
The Stock Market vs. the Labor Market - duck
http://www.theatlantic.com/business/archive/2013/04/the-economic-story-of-the-year-the-stock-market-vs-the-labor-market/274698/
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acslater00
Couple things here.

First, corporate profits are aberrantly high for a number of reasons, none of
which are likely to be permanent. John Hussman, an analyst whom I respect
deeply, has a good discussion of this from the perspective of stock
valuations, but the basic point is relevant here.
[<http://www.hussmanfunds.com/wmc/wmc130408.htm>]

Second, while I agree that this is "the story" in a purely journalistic sense,
it's important not to get too carried in discussions about relative income
distributions and miss the forest for the trees, as it were.

Income inequality is not an informationally useful statistic on its own.
Income inequality can be thought of as a measure of the _strength of
incentives_ in a system. Those incentives can be good or bad on their own. In
3rd world nations, income inequality is a reflection of the strong incentive
to be corrupt and steal. In the closed system of Goldman Sachs, income
inequality (among employees) is a measure of the incentive to achieve annual
performance targets. In the context of the public education system, it is a
measure of the incentive to achieve seniority and bureaucratic promotions. In
startups it reflects the incentive to get acquired or IPO. Et cetera.

In the United States, when people say that income inequality is too high, what
they're usually thinking is that the wrong things are being incentivized and
rewarded. That's a fine discussion to have, and I would agree that certain
industries [health care jumps immediately to mind] suffer from deep and severe
incentive problems that are reflected when you look at income distributions
within those sectors.

But the problem is not the income distribution; it's the fact that income is
being distributed unequally _for the wrong reasons_. That is the conversion
people should be having.

~~~
jbooth
I think the biggest problem of incentives can be summed up as:

It's much more profitable to do a mediocre job in banking than to do a world-
changing job of actually building things. Proximity to money is worth more
than actual ingenuity.

~~~
CapitalistCartr
"Proximity to money" Imagine a city on the confluence of two rivers, with a
series of locks making it a major trade center. The leaders of the lock
operators union come to the city fathers requesting they be paid a percentage
of the trade passing through the locks rather than a regular wage.

The city leaders ask why, since they didn't build the locks or create any of
the system that makes it all happen, they should share in the wealth above
others, and above the work they do.

The Union leaders reply that the small percentage they're asking for will pay
total about the same as they're getting now, and it better aligns the
interests of both sides. Of course the city leaders eventually agree. And of
course, the "modest percentage" steadily grows over time, with a multitude of
clever, more complex shipping arrangements.

That's the financial system we have. They didn't build it; their brain power
goes to make it more opaque, and siphon more to them. And with regulatory
capture, the federal gov't abets it all.

~~~
bicknergseng
You also described the situation in Sudan/South Sudan. But without the
genocide.

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mattsfrey
I watched a very good series recently called "The Ascent of Money", offers
many good insights into these matters. It's available in full on youtube for
those interested.

Ultimately though, all talk of policy is a fools errand and utterly useless
unless the overarching corruption in our political system is addressed. The
free market dictates that companies can be expected to maximize their profits
by whatever means necessary, and it's up to government to make sure "whatever
means necessary" stays within an acceptable domain that protects key public
interests. The primary requisite for the advancement of any civilization is
it's resistance to corruption, and nothing short of a total overhaul will even
put a dent on the decline we're experiencing. Until the era of pay-for-play
and superPACS is brought to an end, legislation will always mold itself to
induce the greatest profits for big corporations at the expense of every other
interest.

EDIT: I should add as well though that the other side of this coin is that we
as consumers CAN have a great influence outside of politics by voting with our
dollars. If everyone refused to buy cheap Chinese goods and boycott Wal-Mart,
enacting protectionist policies to protect American manufacturing wouldn't
even be necessary. If we refused to put our money in banks involved in
scandals or do business with their partners they'd soon be out of business.
Alas, there in lies the other doom of the free market; as consumers we can be
expected to act exactly in our own interests, which dictates buying the
cheapest goods and most attractive deals regardless of the greater effects.
There has to be a mass change in psychology, a great awakening. Hmm, good
start up idea???!!

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civilian
Yup. Using humans to get stuff done isn't our only option anymore, so a
difference between the stock market and labor market isn't surprising.

I live in a liberal area and I'm facebook friends with a lot of Burners
(people who have gone to burning man). I see a ton of image macros and posts
where people are implying that it's a moral wrong that businesses are doing
well while we have high unemployment. :-/ For me, once I understood the
(technological, economic) reasons for the difference it became less of a moral
issue and more of a practical issue. (i.e.--- had to throw out my semi-useless
degree and learn a valuable skill. My valuable skill is copy-pasting
coffeescript!)

