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In a scenario where there is not surplus labor, employees are paid more and (perhaps) prices increase. The price increase is spread equally to everyone, yet the “surplus resources” (the money that would ordinarily go to the top) are all given to the employees and not the top. The end result is that the people with the most amount of money have to pay more, which is a great result. The lower and middle class also have to pay more, too, but this counterbalanced with their increased pay and quality of life. In the end, they benefit the most.
If my business sells coconuts off the highway, I greatly benefit if I can pay my coconut sellers slave wages. What if there are fewer people willing to sling my coconuts off the highway? I simply need to pay them more to work for me, no questions asked, because if I don’t I lose all my money, but if I do I still make money. That part is obvious, but your take would suggest that I would attempt to make the same amount of profit by simply pricing my coconuts higher. This is absurd because there is clearly a ceiling where people will refuse to buy the coconuts. What actually happens is that I might try to sell my coconuts for more money, will probably fail, and ultimately will have to just give more money to my employees. Oh well, I will have to sell four of my six vacation homes.
In America there is a huge number of businesses that generate enormous absurd profits which have this same ceiling. An obvious one is Amazon, and another obvious one is Starbucks. There is a point at which people will refuse to shop online if the prices are too high. Sorry Bezos, you’ll have to sell your half a billion dollar yacht. Starbucks is milking the consumer dry with their overpriced drinks, but they honestly cannot price them at $14 a drink. So, the people in charge of Starbucks Corporate will have to make less money. This applies to so, so, so much of the American economy. It’s people who have a pseudo(?) monopoly and/or have amassed such industry/marketing knowledge that competition is effectively impossible, and they’re making absurd profits when we can just make take and give it to the middle class simply by decreasing the wage pool.
Sure.
Maybe? Depends on the industries most impacted. I'll grant it.
Wait, you're missing several factors here. If I understand what you're saying, your model is that more employees->wages down->employers pocket the difference. But what's left out is that often that money will go to hire more workers, to scale up the production, or the extra labor lets more firms do things. Competition should drive profits down towards zero, as firms have to drop their prices, so "the top" doesn't actually really benefit much. (And a large amount of low skill labor I would think would go into competitive industries).
No. The goal should not be to have people pay more. That's a loss. We want prosperity. Elon Musk or whoever taking a loss doesn't help you out.
Why do you think increased quality of life, given that you mention increased costs in the same sentence, with no attempt to compare the sizes of the effects?
Well, I'd need to raise wages to get more workers to sell more coconuts up until the point where the cost of raising everyone's wages outweighs the benefit of the extra coconuts sold. It's not exactly all or nothing, but what you're saying is roughly right.
Not exactly. It's actually supply and demand. Fewer workers means I can sell fewer coconuts, which means I can raise the cost because I don't need to try to sell to quite as many people—I don't need to appeal to the ones previously on the edge.
I guess I'm not exactly seeing why the selling of vacation homes is necessary, nor why that's a good thing.
You do realize that Amazon's only able to be so profitable by being enormously useful, right? There are some predatory practices here or there (see some of their pricing policies, in relation to other vendors), but on the whole, they're very good for you, the consumer?
Or, they'll buy from other vendors online or whatever. But yes, Amazon and its sellers do have to set prices at ranges that people will buy them at.
Do you think Amazon and Bezos have merged finances?
Supply and demand. If the price is to high, switch to alternatives, or don't buy (and people do, whether other stores, or prepared at home). Starbucks will only raise prices for as long as they think that the product of the customers at the higher price times the change in price is more than the product of the lower price times the additional customers. (Sorry, that's probably hard to read. It's the difference between two different rectangles on a demand curve. But I don't have a way to represent to you the diagram.)
This makes more sense for the Amazon example than the Starbucks example, because Amazon's a lot harder to compete with than Starbucks.
But remember, why is Amazon hard to compete with? In part, because of anti-competitive practices, but also in part by being really good for the consumer, in ways that you need huge, costly, scale to match. Amazon is skimming value, but it's value that they've created, that their competitors can't keep up with.
Nevertheless, you're right that in this case, you could presumably cut into Amazon's profits without any huge consequences, unless there's some factor I'm missing.
But keep in mind! If we kill/forcibly retire/cause never to have been born/outlaw a bunch of workers, Amazon can afford to maintain it's workers, but all the other companies that can't afford to do so now have to cut back on their workers, and scale back on what they're doing. And so you just increased Amazon's market share, because they, due to having more breathing room due to being more profitable, can handle the increased austerity when other firms cannot.
