By Kevin D. Williamson
Thursday, October 08, 2015
One of the weird little facts of life that we don’t think
about or talk about very much — and really should when we’re talking about
taxes, the minimum wage, welfare spending, and other things related to
inequality of income and wealth (and go ahead and picture me here manfully
resisting the urge to put sneer quotes around “inequality,” as if a uniform
distribution of material resources were the natural state of things and not some
daft dorm-room fantasy) — is that we pay for everything (really, everything) collectively.
Let me show you what I mean.
Housing is famously expensive in New York City,
especially in Manhattan and the parts of Brooklyn where college-educated young
white people live, a fact about which people in Muleshoe, Tex., don’t much
care. But they should, because they pay for it. You might think that the people
who pay for those $5,000-a-month apartments are all Wall Street jerks or highly
paid publishing executives (all the highly paid publishing executives in New
York put together wouldn’t fill one medium-sized apartment building) or
celebrities who are too cool to live in Los Angeles, but you — you, sucker — you pay for them.
Costs get shifted around.
It goes like this: Say you have a software engineer who
is really very good at what he does, and he’s living happily in Austin making
$200,000 a year and eating delicious tacos, and he can afford all the delicious
tacos he wants because $200,000 a year is a fair chunk of change in Austin. So
when Company X in New York decides that it wants to hire him, and that it
really needs him in its Manhattan office, it can’t get him for $200,000. This
guy is a numbers guy, and he takes a look at the housing prices in New York, and
the state and local income taxes — of which he pays a grand total of $0.00 per
annum in Austin — and he knows from his last visit that nobody in New York
knows how to make a decent taco, which is going to lower his standard of living
still further, so he doesn’t want $220,000 or $245,832 — no, he wants $300,000,
and a paid move, and an annual taco airlift.
So, who cares? Company X is a gazillion-dollar-a-year
technology company, and if the Sand Hill Road guys who own all the equity have
to shell out an extra $100,000 a year to get Super Software Pimp on their
payroll, all that means is that they’re not going to be able to get a custom
Hermès ostrich-hide interior for their third Tesla. Ah, but most of these guys
didn’t get to be rich by accident. And they’re nerds, so they have a thing
about competition and efficiency. They do not like to feel like they’re being
had, and they aren’t taking it in the shorts. Not if they can help it. Which.
They. Can.
As it turns out, not everybody who works at every
technology company is Super Software Pimp, who can basically say, “Cut me a check, monkey!” whenever he
feels like it. Some of them are Marginal Software Guy, or Receptionist Working
a Second Job until That Publishing Thing Really Takes Off. These ladies and
gentlemen do not have a whole lot of what economists call “market power.” Their
skills are not all that rare, and their performance is not all that high. When
they say, “Cut me a check, monkey!”
they’re just hanging out at the Central Park Zoo engaged in a little wishful
thinking, and the monkeys just give them the side-eye and go back to
poo-flinging.
These people didn’t get huge deals to start with, but
like everybody else, they don’t negotiate the size of their paycheck just the
one time. They negotiate their compensation every day. Every day economic
conditions are changing just a little bit, and inflation by itself (though it
has been quite mild of late) is lowering their real salary every single day.
Negotiating wages is an iterative thing: You get a starting salary, you try to
get a raise, you talk about leaving for another job and see if they’ll make you
a better offer, and so on. And the Suits are doing it right back at you: It’s
actually pretty rare to just cut somebody’s pay (though it happens), but
they’ll do things like raise your insurance premiums when the cost goes up
(Thanks, Mr. Obama!) rather than paying for it themselves, or they’ll give you
extra work with no extra pay. In some industries, it’s not uncommon to furlough
employees when the Suits need to save money.
And . . . it’s not only employers and employees who are
constantly negotiating. Company X has consumers, and it has suppliers. When we
talk about raising the minimum wage to 15 bucks, somebody always says that
that’s going to mean a $10 Big Mac. In reality, that isn’t likely to happen.
Big powerful corporations like McDonald’s and Walmart have very, very little
market power vis-à-vis their customers. Walmart customers have all the power,
because slightly better versions of all the stuff for sale at Walmart is also
for sale at Target and a million other places, and if Walmart jacks up its
prices, Walmartians are going to walk. They’re going to disco on down the road
to wherever else people buy cookies and plastic buckets and car batteries and
archery gear at the same time. See ya,
Sam! But Walmart can damn sure pass costs on to the companies whose stuff is
sold at Walmart. When it gave its employees a big raise, you can bet that
companies that rely on it for a quarter or half their sales picked up some of
the tab.
But here’s the thing: Not everybody has equal market
power. The reason for this isn’t merit, or brainpower, or the willingness to
work hard, or anything else like that. A lot of the guys at Goldman Sachs do
not have a lot of personal merit, Kim Kardashian has no detectable brainpower,
and college professors are famous for their disinclination to hard work, but
they all make a pretty good living. Why? Because people want what they want.
Sometimes it is difficult to understand, but they do. People bought tacky
Donald J. Trump shirts from Macy’s before Macy’s dumped him. People keep up
with the Kardashians. When Bruce Jenner comes out with his line of cosmetics,
you can be sure people will buy it. Preferences are real, and you can’t change
them by just passing a law. People really do value four hours of a
neurosurgeon’s time more than four hours of a barista’s time, and insisting
that you have to pay neurosurgeons and baristas the same won’t change that. You
can play with the money, but you can’t change the underlying preferences. And
the underlying preferences are what give people market power.