~~~
boomlinde
What is morally wrong is the idea that everyone should have a job in a society
where it's so obviously unnecessary for everyone to work, and where the level
of productivity is in fact detrimental to the people and their environment in
the long term.

What I'm saying is that we should get rid of the idea of not having a wage job
at all as inherently less respectable than working with anything and introduce
a guaranteed minimum income.

~~~
jordan0day
This, exactly. On hn we can have these discussions (and see a lot of people
hold these welfare=lazy straw man views) because most of us have jobs that
haven't been automated away... _yet_. But that day is coming. Probably a lot
sooner than most of us realize.

I can't help but agree that a policy of full employment or guaranteed minimum
income is going to be necessary in the not-too-distant future, unless we're
comfortable living in a society where most people are destitute because they
weren't born to already-rich parents.

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sergiosgc
Don't look at inequality from a justice perspective. Justice is a moral
definition, and highly volatile, so the discussion would be endless. Look at
it from a society efficiency point of view.

From an efficiency point of view, some inequality is interesting. You need to
aggregate some capital for investments to occur, you need rich people for high
risk investments to be possible. However, as in most systems, there is an
optimum point. Beyond a certain level of inequality, the system becomes less
efficient.

Herein lies the problem with the job creators argument. It is not
fundamentally wrong, but it is wrong for the current level of inequality. We
are past the optimum and, for society and the economy to gain efficiency,
inequality _must_ be reduced.

~~~
sageikosa
> Herein lies the problem with the job creators argument. It is not
> fundamentally wrong, but it is wrong for the current level of inequality. We
> are past the optimum and, for society and the economy to gain efficiency,
> inequality must be reduced.

Are you suggesting we get rid of the unemployed? That would certainly increase
"society efficiency", I think (not sure how we measure that again). But if we
want to reduce society to numbers, its easier to get larger swings in
variables if we have smaller population sets to work with. We don't have to
get rid of everybody to meet optimal efficiency numbers, because the process
of getting rid of people will definitely provide job opportunities for others.

~~~
civilian
Yeahhh, I don't think that's what he was suggesting. You were proving Godwin's
Law, right?

~~~
sageikosa
No. Since he's advocating chucking morality out the window, I can only assume
he had something special and immoral planned (which largely went unexplicitly
stated). The most efficient isn't to spread a limited wealth over a large
number of people, but to reduce the number of people with little wealth. After
all, since we've thrown out the concept of society as a means to protect
principles of justice for individuals, we can surely afford to sacrifice some
individuals for those lucky enough to be left in the selected set.

But you're right, he was probably only suggesting theft.

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tptacek
This story has nothing whatsoever to do with Hacker News. It's a
recapitulation of basic economics trend stories that serves no purpose here
other than to start Reddit-style flame wars about politics. Not every good
blog post is a good Hacker News submission. I flagged it, and you should too.

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ctdonath
Supply and demand.

More people are increasingly willing to give more money to fewer people. The
key is WILLING. People CHOOSE to hand over their money. For all the
complaints/accusations about unfair business practices etc., fact is people
wouldn't be handing all that money to "them" if not for receiving something of
equal/greater value in return.

~~~
boomlinde
Would you argue that the fact that people who CHOOSE to hand over their money
live in a society in which they are taught to do so by more and more intrusive
means, and of which the entire value system is constantly being manipulated by
means only available to the "handee" doesn't factor in at all?

