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Fair Wages

Much of my reading last year focused on economic justice. I wanted to write something that addressed many of these primary sources. Also it is sort of a pet topic

There is such a thing as economic injustice distinct from committing fraud. Wages can be a source of injustice; however, it is no easy task to assess a just wage. While Marx suggests we eliminate private property, I think the better solution is to accept the market’s poor job of assigning a just wage but to use a social safety net to make the system morally tolerable.

Economic Systems Can Be Unjust

When there is no economic system, any party takes possession of what he or she wants. If more than one person wants the same possession, the strongest will prevail. Rousseau addressed this state, and whether there existed a right of the strongest, by writing, “Suppose for a moment that this so-called ‘right’ exists. I maintain that the sole result is a mass of inexplicable nonsense” The Social Contract, Book I, Section 3. He explains that force has nothing to do with morality. I agree with Rousseau, and so does Jesus. He reserved his blessings for the weak and his curses for the mighty. For example,

Blessed are you who are poor,
for yours is the kingdom of God.
Blessed are you who hunger now,
for you will be satisfied.
. . . .
But woe to you who are rich,
for you have already received your comfort.
Woe to you who are well fed now,
for you will go hungry.

Luke 6:17-26. I do not think this is a tough conclusion that the strong exploiting the weak is not a moral economic system, although I do not know what Ayn Rand or Rand Paul would say. Without regard for these potential objections, let proceed to the next idea.

The next system is one in which any agreement is allowed. In this system, the collective force of the society is used to ensure compliance with the binding agreements. Montaigne recognizes that agreements tend to have winners and losers, writing that “no profit whatever can possibly be made but at the expense of another.” Essays, Book I, ch. 21. Scripture condemns economic systems that exploit the poor. See, e.g., Amos (condemning those who tax the poor); Proverbs (condemning exploiting the poor in court). Indeed, when the Israelites returned from exile, Nehemiah scolded them for engaging in some exploitative property deals that actually sounded like they might be similar to practices of lenders today.

Now the men and their wives raised a great outcry against their fellow Jews. . . . “We are mortgaging our fields, our vineyards and our homes to get grain during the famine.” . . . “We have had to borrow money to pay the king’s tax on our fields and vineyards.” . . . When I heard their outcry and these charges, I was very angry. I pondered them in my mind and then accused the nobles and officials. I told them, “You are charging your own people interest! . . . What you are doing is not right. Shouldn’t you walk in the fear of our God to avoid the reproach of our Gentile enemies? . . . Give back to them immediately their fields, vineyards, olive groves and houses, and also the interest you are charging them—one percent of the money, grain, new wine and olive oil.”

Nehemiah 5:1-12. So we have an Ancient Palestine loan modification. Note, exploitation does not necessarily mean cheating, which is condemned in other places. See, e.g., Proverbs & Micah, Clearing the Temple. This leads me to the conclusion that it would be desirable to have a method to assess whether a wage is fair, beyond simply asking whether either party lied to each other.

An Honest Day’s Pay for an Honest Day’s Work

First, it is worth reaching all the way back to Locke’s comments on work. Locke attributes the creation of private property to the work individuals put into raw materials, which Locke believes were all given equally to all humans. As for the balance of the value, Locke writes, “It is labour then which puts the greatest part of value upon land, without which it would scarcely be worth any thing.” Concerning Civil Government, Ch. V , para. 43. From Locke’s comments a fair wage could be derived from considering the amount value of any service or product and assuming that the vast majority of it should be transferred to the wage earners. There are problems with this conclusion. Not least of which is that Locke was referring to land, and that Locke recognized that property rights have since been set up by conventions and are no longer a direct product of labor as in the natural state.

Adam Smith considers wages more directly in the context of a component of the cost of any item, along with rent and the cost of capital. Smith believes that the market creates two limits on wages. For a floor, “[a] man must always live by his work, and his wages must at least be sufficient to maintain him . . . in order to bring up a family, the labour of the husband and wife together must, even in the lowest species of common labour, be able to earn something more than what is precisely necessary for their own maintenance.” Wealth of Nations, Book I, Ch. 8. Marx states it more bleakly, claiming that “[t]he average price of wager labour is the minimum wage, i.e., that quantum of the means of subsistence which is absolutely requisite to keep the labourer in bare existence as a labourer.” Communist Manifesto, Ch. 2. The slight difference between Marx and Smith in defining the minimum possible wage is that Smith assumes that worker can negotiate and as such will not take less than what they need to live on. Marx recognizes the power differential.

