Here.

Quoted:

It’s as if Brennan has been reading too much Marx and thinks that productivity is an embodied, intrinsic (or partially acquired) quality of an agent. Brennan knows better because he also regularly trots out claims about marginal productivity. Yet, marginal value is constant if and only if constraints are fixed–when a context changes marginal value may also change. (This is why Hayek and other Austrian economists tend to be subjectivists about economic value.)

…Brennan’s arguments are suffused with contempt for many of the working poor and unskilled. Here’s some evidence:

Again, I doubt Schleisser and I have any serious disagreements here about the theoretical economics, though we probably have at least some significant disagreements about applying that economics to real-world conditions. So, I’ll just respond by clarifying:

1. I recognize that worker productivity is highly dependent on context–it’s not an intrinsic feature of the worker. I once made $16.25/hr in a factory by pushing buttons all day. The reason my productivity was so high was that I was working in a capital-intensive industry. It wasn’t because I had any better skills than when I made $5.00/hr sacking groceries or mopping floors. You can change a worker’s productivity just by giving him a different job or putting him in a different place. (In the same way, you can change the value of strawberries just by moving them to different places.)

But, even with all that, there are people who are not productive enough to produce $14/hr in jobs that pay $14/hr. That’s not to say that they could never be that productive–with better training or better conscientiousness, many of them could be.

2. I’m a first-generation college graduate from a working class background. I grew up poor by American standards, though incredibly rich by world standards. As someone from that background, I regularly detect significant classism among college professors, who express contempt for the tastes, manners of speech, and proclivities of working class people. (E.g., see professors’ classist attitudes toward NASCAR, or see here.) That classism bothers me greatly. During college, I had plenty of sweaty labor jobs–mopping floors, building stuff, pushing buttons, etc.–alongside working class people. So, contrary to what Schliesser might think he’s hearing in my tone, I don’t have contempt for working class people. When I think of my past co-workers, some of them were hard-working, industrious, virtuous, and conscientious people. Some were lazy slacker thieves who did drugs on the job. I differentiate between them accordingly.

When I say that some people are a net drain, I just mean that there are people, who–perhaps through no fault of their own–will from the world’s standpoint consume more than they produce over the course of their lives. From an economic point of view, some people are net resource sinks and some people are net resources. Low-income people are more likely to be net sinks than high income people. That sounds like a mean thing to say, but it’s not really controversial.

Of course, many people make contributions that are not brought to market and are accordingly not measured or rewarded by the market. I don’t deny that.

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  • Idrathernotsay

    I’m confused about something. You want to cite an instance of contempt for working class people. But the post you link to is making fun of *white* people, distinguished by race and not class. The unfortunate appearance is that you mean to say that the working class people who you are sticking up for here, who are productive, are the white ones; only the others are the sink. I am sure this is not your intended meaning, but I have trouble seeing what you do intend by this link?

    • Jason Brennan

      Sorry about that. I should have explained.

      The Stuff White People Like blog distinguishes between “white people” and “the wrong kind of white people,” where the distinction is based on class. So, for instance, according to the blog, white people like hummus, while the wrong kind of white people like NASCAR. The blog makes fun of the stereotype of the liberal arts-educated, upper middle-class, pretentious white person. But the angle is that it’s written from the perspective of a non-white person telling you how to get along with them, though the author is in fact white.

      • adrianratnapala

        So the blog is classicist in the sense that it mocks the country’s elite?

        • Jason Brennan

          It does mock the elite, but in doing so, it also reveals the ways in which this elite has contempt for non-elite whites.

          • Sean II

            And contempt for just plain old non-whites. Every page of that blog, whatever else it was trying to do, also worked as a humble brag on the relative cultural sophistication of SWPL.

            For example: You can’t make play fun of white people for being all ironic and conflicted about religion, without making cruel fun of, say, the blacks and hispanics and arabs who still take it dead seriously.

          • Jason Brennan

            That seems right. The author is one of the “right kind of white people,” and is proud of it, it in ironic hipster way.

