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Comment by rukittenme | Hacker News Reader

I'd like to add to this argument.

If Ohio's steel industry grows by 500% who reaps the benefits? Me? The guy writing code in Portland, Oregon?

No... its pretty clear that a specific subset of people receive the benefits. The people who own the steel mill. The people who receive employment from the steel mill. The governments which tax the steel mill. But not me.

Economic growth isn't uniform. Its an uneven field that benefits some and not others. That's why people move and change jobs. That's why societies abandon old interests and embrace new interests.

I don't know why anyone should feel entitled to economic growth if they didn't participate in it in any way.

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I think the thing that is at odds with this attitude is that more and more prevalently "The people who receive employment from the steel mill." don't actually benefit from 500% growth. Instead they might have 6 additional months of job security with little to no raises. And that job security isn't a favor it's because that's the amount of time those workers are needed to get through whatever contract and not any further. In other words, the absolute maximum profit the steel mill can make.

And of course your argument is on the side of the people that risked everything to start a steel mill. So yeah, it's a complex system - but that doesn't mean we have to shit on everyone else.

More common, every other year or so, they will get a 'raise' that management loves to promote, that doesn't cover the cost of living adjustments the last 2 years.

It's not "shitting on" anyone; it's how (efficient) economics works. You don't earn more money unless you're producing more value. If a steel mill increases its output by way of some new automation, the accounting department and janitorial staff are unlikely to see a wage increase. The folks on the assembly line are also unlikely to see a wage increase because they're not more productive. The people who will be principally rewarded are the people who developed (including investing) the automation.

In other words, as I understand it, economic rules aren't arbitrary--it's not like some cabal of mean rich guys is preventing us from flipping the switch that would make everyone obscenely rich (which is distinct from a cabal of mean rich guys _interfering_ with an economy to make themselves wealthy at the expense of the efficiency of the economy).

If you pursue "efficiency" to extremes like this, you're going to bump up against political and social realities that are going to ruin your efficiencies in ways that make giving pay increases seem like a no-brainer.

1. I don't think this is true in any meaningful capacity; it just means we need to find ways to keep a critical mass of people involved in productivity.

2. This is a different argument than the one to which I was responding (which seemed to be something like, "it's mean to have the opinion that economic systems reward productivity").

You cannot pursue "pure capitalism" to its logical end. Like "pure communism", it just ends in misery and suffering for everyone.

"Productivity" cannot be re-defined so that those that do the actual labor are removed from the equation. If a company or firm produces more revenue, than it's a simple value judgement as to how that revenue is distributed, and, right now, those at the top of company management and investors are the only people making that decision. Organizations like unions simply change how that decision is made by re-balancing the power involved with the decision. You may want to keep all of the revenue gains from your automation to yourself and your investors, but you may not be able to if it means that most of your workforce walks off the job. Likewise, you can automate your entire operations with robots and computers, but good luck trying to sell whatever it is you're producing when everyone is (effectively) unemployed.

Your comment seems to agree with mine. I’m not advocating for “pure capitalism”, and your “simple value judgment” (as described) is pure economic reasoning:

> You may want to keep all of the revenue gains from your automation to yourself and your investors, but you may not be able to if it means that most of your workforce walks off the job.

Which isn’t to say that it’s not a value judgment, but rather that an economy is made up of a sea of value judgments interoperating, though not all value judgments are sustainable or well-calculated.

> It's not "shitting on" anyone; it's how (efficient) economics works. You don't earn more money unless you're producing more value. If a steel mill increases its output by way of some new automation, the accounting department and janitorial staff are unlikely to see a wage increase. The folks on the assembly line are also unlikely to see a wage increase because they're not more productive. The people who will be principally rewarded are the people who developed (including investing) the automation.

In your example, all the steel mill owners have to do to make more money is to passively own the steel mill while their employees work to improve it. If "efficient economics" works by compensating the people who create value, why are the passive owners getting most of the compensation? They're not creating any value. By your logic they probably should get less than the janitors and assembly line workers, who at least create some value.

Good question! That’s the “investment” part. They risked the funds to create the value in the first place in exchange for returns on their investment.

> Good question! That’s the “investment” part. They risked the funds to create the value in the first place in exchange for returns on their investment.

That's not really an answer. You're just saying their entitled to the passive returns from ownership because they owned something else. It's circular. Anyone could take a risk with the funds if given access to them, even the janitors and line workers.