Forgive me if there are any errors in that analysis. My last detailed interaction with economics was only a basic principles of microeconomics course a few years ago, so I imagine there must be some.
Profit-maxxing businesses with leadership and investors that make a lot of money have already calculated the best way to generate profit, so they’ve hired the exact amount they think allows them to make the most profit, and scaled up the exact amount. The fact that there is still such high income inequality and still so many billionaires in America shows that there’s a lot of money not going to these things, but instead given to those “at the top.” (I don’t like this phrase but it’s easy shorthand).
I do not think this is how real life works for corporations. The competition between two hairstylists at a strip mall is not the large-employee company competition where people sit on years or decades of institutional knowledge, are entrenched in public consciousness and so difficult to compete against, are luxury goods like Nike, etc.
There’s one industry that I think sheds light on this, where a “middle class person” can bring home top 2% earnings: fine dining. It’s fantastic to have the wealthy pay more here, because they’re just giving their money to people who need it more. We can imagine a future scenario where tipping is banned, and what will happen is that the owners of the restaurant and the wealthy patron will simply keep more money, wait staff be damned. An example that economic efficiency can sometimes be bad for the median person. This is why eg bar tenders in America make more money.
I go on to explain this in the coconut, Amazon, Starbucks examples (in my post and also below) —
But remember, I had a profitable coconut business and my employees all sell the same amount of coconuts (give or take; they shill them on the road). Reducing my number of employees is always going to reduce how much I bring in.
Who is going to buy overpriced coconuts? This is something I think is lost on people who think there’s fair/correct pricing today. Wealthy people will literally go to the store and refuse to buy an overpriced steak. They will pass a gas station if it’s too high, they will haggle on contractors. Wealthy people very rarely will buy a coffee more expensive than a Starbucks, which tells us something very important here: a huge number of businesses cannot increase their prices past a certain amount perceived as fair by the consumer independent of the consumer’s income. Starbucks is frequented by people whose income range from 60k to 10 million. Living in a wealthy east coast town, a neighbor might take a private chauffeur into the city but he’s stopping at Starbucks, not Rich People’s Coffee. Yeah yeah there’s an exception among young people in cities with Blue Bottle but even that is not priced relative to the median income of their patron.
What I’m saying is that I cannot sell overpriced coconuts. It’s either that I sell coconuts, or I leave the coconut industry entirely. If I leave it entirely because I demand to be super rich, someone can swoop in and become upper middle class! (Previously I would be able to fight this competition by temporarily lowering the price, to by utilizing my years of industry knowledge). That’s also good. And Starbucks can’t actually increase their prices too much, because there’s little evidence that wealthy people are willing to spend more for something outside the Starbucks price range.
This is not the easy rational choice that the economist thinks it is. I would need to compare my loss in wages because Amazon caused hundreds of thousands of small businesses to die. Even if I never intended to work at one of these businesses, some of my coworkers may have, which means that the loss of these businesses increased competition for me, ie reduced my wages. Amazon is convenient and obviously pleasurable, like online gambling. The negative consequences of using Amazon are hidden whereas the positive consequences are obvious, also like online gambling.
Not necessarily, because humans work on habit, and Amazon is the current exclusive habit of many Americans. What’s more, Amazon is so institutional now that I don’t think you can just “compete” with it.
Okay, what's your model here. How much do you think Bezos' salary is?
After looking it up quickly, it was $81,840 in 2019, plus benefits like travel and security expenses. The benefits aren't nothing, but they are just a few million, a drop in the bucket compared to his net worth. Where does his enormous wealth come from, then? From holding onto his Amazon stock, generally, which he can sell or use as backing for a loan when he needs cash. What does Amazon do with all that money that it gets then, if it's not going to Bezos' pockets? It doesn't pay dividends, so it gets reinvested in the business. This sounds a lot like what I was saying.
But if I'm wrong, how exactly, what is the mechanism, by which all this money is going to the top, when it could be going to the workers? Are those at the top misreporting? Is it really the couple million dollars of Bezos' salary and benefits that you are concerned about? Amazon has like 1.5 million employees, that's maybe 2 bucks per person.
Are you saying Amazon should scale down what it's doing, to accommodate the lower profits, given that it currently reinvests in itself? Are you really confident that the concentrated benefit of higher wages to its workers is better than the diffused benefit of cheaper, faster shipping to everyone?