  • wociv

    Jason, if I am remembering right (and maybe I am not) Hayek once used as an example the idea that we can’t even know what Henry Ford contributed to the economy. Does that sound familiar? If so, what do you make of it?

  • Mark Lance

    “I just mean that there are people, who–perhaps through no fault of their own–will from the world’s standpoint consume more than they produce over the course of their lives.”
    We call them capitalists.
    (Sorry, couldn’t resist.)

  • theGUEST

    Remember the good old days when you had to be rich prior to becoming a professor? Or at least sponsored by some rich person? Now we have blue collar, working class hoi polloi types giving lectures. God will punish us all for our sins.

  • Chris Bertram

    ” Low-income people are more likely to be net sinks than high income
    people. That sounds like a mean thing to say, but it’s not really
    controversial.”

    Really? I guess I’d want to know more about the scope of the claim (the world, the US, now, all of human history) and who counts as high and low income. I assume Brennan’s thought is that people who derive much of their income from transfer payments are net sinks and that highly-paid managers are not. But, for workers, if intra-firm power-relations mean that the low paid are being paid less than their contribution and the senior managers are being paid more than theirs, then that’s going to change the picture considerably. Are senior university leaders net sinks? probably. And how about senior bankers who were paid vast salaries and bonuses but who helped cause the 2008 crash and now live on generous pensions? Net sinks? I think so. And I’d want to say that people whose income largely derives from rents on assets they own (land, intellectual property, etc ) but did not create are net sinks, certainly if they inherited those assets. So: evidence?

    • Sean II

      He said “more likely”. You’re responding as if he said “everywhere and always”. No doubt it’s more fun that way, but it’s also not fair.

      The argument is: income is broadly correlated with skill, skill is broadly correlated with productivity. On average, lower income people will turn out have lower levels of skill, and hence lower productivity – sometimes even low enough to be net sinks for life.

      You’ve visited this site many times. You know damn well that Brennan is aware of the many high-income rent-seekers, dead-weight losers, and value destroyers who represent an exception to that rule. You also know that, according to an internally consistent theory that no one could miss at this particular URL, that exception should not invalidate the rule. You don’t have to agree with the theory, but it would be minimally decent if you did not go out of your way to ignore it.

      NOTE: For anyone who thinks all this lefty outreach stuff is working, take note of how casually Chris B forgets everything he’s read here, and treats Brennan as if he were just another ignorant, corporatist, red state radio host.

      • Chris Bertram

        Sean, the inability to read accurately and charitably is, in fact, something you suffer from. I simply asked that Brennan identify the particular populations of high and low income persons that the “more likely” claim is about and how certain people fit into it, and then for empirical evidence that the claim is true. The Mankiw piece he originally linked to made the point that the income-productivity link holds best for the “average worker”, but that won’t tell us whether and how certain groups deviate from the average. If they do, and if high income individuals tend to be overpaid, then there could be a lot of high income “net sinks”. Since firms are unlikely to have accurate measures (actually cannot have in the usual case) of the productivity of managers, the idea that firms systematically overestimate what managers are worth is hardly crazy. (I’d also like to know whether certain sorts of people count as “net sinks” on Brennan’s view: someone who has inherited landed property, for example, and lives off the rent from tenants.)

        • good_in_theory

          He’s made it relatively clear that it’s a choice, not an inability, I think.

          • Sean II

            On any other day, GiT, if I accused you of charitable reading, you’d be deeply and rightly aggrieved.

        • Sean II

          Sucka, if you knew how to “read accurately or charitably”, we wouldn’t be having this conversation.

          Your questions have been asked and answered here many times. Yes, there are a lot of high income net sinks. No, it’s not like the market points to a given middle-manager at Acme Corp. and says “his marginal revenue product = his pay x .87″. No, that doesn’t mean firms systematically overestimate manager’s productivity. One should assume they err up in some cases, down in others. You don’t just get to hope the errors all go in one direction.

          No, it’s not 1805, so people with inherited property who live off tenant rents a’la Mr. Darcy are NOT a significant factor in this or any other discussion. The really harmful rent seekers today are self-selecting, not products of inheritance.