Then I'm not sure what answer you're hoping for.

> You're just saying their entitled to the passive returns from ownership because they owned something else.

Not sure what you mean here, but I agree that investors are entitled to the returns stipulated in the investment agreement. Hopefully this isn't a controversial position.

> Anyone could take a risk with the funds if given access to them, even the janitors and line workers.

Yes, janitors and line workers can (and regularly do) invest their finances as well, frequently for the very company for which they work (although they are very likely not investing enough to be principal owners, because even very small companies tend to be very expensive relative to the average salary of a janitor or line worker).

> Not sure what you mean here, but I'm saying investors are entitled to the returns stipulated in the investment agreement.

You said "...(efficient) economics [means y]ou don't earn more money unless you're producing more value." However, an owner can be nearly completely idle yet still profit handsomely, by simply paying others a modest fee to increase her fortune, so your statement isn't really true.

I think you misunderstand investment. Enterprises are risky; someone has to lose money when they fail or otherwise lose value. Those people are investors. Employees can also be investors (e.g., employee owned companies or other arrangements in which employees buy stock in their companies). By definition, the people who get returns on investment are the investors. Buying risk (aka investment) is inherently valuable.

If you think employees should get returns on investment, then you're necessarily advocating for forcing them to take home less money and risking the difference on the performance of their company.

The good news is that many employees do invest in their own company or in other companies, and they're free to choose their investments such that they can tune the knobs of 'amount' and 'risk' to suit their personal goals.

> I think you misunderstand investment.

I understand investment, I'm just telling you that your original statement is wrong. If you're an owner, you don't have to create any value to get paid. Mere ownership gets owners paid. Sure, they can actively invest if they want to, and they may be better off for it, but that kind of activity is strictly optional.

> I understand investment

I'm ... not sure you do...

> If you're an owner, you don't have to create any value to get paid. Mere ownership gets owners paid. Sure, they can actively invest if they want to, and they may be better off for it, but that kind of activity is strictly optional.

This isn't true. Owners are investors by definition; owners are the sole investors in their companies. Like all investors, owners don't "get paid" unless they sell their shares at a higher price than they bought them. I'm not sure if you take issue with those definitions or if you're trying to nit-pick what it means to 'create value', but I'm pretty sure I've simplified this as much as I can. Good luck.

Nearly completely idle, except for the part about building a whole new steel mill. That's... not very idle.

And it is exactly that creation of a new steel mill that is where the value is going to be created - by the steel mill producing it.

> Nearly completely idle, except for the part about building a whole new steel mill. That's... not very idle.

No one said they built it, just that they owned it. It's totally possible (and common!) to own something that you didn't build and have never had a hand in operating.

But lets say a new steel plant was built. Who actually built it? Was it the the owner, or the project managers, engineers, architects, construction crews, etc.? Which of these groups contributed more value to the enterprise?

All right, let me put it this way. Without the money, it doesn't get built. The project managers, engineers, architects, and construction crews (plus the steel workers' local) aren't going to have a bake sale and come up with the money. If there's going to be a steel mill, the owner has to do something - at least write the checks plus hire someone to be the general contractor, and someone else to be the plant manager once it's built.

And the owner has to have at least a reasonable chance of getting paid back for their investment. They're not building a steel mill as a charity. So if you don't let the owners make money off of their steel mills, then you don't get any steel mills. Whose life does that make better?

[Edit: And letting the owner make as much as the janitor isn't going to cut it. The owner is putting in hundreds of millions of dollars; letting them get back $15/hour is a completely inadequate return for the level of risk they are taking.]

> The project managers, engineers, architects, and construction crews (plus the steel workers' local) aren't going to have a bake sale and come up with the money.

But if they did, they'd still be investors (i.e., employee-owners) and everything I said would still apply :).

More seriously, employee-owned businesses aren't uncommon, but still, the investors/employees are profiting from the company's increased producitivity _as investors_--their wages don't increase, the value of their shares increases. Just like owners in sole-proprieter businesses like our hypothetical steel mill.

You are battling with the century old fight about interests. What are interests at all.

You can read much argumentation from different economists across the ages about this topic. Hating interest is a very natural endeavor: it has been banned for long periods of time after all.

