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Notes -
Thanks to everyone who answered my hypothetical about the startup.
General opinion seems to come down to ‘you don’t owe them anything but a decent sum of money would be a gentlemanly / ladylike show of gratitude. Which seems about right to me.
One of the reasons I’m interested in the question is that much social conflict comes from the discrepancy between the market value of labour (determined primarily by the number and type of people able to do the work) and what you might call the utility value (determined by how important it is that the work gets done. For example, @PutAHelmetOn’s code saves hundreds of thousands in processing costs, farmers stop everyone dying of famine, longshoremen make it possible to have international trade (modulo automation).
I would say the primary economic conflict of the last two hundred years is that the employees think in terms of the utility of their work while customers and employers think in terms of the market value.
Trade unions and guilds have historically been used as a method of arbitrage between these two values, limiting competition to drive market value closer to utility value. And the communist states show pretty clearly to my that trying to base your society on something other than the market value causes problems. I suppose the welfare state is basically ‘we don’t owe you this money but we’re going to give some of it to you anyway’.
Would like to write an effort post but this is what I have for now.
(Meta: is it obnoxious to do multi-top-posts like this? I didn’t want to talk about these ideas right away because I felt it would bias the replies, but at the same time it seems like a waste to write this as a second level reply in an old thread just before the new CW thread opens up).
The idea that utility value and market value are different is a fundamental economic misconception.
Market prices reflect real resource shortages and tradeoffs. "Important" jobs are often paid low because many people can do it.
I’m specifically differentiating the two concepts. My point is that the economically effective way of allocating value does not match fundamental moral intuitions many have about how to allocate value.
The Marxists put their fingers in their ears and say ‘akshually economic value is derived from labour’ and they’re wrong and it doesn’t work. But the concept is perennially popular because it’s fundamentally intuitive, and I suspect that until we find a way to make the two match a little better we will have permanent ongoing strife. The welfare system was an attempt to do this, but has the now-clear disadvantage that it’s a pyramid scheme that encourages dependency and bankrupts you. I’m interested in exploring the space of possible alternatives.
A pure market system with high liquidity and competition generally produces good results and humans hate, hate, hate being subject to it. Like evolution, market forces are an eldritch optimising machine. There are some people who seem to feel that market forces are morally good and I think this is a category error.
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In a perfectly efficient market, this would be the case. But it's easily disproven in practice by the fact that market prices can change by effects which have absolutely no impact on the utility value.
Ie, suppose we have a city with a bunch of plumbers, all of equal plumbing skill/ability, and a company that hires them and manages their distribution to clients, and pays between $80k and $120k depending on how skilled and aggressive the plumber is at negotiating (aggressive meaning they demonstrate an ability/willingness to quit and do a different job instead if they don't get the salary they want). We've assumed by axiom that they provide the same value, and yet get paid different amounts, let's assume the frequency is evenly distributed across this range, such that the average plumber is paid $100k. I suppose you could say that the "utility value" is the highest the company is willing to pay, $120k, and anyone being paid less is simply a bad negotiator, but I'm not sure if you'd say the "market value" is $120k given that most of the plumbers aren't earning that, and a new plumber entering the field is unlikely to get an offer that high.
Suppose then that the plumbers unionize and negotiate that all of them will receive the same pay of $110k. That's now the market value, unambiguously, that's what the market, as created by this single local monopolistic company (which is the only company offering reliable and consistent pay for plumbers in this city) and this one union (which all employees of the company must join) will pay. And yet the utility value of plumbing has not changed, because the union doesn't impact plumbing skill/ability in any way.
Suppose that the company actually takes in revenue of $140k for each plumbing employee it has, and keeps the difference as overhead/profit. There's a sense in which the utility value of a plumber is actually $140k since that's what clients are willing to pay, although if the overhead is necessary then I suppose the utility of the plumber themself is lessened by that. However if a plumbing emergency happens and the company gets a lot more business, earning $150k per employee one year, but takes the extra as profit and changes no salaries, then the utility value of plumbers goes up that year, the market price (from the client and owner's side) goes up, but the market price (from the employees side) remains unchanged.
And suppose that the employer uses local regulations, an army of lawyers, and relationships with local politicians to crush any new plumbers that try to form their own company or go independent in this area. It is not a free market, it is effectively a local monopoly. If you want to be a plumber, you negotiate here, or you leave the city and pay whatever transition costs it takes to uproot your life and your family and be a plumber somewhere else. The fact that this changes market prices but doesn't change the utility value of plumbers should clearly demonstrate that market prices are distinct from utility prices, even if an ideal perfectly efficient and free market would cause them to be equal. In practice, no market is perfectly free, therefore we should expect deviations in precisely the areas where these imperfections drive them apart.
There is an economic concept called "perfect competition" I want to be clear that this economic concept is not required for efficient prices.
And I am talking about efficient prices, not "perfect prices". Prices are a process and a search function for an optimal set of tradeoffs. One of the tradeoffs is information. To perfectly know all the inputs of a product, and to perfectly know the desire for that product would be a very costly search process. There is going to be some fudging of prices and that fudging should be expected given that information itself is not free or costless.
You've created a very long example that kind of assumes away many of the standard market fixes. I do generally like to use theoretical examples for most economic concepts, but I find that they tend to lead people astray when it comes to the nature of prices.
To me your example sounds a bit like this:
"Geologists say that older mountain ranges tend to be shorter and rounder than newer mountain ranges, because wind and erosion will gradually wear mountains down. But that's not always true, imagine there are two mountains. One mountain is 20k feet and in an old mountain ranges. And the other mountain is 10k feet in a newer mountain range. They are both subject to similar levels of erosion, and neither is a volcano. So older mountains can be taller."