Of course, this is only the minimum. Smith also puts forward some expectations for what will actually drive wages. Smith cites five factors in Chapter 10. (1) The job that is more difficult, less desirable, and less honorable will pay more. (2) The job that it cost more or is more difficult to be qualified to do will pay more. (3) The job that has less job security will pay more. (4) The job that requires the public trust will pay more. (5) The job will pay more if success is less certain. I can say that I personally have not found this to be an accurate list. At least, it is not good enough to predict for example the pay received by someone operating a civilian nuclear reactor versus a naval nuclear reactor. Similarly, it doesn’t seem to work for school teachers versus insurance underwriters. It doesn’t work for firm lawyers versus attorneys general.

I would add to this list the amount of money that flows through a given field as a determiner of wage. More broadly, however, I think the list illustrates how difficult it is to quantify what is a just wage. It doesn’t include the social value of the job being performed, and probably a dozen other factors that most people would believe should be a component in determining what one should be paid. So, what is there to do if it is so difficult to fairly compensate people? Marx has an answer.

The Communists disdain to conceal their views and aims. They openly declare that their ends can be attained only by the forcible overthrow of all existing social conditions. Let the ruling classes tremble at a Communistic revolution. The proletarians have nothing to lose but their chains. They have a world to win.

We know a couple things about this idea. One, the violence can by plenty real. Two, the economic losses are tremendous.

I think the best solution is to let the market set the wages. Rather than attempt to address the problem by ensuring fair wages, we should instead put in place a social safety net such that we are comfortable that even if someone is working in a job that should be more greatly compensated, they will not do without being able to live an acceptable lifestyle. This allows us to enjoy the maximum productivity of a capitalist society, without the moral dilemma of disparate compensation and wealth distribution. My idea is not without precedent, even in the Bible. For example, farmers were required to leave behind the grain that fell to the ground for the poor. It was their right to have this grain. Not a matter of charity. See, e.g., Leviticus, Deuteronomy, and Ruth. Thus, the social safety net is necessary for Christians to accept the injustice of wage assignment found in our system.

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John the Baptist as Anti-Corporatist

The Gospel of Mark does not open with a nativity. Instead, we learn about how Jesus was the One for whom the Israelites were waiting for. Mark reaches back to the Prophet who wrote told of either a wilderness voice crying out about making a straight path for the Lord or a voice crying out in the wilderness about making a straight path in the wilderness.

“a voice of one calling in the wilderness,
‘Prepare the way for the Lord,
make straight paths for him.’”

Mark 1:3. Compare with Isaiah 40:3.

A voice of one calling:“In the wilderness prepare
the way for the LORD;
make straight in the desert
a highway for our God.

Regardless of where the punctuation should go, the important point for the author of Mark is that Jesus has someone doing his advance work. And that guy is described thusly.

And so John the Baptist appeared in the wilderness, preaching a baptism of repentance for the forgiveness of sins. The whole Judean countryside and all the people of Jerusalem went out to him. Confessing their sins, they were baptized by him in the Jordan River. John wore clothing made of camel’s hair, with a leather belt around his waist, and he ate locusts and wild honey. And this was his message: “After me comes the one more powerful than I, the straps of whose sandals I am not worthy to stoop down and untie. I baptize you with water, but he will baptize you with the Holy Spirit.”

What was John doing in the wilderness? Why does it matter that he ate locusts and wild honey? This passage reminded me of something that Adam Smith wrote.

Among civilized and thriving nations, on the contrary, though a great number of people do not labour at all, many of whom consume the produce of ten times, frequently of a hundred times more labour than the greater part of those who work; yet the produce of the whole labour of the society is so great, that all are often abundantly supplied, and a workman, even of the lowest and poorest order, if he is frugal and industrious, may enjoy a greater share of the necessaries and conveniencies of life than it is possible for any savage to acquire.

Wealth of Nations, Bk I, Ch.I, para 4. Adam Smith makes the point that in advanced nations there is a structure wherein the labor of many go into producing goods for everyone. Which in turn makes the individual beholden to the system. Although not a primary point for Smith, such systems also enable “a great number of people [to] not labour at all.”

By contrasts, eating wild honey and locusts does not require the support of that social matrix. Furthermore, while John is hanging around the capital city, he is doing his baptizing out in the wilderness. Makes me think of a militia man or off-the-grid organic farmer of ancient Palestine. Is this an accident that Mark opens this way?

Marcus Borg probably doesn’t think it is. He writes, “[Jesus] was a voice of peasant social protest against the economic inequity and violence of the imperial domination system, mediated in the Jewish homeland by client rulers of the Roman Empire.” In his book, plainly titled Jesus, Borg notes that Jesus’ ministry comes in a time when the relatively new economic system, a system that Adam Smith would describe as civilized, is causing significant injustice.

