fred $20 to create $100/hr for me. Bob, that capitalist swine, outbids me and offers Fred $30. Ted, the running dog capitalist pig, offers him $40.
You see where this is going. If Fred really was underpaid relative to the value he produces, why isn't he getting a better offer elsewhere? You could postulate there are lots of Freds bidding for his job, keeping wages low. But then were are the new companies being created for the simple purpose of hiring boatloads of Freds and making 10x their pay?
Being underpaid seems like an unstable state in a free market.
Except this doesn't happen. In fact there are wide swaths of people all capable of doing this one job (in fact any job, even CEO) roughly equally well, and they are all desperate for jobs so THEY are the ones competing, racing to the bottom for any job the elite capitalists who control all of the wealth are kind enough to create for them.
Someone taking $10/hr for $100/hr creation in value in order to get the job over the guy who offered $11 is what is actually happening.
Recently a large national retail chain in Australia (Dick Smith's) went into receivership and left its owners (shareholders) out of pocket. They were no doubt paying Fred $200/hr even though he was only creating $100/hr in value. I think workers in industries with a liquid labor market like retail probably are being paid about what they're worth, as evidenced by the fact that sometimes their owners lose out. It's easy to say the greedy capitalist is being greedy when he wins, but what about when he loses? That often happens and the risk of that is probably why most of us aren't capitalists ourselves - it's dangerous!
It's easy to say the greedy capitalist is being greedy when he wins, but what about when he loses? That often happens and the risk of that is probably why most of us aren't capitalists ourselves - it's dangerous!
Often when the greedy capitalist loses, everybody who works for him also lose. People talk about the risks capitalists take and try to compare them to workers using sheer dollar values. That valuation completely sidesteps the diminishing marginal utility of cash.
If a capitalist goes out of business and his $10 million factory ends up getting sold off for a net of $3 million after paying his debts, we can say he lost at least $7 million. His workers, on the other hand, don't lose anything but their jobs. However, those workers might have been living from paycheck to paycheck, leaving them far worse off than the capitalist who still has $3 million in his pocket.
The problem is, unless you know what Fred does, it's really hard to gauge whether you have the $200 Fred or the $10 Fred. Worst still, Fred the dev usually doesn't know either, he just likes playing with technology and rewriting the same wheel with new shiney abstractions.
You're suggesting the owners wrote themselves checks out of the business to the point that the business went bankrupt, thus destroying their source of income.
Bob, Ted and you convene secretly and agree you won't poach each others employees or pay them more than $15/hr? And since you're the only game in town and can afford to undercut any competition until they're run off, everyone's forced to deal with it.
It's hard to see how the secret wouldn't get out that there are employees producing 10x what they're paid, and I don't see how you could get every investor in the country to collude voluntarily.
Because there is imperfect information available. Because people take poor deals out of necessity. Because the guy paying $20 isn't hiring right now, but the guy paying $10 is. It's really not hard to think of some potentially realistic and viable reasons here.
In reality markets are not as competitive or as simple as the model. If you want to set up another Walmart say, it is not that easy to get it funded or make it a success, not as simple as just hiring a bunch of people and putting them to work to make money, as any entrepreneur knows.
Then is it really the workers creating that value, or the people, capital, and infrastructure creating that value?
For example, suppose I have a machine that, when a lever is pulled, it manufactures a gold nugget. A worker is needed to pull that lever - but is the bulk of the value being created by the worker or the machine?
It gets down to how one does the accounting for productivity. Get it too far wrong and one is likely to go out of business.
If workers negotiate for higher wages, then business is forced to put them on more productive tasks. Less productive tasks tend to simply not get done, or get replaced by automation.
Unions have sometimes priced themselves out of the market, meaning the business closed. Didn't that happen with Hostess?
This is exactly what the article addresses. It is about the imbalance in the US economy, in which large companies are not seeing the competition that they should, and the record profits are being sequestered by investors instead of making their way to the employees. It continues on to argue that the barriers to competition in the US are defending large companies.
That's a steep and short ladder for Fred, the lucky guy. In my experience, it's usually a lot more horizontal and lengthier. I want to say it doesn't detract from your point, but there's good reason why you want a long climb "to the top" if you're at the top and trying to keep more of it for yourself. Fred shouldn't have really been paid $10/hr in the first place.
Not everyone has good information about this market. I don't get to see how much someone paid for Fred's labor. That means someone is likely to underbid for my labor if I'm in the same business, to which I must take time to convince them otherwise. I can also try to get them to overbid for my labor, to which they must convince me otherwise. And off we go to the negotiation. Why is it good that we have different people producing similar levels of output and are paid differently?
I don't know if it's good per-se, but it's preferable to the most obvious alternative, which is centrally planned and arbitrated compensation. (I'm not trying to erect a strawman, but how else would one ensure perfectly equal pay for equal output other than via some centralized mechanism?)
As a Fred, assuming you want to continue to be an employee, you should sell your labor to the employer who gives you the best overall deal for you. As an employer of Freds, you should seek to get the best mix of Freds you can for the lowest sustainable rate. Bringing in other actors to arbitrate and equalize pay doesn't add anything that the actors in the system can't already do, IMO.
(Maybe Fred1 values that his employer allows dogs, or has bike parking, or is a short walk from his house. Maybe Fred2 likes his employer's stance on social issues, or benefits package, or likes working 4-10s instead of 5-8s. How will the central pay authority value those things better than independent actors making their own choices?)
There's really no such thing as two equal employees. People are different. For example, back when I worked at Boeing, there were two cashiers in the cafeteria. One young, one old. The line for the young one was twice as long, because she rang up people twice as fast, and everyone knew that. Union rules, which presumed that time on the job determines productivity, required that the older worker got paid more, and when layoffs came, the young one got laid off.
The workers and capital are just part of the equation. The more fundamental part is the consumers. The current trends will eventually kill that too. It is a loose loose situation.
You can hire these millions of people and they will work for you. Just provide better terms than Koch, so you will be wealthy and we will have better salary.
The capital markets exist to provide capital in large quantities to new companies that have a compelling business plan for making money. Consider all the investors looking under every rock for "the next big thing".
Eh, using the capital markets to start your company will make sure that yours will be just as investor-oriented and bad as every competitor.
I was thinking more along the lines of ALDI, which never took a loan or credit, and was started by the two brothers taking over a tiny store from their father, and later expanding into a global chain.
True, but it's the concentration of wealth that's the problem. If the CEO and investors gave a fair portion of the wealth they created to their workers (see Walmart) or reinvested it into the company or other companies, then there wouldn't be a problem. The problem is ALL of that created wealth has gone to the people who control the capital. The workers (whose productivity has gone up nearly 300% since the last time real wages went up) deserve some portion of that return in, for example, fair wages. The labor market is not be a free market (for a number of reasons it likely never will be), and so we must regulate at least part of this equation.
And one way to do that is to put taxes on taking exorbitant capital returns as personal income; build something you want in the world with it instead (and in the process put it back into the economy). Another way, and one I'm partial to, is to institute a basic income, that way people will never work for exploitative wages, will always have a base of capital to pull from, and will bring the labor market to something much closer to a free market (where price discovery will actually work).
