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Comment by whatshisface | Hacker News Reader

My econ 101 talked about the difference between commodity and illiquid markets which explains the difference between worker and CEO pay. The CEOs are coming from a restricted group of insiders and can't be replaced because of their relationships which make them unique. Workers in the sectors most often unionized have few distinguishing characteristics from the perspective of the company and are thrown around by the same laws as the price of corn. The black death is a well-documented example of a restriction in the labor supply raising the price of labor and improving the wellbeing of laborers. There is no indication anywhere that supply and demand is wrong about the job market.

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You are looking at it a different way, but the conclusion should be the same. You are saying there is more demand for specific CEOs because they are the ones who control the industry (this is actually why they "can't be replaced"); yes, of course, they value themselves highly. They already have control of all of the money that can be used for hiring and therefore determine what is desirable even when it is not valuable. This makes the situation that much worse because: 1. Supply and demand can be used to model it and 2. It doesn't do anything helpful to resolve the very real problems that exist.

Demand isn't the same thing as value. When we create an economy where a few people have all of the disposable income then we also create one where the only business interests represented are theirs. We should let value dictate demand, which only happens when we spread the money around.

> There is no indication anywhere that supply and demand is wrong about the job market.

It's not that supply and demand is wrong. It's that supply and demand is not the whole story. It is an open question whether workers should change the market forces at play by unionizing and demanding collective bargaining of their wages. This does not subvert supply and demand, it simply alters the pressures the company leadership experiences in the market. I said that the original comment was "wrong" because the comment stated clearly that "wages are only set by supply and demand". This seemed to me to imply that nothing could be done about low worker wages, which is clearly wrong. What workers can do, and apparently in this situation have done, is unionize and strike for better wages.

> There is no indication anywhere that supply and demand is wrong about the job market.

If supply and demand worked as theorized in the labor market then there would necessarily be a loss of employment when the minimum wage is raised, but that is not always the case [1].

Some studies find effects and some don't, which is a good indication that the labor market is more complicated than Econ 101 principles.

[1]https://en.wikipedia.org/wiki/Minimum_wage#Empirical_studies

I think that's called an "inflexible demand curve," and is part of the complete theory. I do remember drawing flat lines in econ 101. :)

This is so obviously the right answer, I can’t believe its not upvoted more. To be clear, I stand with the union on the principal of their argument. However, the principals of economics itself, much like gravity, do not care about the nobility of your cause.

It seems to me that what the union is asking for is that the corporation act more like a benevolent force than one that is restricted by market pressures. Of course, you could use the power of government as one poster mentioned to force this issue, but those violent delights have violent ends.

"but those violent delights have violent ends." You talk as though the US isn't steeped in regulation. All modern capitalist nations are. Without regulation, you get absurd instabilities as we saw until the New Deal.

If someone's selling you a simple explanation, they're likely wrong.

> It seems to me that what the union is asking for is that the corporation act more like a benevolent force than one that is restricted by market pressures.

I disagree. The union is simply changing the market pressures that the corporation experiences. There is no benevolence required when you are faced with a strike. You either negotiate acceptable terms, or you have to deal with the consequences.

You've got it backwards. The principals of economics accurately describe a shitty situation created by corporations. They do not determine how the corporations must act; economics models exchanges of wealth. When the corporations control the wealth they simply model what the corporations are doing.

From a purely laissez-faire perspective, so long as the union does not call for government interference -- and there is no indication in the article that they have done so -- their strike action (or threat of such) is merely a way to influence the supply side in the question of supply and demand.

Do you feel this to be illegitimate? If so, why?

> The CEOs are coming from a restricted group of insiders and can't be replaced because of their relationships which make them unique.

Wouldn’t that be simply favouritism/cronyism rather than a free market?

Favoritism, cronyism or more like it would actually be described by the people who do it, a preference for trusted associates you've worked with in the past over strangers to run your stuff for you isn't a violation of your "market freedom" but rather an expression of a set of preferences that make all your choices incommensurable. P.S. it is not in the interest of investors for one employee to make way more money than normal it's just that nobody knows how to avoid it when that employee is the center of decision-making. The kids of yesterday's owner-operators have an entirely different set of preferences from their parents due to being real, "classical" capitalists... Which makes the focus on CEOs kind of ironic! Technically they're workers who escaped the cruelty of a liquid market.

Employees at the bottom of the pyramid can make bullshit excuses too, but it is a privilege of the upper layers to have no one in a position to call them out.

> it is not in the interest of investors for one employee to make way more money than normal it's just that nobody knows how to avoid it when that employee is the center of decision-making

See "A Principled Approach to Executive Pay", Chapter 1.F in The Essays of Warren Buffet, arranged by Cunningham.

The issue I take with your line of reasoning is that executive compensation is often at odds with investor interests in more ways than just its amount. Buffet describes "heads I win, tails you lose" executive compensation plans in an essay from the 80s/90s. He describes how they do things at Berkshire Hathaway - they're doing very well and I doubt have any issue recruiting good executives.

Despite this, and decades later, we see terrible compensation plans being approved by boards. We see executives exiting failed businesses with enormous paychecks. We see boards offering those same executives new management positions with terrible (for investors) compensation plans. What gives?

It certainly looks like cronyism to me, but maybe I ought to be applying Hanlon's Razor.

Cronyism isn't an exception to microeconomics, it's a lesser-known example of a consumer preference. In this case the board has a... preference... for cronies. :-)

Yes, I believe that is exactly the point: the invocation of econ 101 as explaining away all the iniquities of life as "simply how the world works" is simply a veneer of objectivity over what is just cronyism and imbalances of power and oppirtunity.

Yeah it’s like trying to apply supply and demand to politican’s wages. Company directors and executives set their own wages using others’ money. It’s obviously not a market.

Exactly this. The "law of supply and demand" is like the ideal gas law: it is a useful model, but it has certain key assumptions. And just as the ideal gas law breaks down in extreme conditions, supply and demand does not hold without certain invariants.

The farther actors are from perfect information, the more asymmetry in the system there is, the slower the system is to react, the more the relationship between supply and demand breaks down.

Or for this audience, the tech industry, where in-demand skills are often bid up in the form of higher salaries.

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