But economics has clarified that interests is just what you pay for opportunity cost. If you build a hammer, you can use it or loan it. And you can loan it for another new hammer in the future, plus, some value extra for not having it. You could then, in the next period, loan the new hammer again. And so on, forever, without causing anyone harm, you can "passively" gain an income from your original investment. This is Bastiat's explanation of interest from the 1850's

I have a problem with calling people that have a lot of money to invest with as value creating. We should give more respect to the people who do the work instead of funneling all the benefits to people who just happen to have money.

Sorry dude, that's how economies work. Investors agree to buy shares in exchange for the right to sell those shares later. Employees agree to work in exchange for a salary; if they can find a larger salary elsewhere, they're free to pursue it. If employees want to buy some part of a company, they can do that as well (assuming they can persuade someone with shares to sell them) and then they'll earn (or lose) RoI just like other investors.

"Sorry dude, that's how economies work."

There is no natural law that says things have to be that way. The economy is man made and when you look a different countries you'll see that there is a lot variation. There is no natural reason that for example investment income should be taxed lower than employment income. You could come up with a law that requires a certain share of the company's profits to be distributed to employees instead everything going to shareholders.

There are lot of things that can be tweaked.

In general I object to the idea that people who have a lot of money (earned or inherited) create more value than the people working for them. Both sides play a role in this economy and deserve to be respected as value creator.

> In general I object to the idea that people who have a lot of money (earned or inherited) create more value than the people working for them. Both sides play a role in this economy and deserve to be respected as value creator.

Right. Efficient economies do reward people according to the value they create. I'm pushing you toward one of the following arguments:

1. Returns on investment are artificially high (relative to wages) because of an inefficiency in the economy 2. We should introduce inefficiency in the economy in order to keep RoIs artificially low (relative to wages)

If (1), then please describe the inefficiencies (you mentioned one possibility--taxes on investment income). If (2), what good could come of this?

I don't think inefficiency is the right word. How do you determine efficiency of an economy? One person's efficiency may be the other person's loss. It's more about value judgements. Things that should be reevaluated in my view:

* The primacy of shareholders. Workers should be recognized as stakeholders in a company * Preferential tax treatment of investment income * Inheritance tax * Health care * Retirement options

In general I would like to see the balance of power shifted back a little towards workers.

The issue isn't whether or not we want good things for working class people; it's how to make things better without devestating the economy. It turns out that if you do things like forcibly dilute shares for each new worker, it has ramifications which may actually exacerbate poverty. The trick is show how your proposal will succeed without disastrous consequences. :)

> Sorry dude, that's how economies work.

No, it's how this economy works. There is natural law saying we have to do it this way.

Aren't the people running the new machines creating more value because the machines make them more productive?

If not, doesn't that suggest that it would be virtually impossible for average people to meaningfully improve their economic condition since any meaningful increases in productivity are almost certainly going to be a result of advances in technology?

Wages depend directly on the supply of and demand for labor, and only indirectly on the amount of value produced in an hour of labor. So if assembly line workers notice that coders are making tons of money, and so the assembly line workers move en masse away from assembly line work toward technical careers, then the factory owners would have to compensate the remaining assembly line workers higher since there is no longer a ready supply of competent labor ready to replace them. It would not even have to be that assembly line workers switch careers, just that the number of new workers entering the field declines as young people choose other, more lucrative career paths.

Unfortunately, it is quite difficult to make your way into a technical career without a significant investment in education and (I would argue) a certain personality type. So we aren't seeing thousands of people moving away from low-skill jobs into technical careers. The supply of labor for jobs like "warehouse worker" simply hasn't declined enough to offset the decline in demand (due to increased automation, outsourcing, structural changes, or whatever). The result is that those workers see lower wages. At the same time, compensation in technical careers seems a bit ridiculous: $200k to write Python for 35 hours a week? I've heard numbers like that thrown around - but companies still complain of a lack of qualified workers for those roles.

This is all just to say that the owners of capital aren't going to pass excess profits on to labor out of the goodness of their hearts, just as labor isn't going to work harder than the bare minimum required to keep getting their paycheck. But they might be forced to pay higher wages if they can't find good workers. If the structure of the economy changes so that some sectors are more productive, then the supply and demand of labor should shift to keep things from getting out of whack. That hasn't been happening in recent decades.

>I don't know why anyone should feel entitled to economic growth if they didn't participate in it in any way.

Maybe that's the real question then - what prevents people from participating in the economic growth?

