Chris Dillow: Wages vs social value [feedly]

Interesting and timely post on a matter of high importance to socialist theory and policy going forward....how to 'value' non-monetized 'value'.

Wages vs social value
https://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2020/01/wages-vs-social-value.html

Today is the 23^rd anniversary of the death of Townes Van Zandt, who is now universally regarded as one of the greatest songwriters ever.

And yet during his lifetime he made very little money. Even in his best years he got less than $100,000 from song-writing royalties, and for much of his life he might well have earned more from the oil drilling rights bequeathed by his rich family than from his music.

Which vindicates a recent tweet from Cameron Murray:

Actions that have social value only rarely coincide with actions that are monetarily compensated.

In Van Zandt's case, this was partly because his genius was not fully recognised during his lifetime. But there are other reasons why Cameron point is correct in many more cases – reasons which are in fact entirely consistent with mainstream economics. I'm thinking of three ideas here.

1. Externalities. Let's assume (heroically) that people are paid their marginal product. Even where this is the case, it is the private marginal product for which they are rewarded, not the social marginal product. The two differ because of externalities. A worker whose job generates huge carbon emissions or other pollution will have a wage greater than their social value.

There are other forms of pollution. There's also risk pollution. In the run-up to the financial crisis, bankers were paid more than their social value because the risks generated by their activities would fall upon others; they were externalities. I suspect this is still the case.

And then there's intellectual pollution. "Writers" such as Giles Coren or Toby Young have a highish marginal product for their employers, but their gibberings coarsen the public sphere. One baleful effect of Twitter is that this is brought to wider attention than previously and thus imposes a greater negative externality.

By the same token, there are also positive externalities, as when researchers' findings inspire further ones. William Nordhaus has famously shown that innovators have captured "only a miniscule fraction of the social returns from technological advances."

2. Compensating advantages. Adam Smith thought the rewards to work tended to be equal across all occupations, once we considered both financial and non-financial returns. And, he said:

Honour makes a great part of the reward of all honourable professions. In point of pecuniary gain, all things considered, they are generally under-recompensed.

So, for example, professions such as nursing carry low wages but these are offset by a sense of pride and honour. But professions where these are lacking must pay more to offset that lack.

In his wonderful Bullshit Jobs, David Graeber has revived this idea. Many businesses, he writes, "now feel that if there's work that's gratifying in any way at all, they really shouldn't have to pay for it." But the same bosses who begrudge paying writers, he says, "are willing to shell out handsome salaries for 'Vice Presidents for Creative Development' and the like, who do absolutely nothing." This is pure Smith: financial rewards offset the dissatisfaction that comes from doing a bullshit job, whilst enjoyable work pays less.

3. Bargaining. Your income does not depend upon how much social value you produce. It depends upon your power to extract that value. And Van Zandt was typical of musicians in being unable to do so. In Rockonomics, Alan Krueger wrote that "musicians are not rewarded fairly for their services" because they earn little compared to the countless hours of entertainment they deliver. He pointed out that the typical musician made only $100 in 2018 from streaming and that many artists have suffered from bad record deals: Paul McCartney, he says, made more money with Wings than he did with the Beatles. Jolie Holland, the Van Zandt of our era, has said:

I barely make a living. I think you have to be famous to make a living. I live out of a suitcase.

Although Econ101 tells fairy stories of how W=MP, bargaining (pdf)models are in fact mainstream economics: I recommend chapter 5 of Sam Bowles Microeconomics for a discussion of them.

Yes, we can and should supplement such models with analyses of how power relations (which of course include sexism and racism) also affect (pdf) wages and drive further wedges between social value and earnings. But we don't need to do so to see that Cameron is right. Mainstream economics alone shows that wages need not often coincide with social value.

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