Finance

This article with bits like this:

How can one even begin to speak of dignity in labour when one secretly feels one’s job should not exist? How can it not create a sense of deep rage and resentment. Yet it is the peculiar genius of our society that its rulers have figured out a way, as in the case of the fish-fryers, to ensure that rage is directed precisely against those who actually do get to do meaningful work. For instance: in our society, there seems a general rule that, the more obviously one’s work benefits other people, the less one is likely to be paid for it.  Again, an objective measure is hard to find, but one easy way to get a sense is to ask: what would happen were this entire class of people to simply disappear? Say what you like about nurses, garbage collectors, or mechanics, it’s obvious that were they to vanish in a puff of smoke, the results would be immediate and catastrophic. A world without teachers or dock-workers would soon be in trouble, and even one without science fiction writers or ska musicians would clearly be a lesser place. It’s not entirely clear how humanity would suffer were all private equity CEOs, lobbyists, PR researchers, actuaries, telemarketers, bailiffs or legal consultants to similarly vanish. (Many suspect it might markedly improve.) Yet apart from a handful of well-touted exceptions (doctors), the rule holds surprisingly well.

has led to an interesting series of articles. First there was the basic replies such as this:

This, of course, is just the diamond-water “paradox”–why are diamonds, mere baubles, so expensive while water, a necessity of life, is so cheap?–the paradox was solved over a hundred years ago by…wait for it…can you guess?….the marginal revolution. Water is cheap and its value low because the supply of water is so large that the marginal value of water is driven down close to zero. Diamonds are expensive because the limited market supply keeps the price and marginal value high. Not much of a paradox. Note that, contra Graeber, there is nothing special about labor in this regard or “our society.”

Moreover, it’s good that prices are determined on the margin. We would be very much the poorer, if all useful goods were expensive and only useless goods were cheap.

which lead to replies to the replies such as this:

The impressive thing is just how much misdirection and willful obtuseness Tabarrok manages to pack into a few sentences. The argument crumbles at whatever level one chooses to engage it.

To begin with, the chosen example is an amusing one, since it in no way exemplifies what it purports to demonstrate. Diamonds may be scarcer than water, but that is not what dictates their price. The price of diamonds has been maintained over the decades by the powerful DeBeers cartel, which has kept up prices through a combination of marketing and buying up excess supply. I suppose Tabarrok could counter that the phrase “market supply” doesn’t imply that the availability of a commodity is a function of physical scarcity. But I hardly think he would subscribe to the notion that supply in capitalist markets is or should be primarily determined by the actions of powerful monopolists.

And then to another way of saying the original point:

I’d like to look at a specific question raised by the discussion of private returns and social value, namely: can Wall Street, in its present form, be justified? That is, does the share of income flowing to corporations and professional workers in the financial sector reflect their marginal contribution to the total value of social output, so that, if their work ceased to be done and their skills were allocated elsewhere, we would all be worse off?

I argue that society as a whole would be better off if the financial sector were smaller, and received much smaller returns. A political strategy based on cutting the financial sector down to size has more promise for the Left than any alternative approach now on offer, and is a necessary precondition for a broader attempt to make the distribution of wealth and power more equal.

Which, of course, has replies:

The point is that other people ought to drone on a bit more about which rules, exactly, they want to see put in place and why the objections to those rules are wrong. The general argument that the backstopped segment of the banking system should be ringfenced from the speculative bit is so persuasive that the U.S. Congress already passed a law purporting to do it. Yet obviously finance has hardly been dethroned from its commanding place in American political economy, and guaranteed banks haven’t stopped engaging in big speculative trades.

The replies all miss the point of the original argument and the follow-up:

  • the point is that people who are doing something essential to society should be paid enough to live comfortably. If they’re not, then the society is messed up. This doesn’t mean that the person collecting the garbage should make as much as Lebron James, but they shouldn’t have to be on food stamps to survive. On the other hand , it should be that nurses do make as much as people in the financial industry–it is just as difficult to become a nurse as a financial analyst, there is a shortage of nurses (which implies they are underpaid), and they are much more important to society.
  • there have been changes to the government that have led to the status quo. There used to be stronger rules on banks and finance. As those rules have been weakened or eliminated, the pay for workers in the financial industry have gone way up compared to the rest of society (which is why the financial industry is now a bigger part of the economy). If it seems that these rule changes have not helped society then maybe it makes sense to reinstate the old rules (notice that is saying specifically what rules should be put in place).

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