The economy has seen strong growth for about a decade now, yet stock ownership in the broader population remains low. Unemployment is low, but incomes also remain low outside the top 10% of earners. Overall savings across the population is very low, with by some studies approx 36% having _no_ retirement savings.

So - I agree with your statement about economic growth not being uniform, but it does lead one to question what's preventing greater participation.

Forget retirement, something like 20% live paycheck-to-paycheck with no emergency fund and would be in crisis mode with an unexpected $500 bill.

Yes, I know, and I suspect the parent poster knows too.

>but it does lead one to question what's preventing greater participation.

It seems as if capitalism is designed to concentrate wealth in the hands of owners and shareholders. Employees were never intended to participate beyond the means granted them by their wages, and the incentives behind the financial systems with which they could tend to fleece anyone but the wealthy.

Somehow we've convinced ourselves that capitalism is supposed to be more egalitarian than it is. I think solutions begin with recognizing that the inequities we see in society are not a flaw in the system, but the system working as intended.

>I don't know why anyone should feel entitled to economic growth if they didn't participate in it in any way.

Tangentially related point:

The problem occurs when advances in technology make it so the vast majority of humans are literally _unable_, not to be mistaken for _unwilling_, to participate in economic growth.

In this scenario inequality shoots through the roof and that reasonably leads to instability and violence. At a certain point the wealth has to be shared in order to maintain a stable and high-quality society. A pragmatic wealthy person in this scenario should see wealth redistribution as a wise investment, not a cost, seeing as the "let them eat cake" alternative is less desirable if you like to keep your head.

> A pragmatic wealthy person in this scenario should see wealth redistribution as a wise investment, not a cost, seeing as the "let them eat cake" alternative is less desirable if you like to keep your head.

This seems like a false dichotomy in that (for the foreseeable future) we have other options, like retraining people whose jobs have been automated away. This is strictly better (read "less invasive" and "more economically efficient") than wealth redistribution programs [^1].

[^1]: To avoid the motte and bailey fallacies that accompany poorly-defined or otherwise ambiguous terms such as "redistribution", I'm referring to the typical redistribution programs which take wealth from one group and give it to another group with no net increase in economic productivity. These are the kinds of programs which are controversial and objectionable.

Retraining might equalize things enough to prevent violent insurrection. However, if a fair share of profit increases only go to executives/shareholders, then I'm not sure we can train people for jobs high enough up the hierarchy to actually reach a just system.

It's not really a tractable problem without concretely defining 'fair' and 'just'. It seems like you're driving toward something interesting (if only theoretical); I'd be really interested to hear from an economist.

That's a good point. I don't have much theoretical background in economics so I feel like I'm unintentionally speaking vaguely due to not knowing the correct/best terms and theories.

I think the way I would define fair (and obviously this is somewhat a value judgement rather than objective fact) is that: I don't think its unjust that a CEO gets payed more than a line worker, but when the company succeeds then I think the increase in profits should be divided up such that the ratio of their incomes stays about the same.

Also, when I say "just" I don't mean that in an extreme way where if profits aren't divided up 100% fairly then employees are oppressed wage slaves. Even if my ideal system where implemented things would still be subjective. For example, what if my employer implemented very generous benefits but didn't pay quite as well?

I guess the problem I have with terms like "justice" and "injustice" (not to pick on you specifically) is it seems to presume that poverty is the result of greed or nefarious motives when it's exclusively the result of economic inefficiency (sometimes this inefficiency is caused by greed). In failing to properly diagnose the problem, solutions come out which actually reduce market efficiency and thus perpetuate more poverty. Moreover, everyone already agrees that poverty is bad, so arguing about "injustice" instead of "optimizing the economy" seems unlikely to persuade anyone.

I'm already on board with eliminating poverty! Don't tell me "hiking the minimum wage is the right thing to do and the economics will work itself out", show me the math that says we can do it without inadvertently creating more poverty.

>like retraining people whose jobs have been automated away

In the scenario I am describing, this is not possible.

Yes I am aware of the luddites. I also strongly believe that a threshold exists where technology can outperform humans in every conceivable way, and we will cross that line one day. FWIW, complete collapse of our (current) economic system would occur well before we reach that line anyways. If even 50% of humans were displaced by technology you would likely see violent revolution. Consider the impact of the US great depression, where just under 25% of people were unemployed...

> In the scenario I am describing, this is not possible.