          No, you still can’t pass a political Turing Test, despite what should be plenty of contact with our kind.

          Yes, you are still ducking the big issue, which is this: “Exceptions noted, do you admit that, on average, lower income people have lower skills, sometimes yielding a lifetime productivity level at or below zero?”

          • Chris Bertram

            I think basic literacy is your problem Sean, bye.

          • Sean II

            So the dude who’s been playing deaf now punishes me by refusing to listen?

            This’ll be a smooth transition for me.

    • martinbrock

      I agree. I doubt that low income people are more likely to be net sinks, and I doubt more strongly that more value flows into low income sinks than high income sinks. Very high incomes reflect many monopoly rents, and these rents are sinks, not sources, of value. Countless patents and similar entitlements are sinks, not sources.

      Public roads certainly add value, but despite endless talk of “public investment”, much public expenditure adds only cost and some of it adds cost while subtracting value, and public employees typically have higher than median incomes, particularly when health and pension benefits are properly included.

      • Sean II

        “that most of the value lost to sinks flows into low income sinks rather than high income sinks”

        That is a legitimate point. If Brennan had said “Most of the value lost to sinkage is lost by low income people”, he’d probably be wrong.

        But he didn’t say that. He said that low income people are more likely to be net sinks, and about that he is obviously right.

        • martinbrock

          I see nothing obvious about it. Countless high income people are sinks, and counting them is no easier than counting low income sinks, not least because we haven’t begun to define “high income” and “low income”. If you simply want Brennan’s statement to be true, you can always define the terms accordingly, but only such a construct could be obvious.

          • Sean II

            Martin, it works like this:

            The lowest income people in the US/UK are the long-term unemployed. They really are net sinks by definition. It may not be their fault – priced out of the market, bad incentives, whatever – but they are still net sinkers.

            Right above them are the barely employed, who consume some quantity of lifetime benefits which – not by definition this time, but obviously enough – are greater their lifetime net production. One thinks about a janitor employed for 20 years at $16,500 a year. To be a net sink, all he needs to do is burn up $350,000 during his 50 non-working years. Not difficult.

          • martinbrock

            Unemployed people receiving assistance are sinks by definition, but I’m discussing people who receive wage or salary income. Some of these people are also sinks, despite the theoretical assumption that their income measures a marginal contribution. Obviously, someone who is deaf, dumb and blind has great difficulty producing his own living, and many less extreme points exist along this spectrum.

            A janitor employed for 20 years could hardly have 50 non-working years without something like a disability benefit, and voluntary risk sharing, through a disability insurance scheme, could provide the janitor’s income. In this scenario, I’m not sure I’d call him a “sink”, because everyone freely values the insurance premium enough to pay it, and recipients of the benefit are receiving a good for which people freely pay.

            Regardless, by the same token, a corporate officer employed for 20 years at $70,000 a year can also be a sink, and an officer of the state, or other recipient of statutory rents, employed for 20 years at any wage can be a sink without any further consumption. People can be sinks even while they are nominally “working”, and these people can suck more out of the productive sector than a janitor without any “non-working” years.

            So if we carefully define “income” and “productivity” and draw some lines between “high” and “low” income, it’s not obvious to me that “low income” people are more likely to be sinks. That just sounds like an ideological statement waiting to be rationalized.

          • Les Kyle Nearhood

            Does it matter? I mean, if there are more rich rent seekers than poor slackers it makes no difference for the sake of this discussion which was originally about minimum income.

  • martinbrock

    The reason my productivity was so high was that I was working in $16.25/hra capital-intensive industry. It wasn’t because I had any better skills than when I made $5.00/hr sacking groceries or mopping floors.

    You obviously know your experience better than I, but I doubt that your button pushing in a factory required less skill than mopping, and even if some measure of “skill” finds the two occupations equally skillful, the degree of economic loss possible by pressing the wrong button on a mass production assembly line presumably is greater, so the level of responsibility, if not the skill, of the button pusher presumably is greater, and the proprietor of a production line will pay more for a more responsible worker.