~~~
ctdonath
Of course I'd argue the "fact". It isn't one.

Are there centralized influences, operating toward their own interests? Of
course. Always have been. Those pursuing an effective strategy of sales &
social normalization of X do so because it pays off. In a world of
increasingly homogeneous media domination, putting up significant sums to buy
influence pays off - hence the increasing concentration of wealth, supplying
what can be marketed to increase demand.

This influence is not, however, infinite/total in scope. Options exist. You
don't have to buy into anything "they" manipulate you to. It's still a choice.
You can say "no" and buy elsewhere or do it yourself. Corporations are not
gods; they are not omniscient/omnipotent/omnipresent, and do not strike you
down with brimstone if you fail to buy their goods/services. You can turn off
the TV, choose your own teachers & influences, and spend your money with
whomever will trade as you see fair.

That much of society submits to such influences, well, that's their _choice_.
I've chosen not to abide by those choices in large part, and know that where I
do it's MY choice, and that I have options thereto.

Selfish influence arguments aside, there's also the matter of just doing a
good job supplying what people need. People need Y, company Z does a
remarkably good job of supplying it, people pay what it's worth to them (or
less, what a great value!), and Z pockets the net profits. So? What's wrong
with reaping rewards for a job well done?

BTW: This is Hacker News, on Y-Combinator, devoted to the notion that anyone
can concoct something techy and - with a goal of profit - persuade others to
buy it.

~~~
boomlinde
You disagree with my supposed fact and then go on to support it in the
following paragraph. I never said anything about it being infinite or total in
scope.

As for the ultimate power of an individual to choose freely, I totally agree,
but I won't pretend for a second that society doesn't always influence my
choices in one way or another. That would be arrogant and short-sighted,
especially since, no, most people don't get to choose their teachers and
influences until they're 18.

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thorntonbf
The crash that comes next will make Lehman Brothers look like a Sunday
afternoon picnic.

~~~
camus
I dont think there will be a big crash , just a very slow death , like for any
Empire that ever existed.

------
Thiz
Wealth is good, even for a very few, for the many will benefit from it in the
long run.

Wealth acquired from evil means, like corruption, theft, coercion and
taxation, is evil no matter your moral stance, and that's the only wealth that
should be fought against and given back to its original owners.

Whatever the means and however the distribution methods.

------
amish
I think the only way this system can start to equalize itself is if people
start to learn how to live off the land again. Once we have self-sustaining
(properly nourished, educated, etc) commmunities who can live without currency
(animal kingdom has done it since it existed) the system will finally be able
to balance itself.

Once people realize currency is a man-made thing, and is not necessary to live
fruitful, productive, enriched lives (the one real hurdle left is energy self-
sufficiency), the system will finally be able to balance itself.

The fact that more and more startups are learning to self-govern is more
reason to be optimistic that the social constructs that rule our worlds today
are going to be a thing of the past. Hopefully sooner than later.

~~~
trhtrsh
Living off the land in a small unit is an incredibly inefficient way to
produce value.

~~~
amish
I wouldn't advocate the use of antiquated technologies to accomplish this. The
idea here is currency-free communities who live just as efficiently as
currency-rich communities. But you have to start somewhere. What are the tools
you need to build in order to build the tools to build the tools that build
the tools, etc. that you need in order to live as efficiently as we do today.

Sure it wouldn't be as easy for many, but imagine a line below which folks who
live in a currency-dependent economy would actually be better off to leave it.
As more and more people fall below that line, the alternative way of life
becomes more viable to sustain itself.

The thing that the wealthiest folks don't seem to realize is it's in their
best interest to ensure the little guy has money. When a significant
percentage of the population loses incentive to accumulate wealth you lose
value on a global scale.

