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Productivity vs. merit.


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Thomas Sowell

One of the questions often asked by those obsessed with income “gaps” and “disparities” is: “Is anyone really worth the millions of dollars a year that some people receive as personal income?”

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Such a question presupposes that there is such a thing as “real” worth. That assumption goes back to the Middle Ages, when people thought that there was a “fair and just price” for things.

But if there were an objective value — whether of goods or of labor — then economic transactions would make no sense.

When you buy a computer, the only reason you part with your money is that the computer is worth more to you than the money. But the only reason someone sells you the computer is that the money is worth more to them than the computer.

The difference in value of the same thing to different people is the whole basis for economic transactions. If there was any such thing as an objective value, these transactions would make no sense. Why bother making an exchange if what you get is no more valuable to you than what you give?

If there is an objective value of a computer that is greater than what is being paid for it, then the seller has been cheated and is a fool to keep making such transactions. Similarly if the objective value is less than what is paid: The buyer is a fool to keep buying something that is not worth its price.

It is the same story when Derek Jeter gets paid millions of dollars to play shortstop for the Yankees. He gains by exchanging his time and skills for the money that George Steinbrenner pays him. But Steinbrenner also gains by paying Jeter to play shortstop — which helps bring in more money in gate receipts, the sale of television rights, and other sources of revenue.

As for the rest of us, it is none of our business what Steinbrenner pays Jeter. It’s their deal. If we don’t understand it, there is no reason why our ignorance should influence what happens.

The medieval notion that there is an objective “fair and just price” dies hard, though even in medieval times St. Thomas Aquinas saw some of the problems with the idea.

The British classical economists of the 18th and early 19th centuries saw cost of production as an objective basis for prices. But, since the 1870s, economists around the world have recognized that value is subjective, and have incorporated that into their analysis of prices, based on supply and demand.

If something costs more to produce than people are willing to pay, then the producer just loses money. But a principle that seems obvious, after it has been articulated, may take generations to evolve and be incorporated into our thinking.

Yet here we are, in the 21st century, still talking about whether people are paid more or less than they are “really” worth — and we are hot to give government the power to “do something” if we don’t understand why some people are paid so much or so little.

If ignorance is bad, confusion is worse. Productivity, for example, is often confused with merit.

If Derek Jeter worked like a dog for years to perfect his skills as a baseball player, some might think that he had earned the big bucks he gets. But if he was just born with natural talent and the whole thing is a breeze to him, that would mean he didn’t really merit such a huge payoff.

But Steinbrenner is not paying for Jeter’s merit. He is paying for his productivity, whether at bat or in the field. Somebody who worked twice as hard and was still only half as good would never get the same money that Jeter gets.

Many poverty-stricken people in the third-world work harder than most Americans work but, for a number of reasons, they don’t produce as much. That is why these countries are poor.

Transferring wealth from 300 million Americans and spreading it out over more than two billion people in India and China is not going to do much. But enabling more people in India or China to become more productive can help them and us — and has.

Multinational corporations are among the biggest spreaders of greater productivity to third-world countries and they usually pay higher wages than local employers. But moral exhibitionists who are hot for the redistribution of other people’s money are among the biggest critics of multinational corporations.

COPYRIGHT 2006 CREATORS SYNDICATE, INC.



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