    You can change a worker’s productivity just by giving him a different job or putting him in a different place.

    You can also change a worker’s marginal value by changing the value of monopoly rents due to proprietors of productive resources that workers employ, and this change in context seems clearly to be Schleisser’s point. The way you tell the story, your $16.25/hr sounds like some sort of gift from the factory owner, who simply has more to give than a grocer employing you to mop floors, but marginal value is not this sort of gift at all.

    Yes, there are also people who could never earn $14/hr regardless of any training or conscientiousness, but that’s not the relevant part of the story that you omit.

    • Jason Brennan

      Yes, you’re right that I exaggerated the lack of difference between the two jobs. And you’re right that much more was at stake. Quite literally, if I pressed the wrong buttons, I would have instantly destroyed $45,000 or more in electronic equipment.

      Another problem with the Brown quote is that it says the wrong thing about a simple two-person trade. Recently I traded an effects board I wasn’t using for a guitar. Both parties profited. Economic value is subjective.

      One problem with equilibrium analysis is that if we use general equilibrium as a model of a perfect market, we’ll often condemn entrepreneurial activity when we should be praising. “He made an extra-ordinary profit, so therefore he’s exploiting a defect in the market!” should be “he’s fixing the market.”

    • Sean II

      “so the level of responsibility, if not the skill…”

      Being able to handle responsibility is a skill. From an employer’s point of view, it’s probably the most important skill of all.

      An IV infusion pump is operationally not much different from a milkshake machine. The difference between the person you trust to operate the one, and the person you trust to operate the other is NOT just a difference of applied capital.

  • Sean I

    Jason,

    (This relates to Schliesser’s worry that you’re treating productivity as fixed or unchanging, in some sense.)

    You make it sound as if advocating a living wage is advocating for employers to pay their workers more than workers’ contributions are worth. I doubt that many advocates believe this would be a consequence of a living wage. Are you suggesting that it would be a consequence?

    Suppose each worker at McBurger currently earns $5, which is his marginal product, and a minimum wage of $15 is imposed. Assume the production function is concave in labor. In response to the new living wage, McBurger reduces the quantity of labor employed until the marginal product of labor, which is a decreasing function of labor employed, equals the marginal cost, which is $15. So in equilibrium, each “unproductive” worker employed at McBurger is still being paid “what his labor is worth,” it’s just that his labor is now worth $15 instead of $5.

    • martinbrock

      Because every employer is subject to a statutory minimum wage, changing the minimum affects the shape of the demand curve for labor, so we can’t simply assume that a rise in the minimum wage lowers employment along the demand curve existing before the rise. On the other hand, tripling the minimum would almost certainly depress employment at McBurger in the short term.

      We shouldn’t imagine McBurger as the heartless, greedy employer throwing restaurant workers onto the street in this scenario. The restaurant business is labor intensive. People choosing not to pay $6 for a burger, when they previously paid $3, throw these workers onto the street, and many of these people themselves earn the minimum wage. At the new wage level, these people are fewer, and they are still more frugal than most, so a smaller number of these people eat out less, per capita, than the larger number of people earning the minimum before the rise.

      In other words, a statutory minimum wage rules out much specialization and trade among low income people themselves, so the cost it imposes is largely confined to low income people. Higher income people aren’t much affected by it, because they don’t each much at McBurger anyway.

    • Devon Sanchez

      Other than the fact that the cost of employment (wage) then becomes a non-marketable price below $15. If the price of labor is fixed then why not fix the price of the raw materials, the energy used to produce the final product and the final product?

    • Devon Sanchez

      “So in equilibrium, each “unproductive” worker employed at McBurger is still being paid “what his labor is worth,” it’s just that his labor is now worth $15 instead of $5.”

      If the cost of labor of $5 at McBurger was a product of natural market price valuation, then the labor the employee at McBurger provided was not unproductive.

      • Sean I

        Of course the worker isn’t unproductive, strictly speaking. I put ‘unproductive’ in quotes because it was the term Jason was using in his original post to refer to workers who are, in relative terms, less productive. (See for example paragraph beginning “Imagine that…” in Jason’s original post.)