Yeah, that's fair enough, they do profit because of those. There's bounds on that, because trying to raise prices will cause people to switch, but on the whole, that's right.
This is funny to me, because I despise that tipping is a thing. (Fear not! I do it. Social pressure works.) How the default values have been trending upwards, and how tips are expected everywhere now, is clearly predatory, attempting to socially coerce people into paying higher costs. Anyway, you are aware that restaurants are ordinarily run at pretty narrow margins, right? But okay, you're saying, ban tipping, and everyone is worse off, except the owners and patrons. So, then, you would expect wait staff to want to leave, as it's a worse deal, right? And they need the workers, right? So wages would go up? Maybe not to the level of with tipping, because tipping exploits the fact that people ignore it and then are surprised with an extra, mostly theretofore ignored, expense, but restaurant wages would change, once they realize they need to raise them to keep the workers (as well as the change in quality of service decreases the value to customers of the tips). Prices should also go up, so the patrons wouldn't recoup the full cost of no longer tipping.
Maybe people who need coconuts? Do you think inflation means people stop buying everything? Anyway, what makes them overpriced? It's at the market price. Supply and demand.
Habitually being frugal is probably not unrelated to them remaining wealthy, instead of wasting it all on luxuries. Of course, as you pointed out, this isn't always the case.
Yes, and good. Buying things is good for you because what you're buying is worth more to you than what you're giving up. Where companies always charge you exactly what you're willing to pay is a hellscape, there's negligble benefit to you, it all goes to the company. This is Nate Silver's guess as to why the economy feels bad despite that one good metric. It's why people are so mad about college debt, for example. Their financial aid systems are set up to extort as much out of you as you can afford. Price discrimination does happen as much as companies can manage it, because it leads to bigger profits. I don't get why your entire analysis is concern about what you think greed, but here you wish there were more of it.
The coconuts are not overpriced, as everyone, not just you, has to raise the price of coconuts, due to higher labor costs. Yes, that does contract the industry, but it does force prices up, contra what you're saying. Unless there's some reason that you alone have higher labor costs.
What?? I don't get the logic here at all.
I don't get what you're saying at all. Is it profitable or not? If so, then why would you leave (at least, if more profitable than the alternatives)? If not, then there's no "swooping in" possible, they'll be losing money.
You agree that your view is contrary to ordinary economic analyses? What do you think the root causes of their (and my) mistakes are? I would assume they would be aware of every argument you have made, since it's generally low-hanging fruit, not super complicated cases? So why are they not persuaded, and why are they wrong?
Wait, why are you assuming that your wages went down, as compared to only the small businesses? Are you sure that Amazon buys less labor than the businesses it replaces? Secondly, why doesn't this just apply to every company? You buy from them instead of competitor->competitors have harder time->those competitors hire fewer workers. But surely you don't think that every company is bad, just because they are bad for that company's competitors?
Literally every store that has things that can be sold on Amazon, or has substitutes for things you can buy on Amazon, competes with it. Every item you buy in person is competition with Amazon. It needs to be good enough to beat those other options out, if it wants their sales.
Frankly, I think a zero-sum understanding of the economy, which you seem to hold, is disastrous. There are not a fixed quantity of resources that we just need to spread equitably. People, in every economic trade they make, better both parties, creating wealth that wasn't there before. Yes, people get rich. But that tends to be by creating such an overwhelming amount of value, benefitting huge amounts of people by substantial amounts. Their wealth is a reward for the massive societal gains that they gifted everyone. Trying to remove too much of the benefit the wealthy get by doing things people pay them for dampens the whole system, slowing down economic growth. Further, putting profit where it doesn't belong incentivizes people to do unproductive behaviors, destroying value, making us all worse off.
Think of what the world was like a millennium ago. Why are we so much wealthier now? Because people worked their asses off for the rewards society allocates, via the market system, to those who provide value. And we all have benefitted. When you think that the poor people aren't benefiting, consider that poor people are now stereotypically fat, not starving. Consider that cell phones can be had for cheap, allowing things that would have been unthinkable just 100 years ago. Consider the running water everywhere, the electric lights found cheaply and easily. Food is cheaper than it once was. Skyscrapers. Cars. Planes. Our everyday life is in a great many ways more luxurious than our forefathers could have dreamed.