I buy it. I think this economically efficient system presented injustice. I also think that Jesus’ coming was about challenging that system. What do you think? Is this too much of a stretch?

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Elizabeth Warren, Locke & Rousseau on Private Property

Elizabeth Warren made a bit of splash recently by identifying the role infrastructure paid for by all of us played in facilitating commerce. Her point, as related to the topic of this post, is that for you to be able to efficiently contribute your labor to your property, and thus enhance its value, you rely on the benefits received from being a part of society. Hence, it is right that the social contract should require you to fund similar benefits for the next generation. Pretty compelling in my book. I wonder if one can take it a step further and say that the very existence of private property is a convention that springs from the social contract.

John Locke says no. Locke’s essay Concerning Civil Government (“CCG”) largely concerns private property because Locke sees the preservation of private property as the primary function of government. See, e.g., CCG ¶ 88 (the power of the commonwealth to punish is “for the preservation of the property of all members of society”); ¶ 120 (assuming men “enter into society with others for the securing and regulating of property”); ¶ 138 (“the preservation of property being the end of government”); cf ¶ 123 (“all being kings . . . the enjoyment of the property he has in this [natural] state is very unsafe, very insecure”). By contrast, Jean Rousseau writes more generally in The Social Contract (“TSC”) that “all being born free and equal, alienate their liberty only for their own advantage.” TSC Book I, Section 2, para. 3.

Locke recognizes that laws regarding private property are conventions, but if the purpose of civil government is the protection of private property, private property must predate civil government. For this, Locke turns to Natural Law. Locke describes the state of nature as “a state of liberty” but not “a state of license,” because “[t]he state of Nature has a law of Nature to govern it.” CCG ¶ 6. Pursuant to Natural law, for any man, “[t]he ‘labour’ of his body ad the ‘work’ of his hands, we may say are properly his.” ¶ 26. Thus, private property rights spring from one’s labor under the precepts of Natural law. As demonstrated above, men give up certain rights, such as the right to punish, in exchange for security in the property rights they already possessed. For Rousseau,

What a man loses by the social contract is his natural liberty and an unlimited right to everything he tries to get and succeeds in getting; what he gains is civil liberty and the proprietorship of all he possesses.

TSC Book I, Section 8, para. 2. Thus, for Rousseau, proprietorship, or the right to property, doesn’t exist until one enters into the social contract.

Because Locke sees private property as a product of Natural law, he sounds almost like a member of the modern TEA Party when discussing legislation that infringes on it: “Whenever the legislators endeavor to take away and destroy the property of the people, or to reduce them to slavery, they put themselves into a state of war with the people.” CCG ¶ 222. I happen to agree with Rousseau. I don’t think property rights exist without a government to enforce, or at least declare, them. This informs my assessment of the modern discussion because I see complaints of slavery or oppression associated with taxation not only as wrong for the reasons listed by Warren, but because they are nonsensical since without the government supported by taxes no such right to property exists.

Does society merely make it possible to utilize our property, or is society responsible for all property rights?

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What’s a Strong Economy

Day Sixteen comments will be late today. (I drove to work and haven’t had a chance to read yet today.) However, here are some interesting graphs related to economics and politics.

Link.

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Public Transportation: Everyone’s Doing It

I have been taking Phoenix Metro to work two or three days a week. I drive 20 minutes to the most eastern stop on the edge of Mesa, then ride about 50 minutes to the stop directly across from my office. When I drive in, because I can use the HOV lanes, it takes about 50 minutes. So, I add 20 minutes to my commute in exchange for more time to read, some of it is even billable, a smaller liklihood of getting into a fender bender and a generally more peaceful morning.

Phoenix is a western city that was not expected to warm to the train any more than it had to busses. For example, the busses in Mesa come every 30 minutes. That makes riding the bus pretty much impossible.

It turns out ridership is way up for the Metro. The average daily ridership is already over 30,000. The projected daily average for the first year was only 26,000. Nice.

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An Old Question

I’d like to entertain comments about the role of the faithful and the stimulus package. I called McCain and Kyle last night on the way home to advocate for the jobs stimulus package, but evidently Rush Limbaugh’s army of listeners in favor of the tax cut stimulus package are way out performing those in favor of public works projects.

Now, with hundreds of thousands of people losing their jobs every month and foreclosures continuing to rise, I certainly think that the economy is the proper topic of the faithful. Indeed, the tax collectors and the wealthy were treated pretty harshly in the Gospel. Much of Jesus’ message was about caring for the poor.