        • Devon Sanchez

          I understand what you meant by “unproductive”. I’m not that thick headed. Take away the quotes or even replace productive with unproductive. It doesn’t matter. The artificially priced value of labor at $15 does not make his labor worth that much, it only means you are paying him a king’s ransom.

          • Sean I

            By “marginal product of labor,” I mean the derivative of the production function with respect to labor (L), multiplied by the price of output (sometimes called marginal revenue product of labor; the point still stands if we take ‘marginal product of labor’ in the stricter sense of the derivative of the production function with respect to labor). That derivative is, under normal textbook assumptions, a decreasing function of L.

            So the marginal product of a worker who is employed by the firm after the imposition of the living wage—the value of this derivative, assessed at the new equilibrium level of labor input—is now greater than it was before, assuming the firm employs less labor than before. Moreover, it equals the marginal cost of labor, if the firm is a profit-maximizing firm. The marginal cost of labor is the wage. So everyone at the firm is producing exactly what they’re getting back in the form of the living wage, if by “what each produces” you just mean the derivative of the production function with respect to labor, multiplied by the price of output. No one is earning more than his marginal product.

          • Devon Sanchez

            You are correct in accessing that in a situation where a profit-maximizing firm is forced to raise the cost of labor and thus reduces its overall workforce to meet a point of profit, that an employee’s wage would not exceed the marginal product. But what is to say that $15 an hour would reach a nonprofitable point for the business, meeting or exceeding overall production costs? Raise the price of goods and services over what the market will pay? Cut your staff down to one ruining your overall production capacity? This hypothetical nonsense is annoying and is a waste of my time. I’m going back to watching the baseball game that I am more interested in.

    • Jason Brennan

      As for what advocates think, as far as I can tell, most of them simply haven’t though through the issue enough. They *de re* advocate paying workers more than their marginal productivity, but they don’t *de dicto* advocate that. Most people aren’t sophisticated enough to have any explicit beliefs about marginal productivity and wages. That said, there was a guy I went to grad school with who, just the other day, did explicitly advocate employers paying their employees more than the workers’ contributions are worth, but he was also the kind of guy who reads Ehrenreich books, so, despite having a Ph.D., he may just be a whack-a-doodle.

      Yes, you are right, each worker (treating them all as homogenous here) has declining marginal value, so if the firm uses fewer, the value of the remaining ones will be higher.

      McBurger could also possibly change their marginal product by switching to a more capital-intensive mode of production. But one possibly complication with that is that it could lead to job gentrification. Consider–if Walmart offers to pay $100/hr to its cashiers, the kind of people who will compete for and win Walmart jobs will change. So, Walmart’s offer to pay its cashiers $100/hr will be very good for whoever ends up being a Walmart cashier, but is less likely to be good for the kind of people who are right now working as Walmart cashiers. The same might go if Walmart doubles its hourly rate.

      • Sean I.

        “They *de re* advocate paying workers more than their marginal the productivity…” Compare

        1) Going forward, Walmart should pay all of its current employees $w.

        2) Going forward, Walmart should pay $w to anyone it hires or continues to employ.

        Under competitive equilibrium assumptions, advocating 1) is *de re* advocating paying workers more than their marginal product. But under same assumptions, 2) is not *de re* advocating paying workers more than their marginal products. If Walmart complies with 2), whether as a response to a law or a moral commitment, it can—and, in equilibrium, will, if maximizes profits subject to this legal/moral constraint—pay each worker his marginal product. And in this new equilibrium, paying a worker less than the living wage $w would be to pay them less than his marginal product.

  • Devon Sanchez

    1. When there are people who work in a position that are being paid higher than the work they produce, it is a choice of the company to make. More importantly, it is a poor allocation of resources for the company to employ those who are “overpaid” for their work. Thus, it becomes a competitive problem for the company due to overpriced goods and services it provides. Most companies make mistakes. There is always a degree of error. What is your point?