You've assumed your position to be true in your example.
And yes the government is fully capable of distorting prices, or assisting companies in distorting prices. I usually bring this up as a reason why government should not have this power, or should at least have many restrictions on the use of this power. But this is also not evidence that prices don't reflect the real world, instead it is more evidence. After all if a government makes it hard to be in the plumber business we should expect the price paid for plumbing services to go up, because the supply of plumbers has been restricted. It would be strange if the government could intervene and not change prices.
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Or as Dr. Kersten points out, there are many positions which are necessary but not important, like a gear in a watch -- vital yet easily replacable.
I think what Corvos is calling "utility value" is price at which consumer surplus reaches zero. That's definitely different than (and much higher than) "market value".
Yes, and it has to be this way because anyone providing me a necessary service must be paid less per person that I am paid. Otherwise I can’t afford those necessary services.
For example, I am dependent on food (farmers, truckers, shelf stackers etc.) to live. If those people are too well paid, I can’t afford to eat. So it seems that, most of the time, it’s a prerequisite for civilisation that people doing necessary jobs are paid less than people doing unnecessary jobs. Which is very awkward for society.
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So everyone wishes they were a monopolist with respect to their own jobs. No surprise, but we need to treat these requests as the selfish self interested lobbying that they are, rather than some generous societal oriented philosophy.
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Do you think most C-suite executives are over, under, or appropriately paid relative to the market value of their labor?
That seems a broad question. There are CEOs who are merely occupying a chair and collecting the salary. It happens in just about any position. There are also people who work their butts off innovating and improving life for the whole country who are taking risks to do so. I wouldn’t begrudge the second set a thing, and furthermore I think being keen to confiscate wealth on the theory that the first type is more common than the second ends up doing great harm as it prevents the second group from working effectively.
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Obviously overpaid. Marissa Mayer ruined Yahoo for 239 million dollars, I would have gladly ruined it for 150 million. And there are people that would run it into the ground for a million and some for free.
So CEO decisions are so consequential that they can ruin a company worth tens of billions of dollars. That makes it seem very sensible to pay a couple hundred million if it increases the chances those decisions are good. Sometimes CEOs are paid those hundreds of millions and make bad decisions anyway, but generally people believe that being willing to pay more improves those odds, that's why they do it.
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This is outcome based thinking and basically one of the best ways to never truly understand why the world works the way it does. If you buy a game for $1 where a coin is flipped and you get $10 if it's a head then you did the right thing even if the coin flip turns up tails. The real life outcome is not important, what really matters is the expectation.
If you look at the very top Contract Bridge or Magic The Gathering players for example they evaluate their play based on expected values of the boardstate rather than whether that specific time what they did worked out well for them or not. The right play that led you to lose the round is not an issue at all while the wrong play that led you to win that specific time is something you need to fix ASAP.
Sure you can run Yahoo for $150M but for the board it makes more sense to pay Mayer $249M if there's say a 30% probability she ruins the company and a 70% probability she makes it good again vs paying you $150M for a 100% probability of the company being ruined, irrespective of what the final outcome of Mayer's tenure turns out to be.
I don't have a specific opinion about Marissa Mayer as Yahoo CEO at the moment, other than that she's another amusing example of the female desire to be sex objects.
Indeed, a good outcome does not necessarily mean a good decision (and conversely with regard to a bad outcome and bad decision). Even as a kid, when watching professional sports, it annoyed me how coaches/managers would be razed or praised based on the outcome rather than the decision(s) using the information available at the time.
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Some of the things she did were just ridiculous:
It's not as though she made ambitious ploys that might've worked but failed due to bad luck, she had a scattergun approach of random nonsense. "We need to do something" -> "this is something" -> "therefore we must do this" x50. Mayer had a hard task but bungled massively.
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I think you can even switch those odds, it can be a hail marry, a 30% chance she turns it around. If you're a high end exec you're going to want to be heavily compensated for the risk that you're going to get fired and that possibly ending your career. "I'll try to patch up the Titanic but you're going to pay me enough that when it goes down I'm sitting on the life boat with a smile on my face."
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Within reason it's okay. We only get annoyed if someone keeps starting multiple threads about the same topic.
Got it, thank you.
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In Aristotle's Politics, he observes that families hold property "in common" while cities hold property privately (but for public benefit). He thinks this is natural, because if cities treated property as communal, no one would have stewardship and freeloaders would be a problem--but with our true intimates, it's actually normal and natural to live communally.
What you are saying sounds to me like kind of a modern take on the same phenomena, or maybe even just a more granular take. The reason we have the law of contract is to facilitate agreement between non-intimates. But the line between family and stranger can be more of a spectrum, and in many circumstances we find ourselves treating strangers as near kin, at least temporarily.
I don't think I have anything substantive to add, really, I just think it's always interesting to observe that these questions have been the subject of philosophical inquiry for all of recorded history.
You might be interested in https://www.amazon.com/Order-without-Law-Neighbors-Disputes/dp/0674641698
It is a similar point in that law is useful when the game is functionally not iterative (either because of the size of the market or the size of the transaction) but when iterative law is basically irrelevant.
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My two cents, but you're fine. It adds to the impression that we have a rolling conversation going around here. Personally I'm unlikely to go digging through prior topics to see what conclusion you came to if any, not least because it wouldn't be clear where to look.
People who aren't interested can minimize the post and its children. I minimize about half the posts here within a few seconds of skimming. It's a great system. Also, this isn't 4chan; no topics died to make room for yours.
Finally, as you say, it's Sunday. So long as things are kept in good taste, there's always been an unspoken understanding that Sunday-poasting doesn't have to adhere as tightly to the straight and narrow. It's like Hawaiian shirt Friday at the office.
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