Okay, you might be thinking, if everything's so great, then why are people so gloomy about the economy? Aside from the fact that we haven't been alive for a thousand years, there are several sectors with serious problems (e.g. healthcare, education), and one of the biggest things is housing. Housing isn't cheap, due in large part to zoning restrictions and regulations everywhere, and especially where it is most valuable, in cities and suburbs, making it hard to build where housing is desperately needed (but keeping the property value a little higher for those who live there), and housing is something that people need.
For one current topic showing the importance of not having zero-sum thinking, consider Argentina. Per wikipedia, Argentina was among the top ten richest countries back in 1913. Why are now 40% below the poverty line? Realistically, some of that loss was due to corruption, and some due to the Panama canal, but surely not all of it? Redistributist policies seem to play a key role in that. I'm glad Milei won, and am fairly optimistic on Argentina at the moment, accordingly.
Now, applying that to the current situation. We have land where wages are astronomical, compared to, say, impoverished Africa. That is a giant sign saying to everyone, far and wide, "WORK HERE, IF YOU CAN! WE NEED WORKERS!" And when they do, they are enormously benefitted, because they have so much more wealth. The companies are enormously benefitted, because they can do so much more (remember, most companies reinvest), or their shareholders, because they have that profit (remember, there are limits to this—competition keeps it from getting out of hand). The people buying the things from the company are enormously benefitted, because there is so much more available to them for the same prices. It makes the whole country better off, because it has more human capital to do good economic things. The only people who might lose out are the workers in the fields where they're competing for the jobs, but that lower pay needs to be weighed against the benefits of being able to buy things for lower cost. And I do think that they often aren't competing in the same fields as the native population prefer to be in.
Compare a city and a small town, in the United States. One has a large labor market, and one a smaller one. Which do you expect to be wealthier and easier to make a good living in, for the average worker? (Hint: the fact that the population is progressively more in cities over time probably says something)
Now, overall, am I open-borders? I'm probably more sympathetic to it than most on here, but there are serious competing concerns. It'd be a drain on our current, already too costly, welfare state. Their politics might not be great, which really matters, or people will implement too many policies like the ones you would like, and we would all be worse off, along with all the social concerns. The loss of US culture would be bad. (I'm in the US, not the original example of Canada.) And so on.
The fact that, at the time of my last checking, your top comment is sitting at 26 votes for, and 4 against, despite some people pushing back, concerns me a little about the quality of this forum. I thought people here were pretty knowledgeable, that this was among the highest quality political discussion readily available online, but I'll have to do more mental filtering of opinions for economic literacy going forward. I'm not quite sure what to make of that, given that posts like this one were insightful and helpful to me.
Once again, I probably made mistakes here or there in this, but really, I think the overall point is important.
Seek to create value, not seize it. Companies are not your enemies; they are your friends.
Investments re: Amazon
People today invest in Amazon with the expectation (or desire) to gain around 10% of their investment annually. Bezos early on thought something like, “I could cash in my ownership for a few million, or I can continue to invest until I make 100,000,000% of my potential to cash out (or original salary)”. This is any investor’s dream; no, it’s more than that, frankly an unthinkable fantasy. So if Bezos had to pay his employees more, what would happen? Amazon would lose some of its profit evaluation, so some of the money that Bezos expected to one day earn (via stock) goes to his employees. Does this necessarily mean that Amazon would have to “size down” or grow at a smaller rate? Not at all, (1) investors would be more than happy to buy the stock at a lower price, which spreads the eventual return to less wealthy parties; (2) Amazon could have paid employees in stock options; (3) Amazon could have taken a loan, like most businesses (this year it obtained an 8bil loan).
We can see then that this is simply making our analysis more complicated but not changing the fundamental wealth exchange going on. Considering my coconut example, I could have lowered my yearly salary in exchange for stock and instead anticipated the return in some years. Any profitable business that grows can do this. But if I chose to receive a salary from my coconut business and still grow, there are a number of ways to do this as listed above.
Now who would make money investing in Amazon? Top of the line financial firms pay their starting employees as much as $600,000 excluding bonuses. Out of charity? No, but because the labor pool of worthy applicants is smaller. Were we to constrict it even more, they would be paid even more. Were we to add in investing immigrants, they would all be paid less. But in any case you can see that investors make too much money, and that if we constricted the labor pool for Amazon as an example, the employees make the money that would have gone to wealthy investors and speculators.
Tipping
You have to consider the specific things I’m saying though, otherwise how could you understand my point? I was discussing fine dining tipping, the places mostly frequented by the very wealthy. “So, then, you would expect wait staff to want to leave, as it's a worse deal” would not apply for fine dining; they would just accept lowered earnings because it’s still a good job for ordinarily middle class people. I’m not making a grand claim about all restaurants, I’m saying that we can see in fine dining restaurants that lowered efficiency can help more people.