    2. Yes, there exists a “classism” between certain college environments and the “real world”. I say environments because that attitude is prevalent among students as well, not only professors. But, again, what is your point? Is there anything that can be done to prevent this? Get rid of the privileged class of government insured education and professions. Other than that, no there is nothing that can be done to affect this attitude, nor is it anyone’s right to.

  • steven johnson

    It isn’t controversial that low-income people are more likely to be “sinks” than high-income people, but it should be. There’s no reason to believe marginal revenue is calculable by individual managers or owners. Frankly I was under the impression that libertarians didn’t believe the state could calculate such things either, that being the supposed reason that state intervention is always in the end the road to serfdom. The secular divinity of the market was supposed to lead managers and owners to make a fair contract. Thus it is an article of atheistic faith that a CEO does actually produce millions of dollars in revenue, just because the market has spoken. And equally, it is an article of atheistic faith that a free market will punish those who don’t measure up.

    Pre-WWI England or pre-WWII Japan I think it safe to say were not unduly influenced by socialism or other leftist economic notions. After their free-markets were warped by Labor and a New Deal (aka Popular Front) occupation, the average height of the population measurably increased. Libertarians have been weeping ever since at the multitudinous iniquities inflicted on the productive classes. The whole point of this nonsense is to argue against committing enormities against owners and managers.

    Today, calories are available to modern technology in a way never before and height is a trait that responds dramatically to changes in nutrition, which makes this visible marker irrelevant. But the point that a libertarian market provides a material existence that deprives the workers to the point that they have physical deficiencies that shorten the life span really seems incontestable to me. Indeed, the famous demographic divide, economically speaking, is a simple recognition that by and large the mass of the population can no longer provide for very many children. As for the alleged cure in subsidizing wages, this is already being carried out by Social Security, which is subsidized savings for old age. It is not an accident that Social Security is targeted for elimination.

    Libertarianism believe people are nothing but a legal relationship between a property and its owner. Society exists to protect property, and insofar as people do not have property, they do not have a right to live. The exercise of property rights is freedom, and those without property are irrelevant. Economic arrangements exist for the sake of the economy, not people.

    I’ve been looking at some of these threads to see if libertarianism has changed since I read some Rand and Rothbard and von Mises, and I can’t see how it has, even if you guys here are a little embarrassed at the unsophisticated versions.

  • TracyW

    Productivity definitely isn’t intrinsic.

    Imagine two people showing up at a hospital, both with life-threatening illnesses.
    One has a bacterial infection which is perfectly adequately treated and restored by health by a single round of antibiotics, some painkillers are tossed in for quality of life. The other has cancer, and requires 2 hours of surgery followed by 6 months of chemotherapy, to save their life. Assuming that the value of their lives is equal, the productivity of the hospital is drastically higher in the first than in the second case.

    But the doctors and nurses and the like will reasonably expect to get paid at least based on hours spent, adjusted for the unpleasantness of the hours they worked, plus a return on their educational costs, etc. So even though they are far less productive in treating the patient with cancer, they will be paid far more over the course of the patient’s treatment.

    Which is why economists say what matters for pay is the marginal productivity.

  • Fernando Teson

    I was disappointed in Schleisser. What promised to be a credible effort degenerated into ad-hominem attacks. There is one explanation, though: he LOST the argument.

  • Stephen Villee

    Regarding “some people are a net drain”…I have been thinking for some time that there are people who consume more than they produce, and I’m glad to see someone articulate this thought publicly. It’s especially good that you said “perhaps through no fault of their own”. I would go further, and say that it’s usually not their fault. It’s not due to laziness or anything like that, just lack of any sufficiently marketable talent or skill.

    I’m curious, what percentage of the general population do you believe are a net drain? My gut tells me it’s more than 50%. I call this the Net Consumption Hypothesis: that the majority of people consume more than they produce, despite their best efforts and good intentions; this has been true throughout human history, and this is the root cause of poverty. Anyway, I’d be interested in what you think the percentage is.

  • j_m_h

    Jason, please tell me by what metric you measured your productivity in any of those jobs such that you could say it was higher or lower in meaningful sense for the general conversation about wages?

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