A truism usually uttered by whingers who don't understand supply and demand.

What you earn never has and never will reflect what you deserve. Rather, it reflects how difficult it is to find someone to replace you.

Salaries have nothing to do with how amazing your skills are- but they have everything to do with how many other people can, and are prepared to, do pretty much the same thing.

Money is not a measure of morality. It is a measure of resources.

See also:
Supply Curve
Demand Curve

evilandi: Of course, the more amazing your skills are, the harder it will be to replace you.

The real complaint behind this damned lie (to be melioritive) is against the right of property ownership including the means of production and the polarizing effect of the economic engine of conventional capitalism.

What distinguishes 'conventional' capitalism? It first differs from ideal capitalism (which is 'proveably' the best economic engine*) in that it suffers from imperfect information. People may not have the ability to find out their optimal strategy. In particular, you can end up working where you make much less than you could.

Then there is corruption, in which someone making decisions for a group (e.g. a company or the government) might make those decisions more for their own benefit than the group's. This isn't just governmental - corporate waste counts too, as do financial advisors who push you into funds with high-management fees, doctors who over-diagnose, and mechanics who make problems up. A great many regulations are intended to address this, and the need for them separates an imaginary 'free' market from the 'ideal' market. And that's discounting another side of corruption - crony capitalism, where the regulations themselves are set up that benefit those on top without any pretext of approximating an ideal market. This is the part that a lot of deregulation-oriented folks are arguing against.

Besides the principal agent problem and imperfect information, there is the problem that in the third world, the market is too small to be free. When a Multinational Corporation sets up shop in a small country, it saturates the market (thus preventing competition, somewhat like colonial spheres of influence a hundred (or less) years ago). Without competition, the company can run amok. Would Nike be able to run sweatshops if there were enough companies running factories in the same areas? The cost of labor would rise.

This is exactly evilandi's argument above. But the complaint of those who say the title of this node is not that supply and demand is evil - for it is logically inescapable without destroying the market, much as evolution is inescapable without altering life beyond recognition - but rather that the current reality of the market is so desperately unfair. By 'unfair', you can usually accurately read 'not ideal capitalism'.***

Of course, most people who make this argument haven't thought it through from this angle. They only see that we are in an economy most closely resembling capitalism, and that conditions are horribly unfair for many. However, it would be a straw man (however unintentional) to think that their argument being wrong (and their statistics) meant that their point was also wrong.

So, what can be done so that these unfair conditions are prevented, without preventing investment in less developed areas, which would prevent them from improving? There are many ideas. Since all of these ideas are departures from the free market, their precise effects are impossible to predict using free market equations and tools (which are what we typically use). Subtheories of economics exist to handle these situations, but they are woefully inadequate and even contradictory -- so acceptance inevitably falls along partisan lines. What is certain (though not universally considered by economists) is that this is not a perfect world, and if we want to prevent exploitation, world economic interactions will need to be tweaked in some way.

And so the problem with this kind of reasoning is it causes misplacement of anger and bad arguments. They fight against the people they must be convincing - the leaders, the corporations****. Global economic summits addressing the problem of inequality spark protests complaining about global inequality, blaming those who are working on the problem... while not actually addressing the actual problem.

Of course, there is a not wholly inaccurate perception that that is the only way for the rabble to be heard, since corporations are the only ones capable of providing the wealth the leaders need to get reelected. This tends to skew the positions taken in these summits to things that are less than completely helpful. Which again fuels the protests. So, what can we start with? To start off, get policy out of the hands of looters: Campaign finance reform is a start; but more generally, establishing civil society throughout the world. Nations with functional civil societies tend to have less corruption; and it is corruption that most efficiently demolishes the ideal market, as noted above. But what is a bigger problem?

Developing nations are so far from being an equal participant that approximating them as an ideal market would be delusional, not optimal. So, a departure from anything resembling an ideal market on the local scale -- large subsidies to developing nations' industry, in particular. The Asian Tigers all took this route, and typically went from rice farming to electronics export in a matter of decades.

So, then, is that ideal? No. These economies are distorted, playing catch-up. The greater good of the people is then served by easing off the incentives and letting people decide what they want for themselves.

*'provably the best economic engine': Ideal capitalism may be the best economic engine, but the question remains whether we can get close enough to it that some other economic engine might not be better in practicality. Certainly we've seen enough of totalitarian communism to figure out that that's a bust. Also, utopian communism has repeatedly failed. However, was that because it was swamped and gutted by the established capitalism? Perhaps. However, I think that in the long term, the best route to general prosperity is through approximating ideal capitalism.

** Yes, environmental regulations would be part of a free market! Any ecological damage would have to be paid for so that the true cost of the product would emerge (rather than the federal government subsidizing ecological damage by just cleaning up like a mother of spoiled children).

*** When you can't, it's usually not fairness they're after but kindness - health care for all, say.

**** It is in the corporations' long term interests to participate in the raising of the standard of living of the third world. Yes, once the standard is raised workers will cost more. But you will have doubled or quadrupled the market for your goods, so who cares? The problem is that for any individual company it is not viable to be of service to the nations they work within, since each dollar they spend will only return a small portion (say a dime) to them... and the same amount to every other company. Running with that dime figure, if each of thirty companies put in a dollar, they would all get three dollars back. But this is not how companies work. Companies do not spontaneously win the prisoner's dilemma. But with regulation, they can.

Cletus the Foetus pointed out via msg that perfect information is not a part of the theory of capitalism. This got me thinking back, and IIRC, classical theories of capitalism relied on perfect information of the present, even if they accepted that there are no good crystal balls. Thus, I cut my banking example. However, they begin to experience significant trouble when information about the present is imperfect, let alone when it is terrible, or the actors are not rational. A bribed official renders the government an effectively irrational actor (though the individual would not be).There is little denying that imperfect information is disadvantageous - the question is, how much, and what kinds of information do we need?

An article in Scientific American highlighted a bank in India which was started with investment capital taken out of a professor's salary (i.e. virtually nothing), and accepted only loans that elsewhere would be considered junk. However, the professor was careful, and educated those he lent money to in how to avoid losing it (mainly, the trick was to hide it from husbands and sons so it wouldn't be spent on alcohol and whores)... and hardly anyone defaulted. The bank is now significantly larger, though still insignificant compared to the size of India. So clearly the banks in that area had imperfect information as to what constituted a good loan.

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