Ok, I wasn't sure how you meant your comment, so I addressed the more plausible (although less literal) interpretation. Thanks for clarifying though. I imagine your scenario is theoretically possible, but it's science fiction for the foreseeable future, so I'm not very concerned about it. That said, it's interesting and I often think about it; I'd be really interested to hear economists opinions.

Because many of those people have the experience of participating in economic growth then being denied the benefits, and so when they see it elsewhere, they assume the same thing is happening to those workers as well.

I think that the complaint is more that the people who receive employment from the steel mill do not receive a portion of the increased profits. Instead they go only/mostly to the owner of the steel mill.

As I understand it, looking at the numbers for the country as a whole is more meant as a way to observe overall trends. I don't think its meant to say that literally everyone across the country should benefit from any gains in any part of the country (or similarly gains in industries that they are not a part of),

I agree, but if the steel industry grew 500% then I am willing to bet executives saw 499% of the benefit and all employees remained the same.

>I don't know why anyone should feel entitled to economic growth if they didn't participate in it in any way.

Can we use this entitlement argument elsewhere? Would that be fair?

So, how would you feel if I restated this as:

>I don't know why anyone should feel entitled to economic benefits, if they don't contribute to the pool of economic benefits

Two issues I take with this:

1. Those incapable of contributing, such as the psychologically or physically unwell, must I guess just die

2. I could restate this further as "Returns from entitlement should correlate linearly with input to entitlement," that is, the more taxes in real dollars you pay, the more benefits you should get from the system, which I think is awful for many reasons.

I would answer to 1.:

It is a very different society, one where the top 90% give to the bottom 10%, to one where the middle 80% take from the top 10%, eat most and give scraps to the bottom 10%. A society that cares for the weak does not need to fund it with taxes, it can subsist on charity. You will see that in practice, always a middle class person takes the money first before it goes to the person that needs it.

The Federal government taxes the steel mill and the tertiary industries that are able to thrive because that steel mill is generating revenue.

You directly benefit from countless federal programs and indirectly benefit from even more.

That's really not the point. Replace Ohio with China or consider what percentage of after tax growth you're entitled to.

It's sad that people still think we benefit from taxes. If people patched their own roads, paid for their own schools, paid for the police, we'd still be far far far richer. Instead we're paying 10-20k PER BOMB. Every time we drop 5 bombs that could have been a freaking decent salary for a local teacher. Instead that money is killing, like 50-100 people.

The world has become what it is because of the way we treat other people. People learn from people in power that -that is the way to treat others.

Getting people to pay for all of those things is what taxes are for. If it was completely voluntary how many people would actually pitch in to pay for all of these services?

What about the communities that are unable to afford these services?

It’s very easy to imagine that in your scenario that the very wealthy segment themselves off to pay for private services while everyone else suffers.

> If it was completely voluntary how many people would actually pitch in to pay for all of these services?

Government is the system where everyone expects to live at everyone elses expense. I ask you, if you believe nobody wants to pay for it, why do you think people want it at all?

> What about the communities that are unable to afford these services?

Government does not make it affordable. Government does not pay for it: someone pays for it, the government takes a cut, and gives it to someone else.

What is your proposition? How should things be run?

As local and voluntary as possible, in today's framework.

" The people who receive employment from the steel mill. "

I think a lot of people who have employment there don't feel like they are getting benefits. When I look at my company we just got an E-mail how great the company is doing but during my performance review I was told "sorry, no raises or promotions". So I don't feel like I am benefiting from the company doing well.

> I'd like to add to this argument. > If Ohio's steel industry grows by 500% who reaps the benefits? Me? The guy writing code in Portland, Oregon?

> No... its pretty clear that a specific subset of people receive the benefits

No, that's actually incorrect. You do benefit (usually), in the form of cheaper steel prices reducing the cost of many of the goods you buy.

Stuff like this annoys me. The workers in the steel mill aren't receiving the benefits of the 500% growth. it is largely going to the executives and not the workers.

That's a poor generalization.

Is steel cheaper as a result of the growth? If so, then you benefit.

Did you own stock in the company? Perhaps your 401k grew as a result of the growth?

You benefit from the reduction in the price of steel, or the growth of steel based products. Industries don't just grow in a vacuum.

When you drive to another state, why are you entitled to use roads without potholes? You didn't contribute to that.

Supposedly these people with increased wealth will be spending more, perhaps also in your sector.

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