The textbook American case of this happened when
President Franklin “The Hyde Park Hammer” Roosevelt decided he was so smart
that he knew what every American should be paid and what everything should
cost, which he decided to enforce under color of law through federal controls
on wages and prices. The Hammer actually wasn’t half as clever as he thought he
was, and when he started threatening to throw newspaper editors in jail for
giving their staffers raises, people kind of looked askance, and businesses
started giving their best employees raises without giving them raises: company
health insurance, the company car, the other “fringe benefits.” (When I was
little, I thought this was “French benefits,” which turn out to be a lot more
generous in reality and come with really good coffee.) This is, incidentally,
why you are in the situation of getting your health insurance through your
employer, whose incentives on that matter are very different from yours. (See
cost-shifting, above.) The people with lots of market power, because their
products or labor were more highly valued on the underlying hierarchy of real
values, got paid more. It’s just that we had to waste a lot of resources
figuring out a way to pay them more while creating an enormously destructive and
deeply stupid health-insurance system, which we’re still trying to sort out.
So, Super Software Pimp pushes those Manhattan rental
prices and taxes off on his employer, which pushes them off on little vendors
that really can’t afford to lose the Company X contract, who push them off onto
other customers, and so on and so forth, in an enormously complex web of
nickel-and-diming, until some kid working at a Sonic in Muleshoe can’t get a
25-cent raise because Bill de Blasio and Andrew Cuomo are taking a big cut of
some nerd’s paycheck. As Milton Friedman once put it, “Corporations aren’t
taxpayers; corporations are tax-collectors.”
You know who doesn’t have a lot of market power? Poor
people. People who make the minimum wage. Small businesses. Which is to say,
all the people politicians always say they’re trying to help with regulations
or a higher minimum wage or taxes on rich bastards and corporations — who don’t
pay ’em. Poor people bear these costs in obvious ways, such as higher prices or
lower wages, but also in non-obvious ways, such as improvements in their
standard of living that would have happened under different conditions but just
never materialize. Low-income people have low incomes because people don’t
value their labor very much and so aren’t willing to pay very much for it.
Forcing employers to pay more isn’t going to make them value that labor more
highly. You could set the minimum wage at $400 an hour, and you probably
wouldn’t improve the real standard of living of low-earning people at all, at
least not for very long. The amount of real goods and services available is the
same — sloshing money around does not magically call Honda Civics or
neurosurgeons into existence — and people will still desire what they desire.
Cost-shifting may take a little time to work, but the best bet is that it ends
up setting the board back to more or less where things started, because little
green pieces of paper aren’t what people value — they value what they can trade
them for.
The economic literature isn’t actually very good on this
question, from what I’ve seen, which is understandable, because the world of
human material endeavor is very large and complex. There have been some
snapshots taken: For example, policymakers are keenly interested in the
question of whether and to what extent hospitals and other health-care
providers who get screwed by Medicare (which “reimburses” hospitals less than
the cost of actual care, meaning it doesn’t actually reimburse hospitals) push
those costs onto other consumers, especially private insurance companies, which
then (you won’t be surprised by this point) pass them on to their customers.
The answer seems to be yes (though some progressives, who love love love love
Medicare, dispute this) but there are pretty seriously conflicting views about
how and how much. And of course the hospitals aren’t just passing Medicare
screwage on to insurance companies; presumably, they’re passing it on to the
janitors and orderlies and gauze-bandage makers and everybody else they can.
This probably isn’t even a conscious thing in many cases: It’s not that Joe
Hospital gets up one day and says, “Medicare is shorting me 9 percent of what
it costs to treat these oldsters, so I’ll pass 1 percent along to the doctors,
3 percent to those insurance rat-finks, 0.55 percent to the bandage guys . . .
”
But every business executive knows who from whom when it
comes to getting screwed. Executives know that they can pass $10,000 in forgone
raises on to 30 technicians a lot more easily than they can to one
neurosurgeon.
Say you want to improve the life of a guy who doesn’t
make very much money. You can shuffle around little green pieces of paper and
make yourself feel virtuous and maybe win yourself some votes, if you’re into
that sort of thing. Or you could teach him to do something that people actually
value more, if the sort of thing you’re into is actually helping people out. Or
you could invest in equipment and machinery (or get the hell out of the way and
let somebody who knows what he’s doing make the investments, Mr. President)
that would allow him to be more productive, if you’re into the whole capitalism
thing. Or you could whine about capitalism and “inequality” (I held out as long
as I could!) and the general unfairness of it all, if being twelve years old is
your sort of thing. Some of those strategies will get better real results than
others, depending on what your thing is.
In the end, though, how well-off your society (and the
world) is going to be is determined by how much of your resources you put into
creating the things people actually value vs. how much of them you fritter away
on trying to make people value things the way you want them to instead of the
way they actually do. We’ve got a lot of lawyers helping companies figure out
how to comply with regulations that don’t actually do anything useful, and a
lot of smart guys helping GE figure out how to not pay taxes. Those guys could
be washing cars or picking lettuce or doing something
productive instead of that. We’ve got a lot of engineers who are not out
inventing cool and useful stuff because Nancy Pelosi has some feelings about
the way power plants work and because Barack Obama is dumping Americans’ money
into companies that make stuff nobody values enough to spend their own coin on
it. That’s how you end up poor, or at least poorer than you had to be.
And who pays for all of that? Everybody. It’s a kind of
inverted Marxism. It isn’t “From each according to his means,” it’s “From each
according to how little power he has to pass the cost on to some other poor
bastard.” There’s no such thing as “raising taxes, but only on the rich” or
“passing regulations that only cost Big Business.” Everybody is always and
forever on the same hook.
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