Piketty Notes and Quotes, 1: From McDonalds to Wall St.?

I finally got my copy of Thomas Piketty’s blockbuster Capital in the Twenty-First Century last Friday (it was on backorder for almost a month, such is the demand), and have been spending every minute of spare time since reading and pondering it.  My brain is getting too full to store all the ruminations, so I’ll start depositing them (along with choice quotes) here, beginning with this little passage on pp. 299-300, which ends with a nice example of Piketty’s trademark wry understatement:

“This unprecedented increase in wage inequality [in the US, 1975-present] does not appear to have been compensated by increased wage mobility over the course of a person’s career.  This is a significant point, in that greater mobility is often mentioned as a reason to believe that increasing inequality is not that important.  In fact, if each individual were to enjoy a very high income for part of his or her life (for example, if each individual spent a year in the upper centile of the income hierarchy), then an increase in the level characterized as ‘very high pay’ would not necessarily imply that inequality with respect to labor—measured over a lifetime—had truly increased.  The familiar mobility argument is powerful, so powerful that it is often impossible to verify.

But in the US case, government data allow us to measure the evolution of wage inequality with mobility taken into account: we can compute average wages at the individual level over long periods of time (ten, twenty, or thirty years).  And what we find is that the increase in wage inequality is identical in all cases, no matter what reference period we choose.  In other words, workers at McDonald’s or in Detroit’s auto plants do not spend a year of their lives as top managers of large US firms, any more than professors at the University of Chicago or middle managers from California do.  One may have felt this intuitively, but it is always better to measure systematically wherever possible.”


Working for All You’re Worth: Some More Thoughts on the Minimum Wage Debate

A few weeks ago, I wrote a brief reflection on the recent debates over the minimum wage for Capital Commentary.  My purpose there, and in the several conversations I’ve had in social media on this question, was not really to advocate for or against raising the minimum wage; in my view, the economic and political complexities of the issue are such that I’m inclined to be suspicious of anyone who’s confident they know the right answer to the question.  My main concern is to call out really bad arguments against the minimum wage, particularly those peddled by Christians.  There may well be a good case to make against the minimum wage, but it seems awfully hard to find people making it sometimes.

So I want to reflect a bit more fully on what’s wrong with one of the common conservative arguments against the minimum wage: that the laborer is only worth his productivity.  The argument goes something like this: Sure, it sounds wonderful to pay people a living wage, but a worker’s job is to contribute productivity to a business, adding value by his labor, and ultimately, the business cannot afford to pay him any more than what he brings in.  If a McDonald’s worker can only contribute an average of $6 profit per hour to the company by his labor, then McDonald’s will go broke pretty quick paying him $10/hr.  Accordingly, raising the minimum wage will simply increase unemployment, and instead, therefore, we should focus on raising worker productivity.  So Acton’s Joe Carter says,

“Instead, we should focus on faster economic growth and improving productivity of low-skilled workers. By increasing the value of a worker’s labor, we make it possible for them not only to feed their family but also to help fulfill the needs and desires of their neighbors….The goal should not be to merely give people a living wage but to help them gain the ability to make a life for themselves based on the value of their labor. What the working poor need most is marketable skills and productive jobs, not more handouts disguised as ‘wages.'”   

Now, arguments like this have a weaker, pragmatic form, and a stronger, moral form.  The moral version, favored by doctrinaire free marketeers, argues that a laborer ought not to be paid more than his productivity, which marks the just price of his labor—as someone put it to me in a Facebook discussion, “if you can’t find somebody who values your labor at $X/hr., then you have no right to employment.”  The pragmatic version would be: “It’s a cold hard world out there, and the fact is that the only way you’re going to get McDonald’s to employ people at $10/hr. is by making their labor worth $10/hr.”    There are problems with both versions, but I will begin by tackling the moral problem.

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Hayek on Social Welfare

Much more “liberal” than his present-day ideological followers:

[T]here can be no doubt that some minimum of food, shelter, and clothing, sufficient to preserve health and the capacity to work, can be assured to everybody. … Nor is there any reason why the state should not assist the individual in providing for those common hazards of life against which, because of their uncertainty, few individuals can make adequate provision. 

Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are as a rule weakened by the provision of assistance – where, in short, we deal with genuinely insurable risks – the case for the state’s helping to organize a comprehensive system of social insurance is very strong. There are many points of detail where those wishing to preserve the competitive system and those wishing to super-cede it by something different will disagree on the details of such schemes; and it is possible under the name of social insurance to introduce measures which tend to make competition more or less ineffective. But there is no incompatability in principle between the state’s providing greater security in this way and the preservation of individual freedom.

To the same category belongs also the increase of security through the state’s rendering assistance to the victims of such ‘acts of God’ as earthquakes and floods. Wherever communal action can mitigate disasters against which the individual can neither attempt to guard himself nor make provision for the consequences, such communal action should undoubtedly be taken.

There is, finally, the supremely important problem of combating general fluctuations of economic activity and the recurrent waves of large-scale unemployment which accompany them.  This is, of course, one of the gravest and most pressing problems of our time.  But, though its solution will require much planning in the good sense, it does not — or at least need not — require that special kind of planning which according to its advocates is to replace the market.

Many economists hope, indeed, that the ultimate remedy may be found in the field of monetary policy, which would involve nothing incompatible even with nineteenth-century liberalism.  Others, it is true, believe that real success can be expected only from the skillful timing of public works undertaken on a very large scale.  This might lead to much more serious restrictions of the competitive sphere, and, in experimenting in this direction, we shall have to carefully watch our step if we are to avoid making all economic activity progressively more dependent on the direction and volume of government expenditure.  But this is neither the only nor, in my opinion, the most promising way of meeting the gravest threat to economic security.

In any case, the very necessary effort to secure protection against these fluctuations do not lead to the kind of planning which constitutes such a threat to our freedom.

—The Road to Serfdom, 148-49