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knieveltech
Resource allocation bug detected. Reboot capitalism? Y/N

------
youngerdryas
From the comments:

"The focus and concern shouldn't be how much the top 1% are making, it should
be how much the 99% are making, especially the bottom 50%. I dont really care
how much money Bill Gates and Donald Trump are making. Their income has
absolutely no effect at all on my income, what I'm most concerned about is how
much money I'm making.

The economy is not a zero sum game, where if the rich make a trillion more it
comes out of the pockets of the workers. This notion is childish and wrong.
Trade only happens if its mutually beneficial for BOTH parties, this applies
to workers trading their time for money. The chart above shows corporate
profits going through the roof but at the same time labour income is
INCREASING.

The first chart shows labour income increasing over 1000% in forty years. It's
not noted if these are nominal gains or inflation adjusted gains. Given the
dip in 2009, I think these are real gains and represent real growing
prospertity for workers. Maybe a 1000% increase isnt enough but the chart
clearly shows workers income is rising.

There are not alot of TVs, computers and cell phones being assembled in the US
but this is a good thing. Cheap foreign labour for all Amercians to have these
goods. If flat screen TVs were assembled by UAW workers in the US TVs would
cost $2000 and far fewer people would have them.

Having a million in cash on desert island is useless. You'd rather have a
clean drinking water rather than small pieces of green paper - it doesnt even
burn very well. Money isnt valuable in its self, money is valued for the stuff
it can buy. Prosperity isnt just how much money you make, it's how much stuff
you can purchase. $10/hr in the US is a struggle, $10/hr in India is quite
comfortable.

Maybe 1000% increase in labour income isnt enough but cheap foreign labour and
global trade have amplified that increase. Advances in technology and product
quality have benefited the middle class more than the rich. The rich could
always afford quality and latest gizmos. Now nearly every one can afford
them."

~~~
rayiner
The economy is also not a theoretical abstraction. Wealth disparity has
rippling effects throughout society. If it's Pareto efficient that the super
rich make 10x more and ordinary people make 1% more, it can still be
sociologically undesirable.

What you see is an economy replete with goods and services, but by and large
one in which the people getting rich neither make, consume, nor develop the
technology to make those goods. It takes a special sort to see all the gains
in wealth go to the investor and manager class and argue that this is the
proper order of things.

~~~
jeffdavis
"It takes a special sort to see all the gains in wealth go to the investor and
manager class and argue that this is the proper order of things."

I don't think anyone sees it as the proper order of things. For one thing,
only central planners even think in those terms. For another, there is no
obvious policy that will have a better overall result in a large country like
the US -- remember, every policy has unintended consequences and doesn't
always turn out like you plan.

~~~
rayiner
I think when you ask everyone to get together to institute a society to create
an environment in which business can exist, then reject the idea that it
matters how the production of that society is distributed, that's a special
sort of person.

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CleanedStar
Karl Marx said the process of value creation is thus: a carpenter goes into a
woodshop and bangs on wood for eight hours a day. The raw materials (wood,
nails) plus partially used and worn down materials (saw blade etc.) are
transformed into tables, which are worth more than the materials used. $2000
worth of material becomes worth $2160 in eight hours. In eight hours $160 of
value is created.

The carpenter keeps all the wealth he creates for the first six hours of work
- all $160 worth. The last two hours he keeps none of the wealth he creates -
it goes to the woodshop owner who rents the woodshop, owns the mechanical saws
etc.

This is how business works. It is obvious. Of course there are caveats, which
Marx spends thousands of pages covering - only a fool would reply to this
saying my summation of thousands of pages in a short HN comment missed one of
those caveats.

It is also obvious how in a system like this, the owners are making money
while the workers are stagnant or doing worse. And the method owners have of
doing this is obvious - either have the worker work more hours for free per
day, or try to somehow increase the amount of wealth that is created every
hour. Obviously both methods are used.

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ttrreeww
Printing money is more profitable than honest work for a living.