I think the church has to stand for putting the needs of the poor first. But once you start talking about specific programs or initiatives, it starts to get hazy. Perhaps the Church could ask with one voice, “Congress persons, what are you doing for the poor?”

We’ve neglected our roads and bridges, which are crumbling , and our national debt is soaring but some what us to keep our taxes at record lows, and even lower them. Isn’t this something Isaiah might complain about?

[BTW, the irony is not lost on me that in Jesus’ time the tax collectors took money from the poor and gave it to the rich, and in our current system tax collectors take money disproportionately from the rich and use it for the common good, and sometimes actually just give it to the poor.]

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A schmidge more about compensation

First, I want to disclose that compensation interests me because one way or another, compensation determines who works for you and how hard. In some sense this is true of pricing as well. But prices are for everyone and compensation is for each one. Anyway, that’s why I’m concerned about it.

Matt proposed a very powerful rule: Compensation is based on scarcity. Lots of things are wrapped up in scarcity such as the time it takes to train a worker with a set of skills, natural ability and the undesirable nature of the work.

Liam seemed to suggest another motivation for different levels of compensation, that is matching responsibility/authority.

I wonder if there is a third element of difference which is custom. My suggestion is that if society has viewed a position as being less worthy of compensation, it will be compensated less regardless of how scarce it is.

For the time being, I would like to keep it within the same field. But consider idea versus detail jobs. I think idea jobs are always better compensated than detail jobs. Is that because those capable of idea work are more scarce that those capable of detail work, or is it because in order to maintain order idea people need to be better compensated, or is it because we have customarily compensated idea people more generously.

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Economic Fairness

A statement of belief, that is not entirely without foundation in my personal study and observation: Any economic system must balance fairness with the transactional cost of ensuring fairness.

COMPENSATION

In the military, there is no pay for merit or for hours worked. The military functions solely because of the authoritarian structure present there. If not for the threat of force behind the orders of superiors, the military would be very inefficient. The military system completely lacks fairness.

In union shops you can run into a similar problem. Unions are good for jobs where there is little difference from one worker to another, but less good for jobs where there is a large range of expertise.

In high paying jobs, some randomness in compensation is acceptable so long as working hard and working well is compensated.

Now, this is only about one aspect of the economy–compensation. What about pricing? I think the same rule applies. It is wrong that a woman is likely to pay more for a car than a man, simply because of her gender. If car dealership posted two prices for cars, one for men and one for women, the transactional cost of curing the injustice would be small–we could just have the Corporation Commissions fine business who carried out the practice, or eventually take away their license. However, the current problem has to do with subtle biases, perhaps even unintentional behavior. This means the transactional cost could be very high to ensure fair treatment.

Nonetheless, I believe fairness is a crucial component in evaluating an economic system.

NOTE: Fairness is not sameness. Paying better workers more is fair. Charging a higher finance rate for those with poor credit is fair.

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Let’s make it explicitly about blame

In the previous post, Josh asked what was wrong with equilibrium, and Matt pointed out that people don’t have to buy homes, they need a place to live. If you look at the post below, you will notice a couple of things about the normalized cost of rent. First, it did not spike like the home costs from 1980 to 2006. Furthermore, it seemed to track very closely with the shape of the wage curve. Suggesting that the necessity, the thing really tied to demand, moved with wages.

So, people encouraged by government policies and initiatives from lenders bought homes they could not afford. First the people, then the lenders, got into big trouble.

Who should we take care of? Who is more culpable? While working for the Arizona Supreme Court we considered cases applying lemon laws to leased cars. The decisions assume that the one who signed the lease knew what he or she was doing, and should bear the consequences of his or her actions.

I analyze this crisis from the perspective of power. Who has the power in these cases? The borrower nominally is empowered to say ‘no’. But I suggest, it is the lenders and their allies in government who hold the real power to push on the system.

Okay, let me have it.

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Is this a cause?

There is something attractive about the idea that the current crisis is caused by everyone being greedy. Everyone is to blame. I’m someone who carries more than my share of consumer debt, and I’m probably not alone. Many of us feel guilty about how much we eat out. Stuff like that. So it fits. But consider these two graphs.

It might be hard to see, but from 1980 until the present, the cost of owning a home has gone up 42%. In the same period, the average wage has increased 5%. If housing cost is increasing so much faster than wages, does that create a problem of running out of buyers? A problem that was “solved” by inventing new mortgages and requiring less credit worthiness. Had we focused on making sure wages kept up with the cost of necessities, would we be in better shape? (Note: both graph are corrected for inflation.)