Who would buy overpriced coconuts?
As detailed in my Starbucks comments, there’s strong evidence that consumers are unwilling to buy things when they feel ripped off. Wealthy people go to Starbucks, not Rich Coffee Co. Starbucks can charge a premium but this premium exists with a ceiling, because why else would Starbucks be the location of choice for those who make 20x more than the median Starbucks consumers? If coconuts get too expensive, they may switch to different fruit. But let’s say all foods get equally expensive? The labor costs of supplying coconuts on the road will lead consumers to opt of the convenience and instead buy coconuts from the store. Any roadside coconut seller would simply have to make less money or leave the industry.
But I think to steelman the argument, “let’s say you own a grocery store. Grocers already compete against each other, yet the corporate owners still make lots of money. If employees had to be paid more, wouldn’t this just increase the baseline of goods, and they would still charge something on top to make profit?” I’d say yes, but paying grocery employees more increases the wages of all the workers who directly or indirectly compete with those employees. The ones who wind up paying more without a concomitant increase in wages would be the top 5-10% of Americans who are already quite wealthy but are too far away from the competition of grocery store workers.
Small businesses acted as a middle man between producers/sellers and customers. Each small business had his own miniature Jeff Bezos, a hundred thousand CEOs who made maybe 160k a year rather than Bezos billions in earnings. (You can fit one million people making 160k a year within the Bezos net worth). Centralization will always split resources between fewer people. There are then some obscure factors that an economist would never guess, like how these small businesses lived within close proximity to their employees and knew them personally and hired among families/friends, meaning they have to see the humanity in the person they are either benefiting or screwing in pay. Call this the “fine dining tipping effect”: when wealthy people see the reality of another human being, they are morally coerced into pay them more, for fear of losing face face-to-face.
Everyone in the lower/middle class competes in a way with the owners of these small businesses. A worker when deciding their career path would say something like, “I can open up a video rental store or I could become an accountant; I could become an accountant or I could open up a coffee shop…” And then of course, the employer knows this, and to retain employees must pay them more, because they can leave and go elsewhere.
The ones with high wealth inequality, I do.
Investments Re:Amazon
Okay, let's examine each of those possibilities. For (3), this can't keep happening indefinitely, without loss of growth; you're borrowing against the future. Short term? It's fine. Long term? It's harmful. For (2) and (1), this also shouldn't be things happening in perpetuity. If your way of making money is by selling future prospects, forever, you're a ponzi scheme. Further, repeatedly selling stock dilutes the value of everyone who you've sold stock to, including those you paid before. These are fine temporarily, but not as your business model.
Wait, why?
Of course, not all the investors are wealthy; you too can buy stocks. But they majority are. Okay, why is that bad? When they first buy the stock from the owners, they are providing funds with which to operate their business before it is profitable or needs extra money, which is clearly a good thing (Look! Wealthy people helping the common man!), and their return is compensation for that. Are you opposed to venture capital, for example, existing? It's clearly wealthy people investing, and equally clearly is putting that wealth towards the benefit of mankind.
Afterward, when companies are buying or selling stock that they think are more or less profitable between themselves, or between the owner, I see no reason why that should harm the worker. (I imagine there also must be arguments for why that helps economic efficiency, but they are not immediately coming to mind, and I've put enough effort into this already.)
Tipping
Ah, you're right. I hadn't taken into enough account that it was fine dining, and there's a limited supply of dining positions to go around, and the business can't just pay them less, as that's on the patrons.
Who would buy overpriced coconuts?
Yes, people do substitute, or buy elsewhere. I paid inadequate attention to the fact that roadside selling of coconuts did have the alternative of the store. It should be the case, though, that you can raise the prices a little—if you're selling your ultra-cheap coconuts vs your market value coconuts, vs your slightly higher than market value coconuts, you may get fewer people buying them, but you may be able to get some customers, as long as there's a cost to going to the store, or they don't know what the price at the store is.
But back to the example, let's reanalyze. Okay, so the price of labor is higher, so we will need to pay workers more. I was acting under the assumption that our profit is near zero, because there is roughly no barrier to entry to roadside coconut vendors—if it were too lucrative, others would join. Then, as we have near zero profit, we are forced to have fewer workers, or exit the market. If we have fewer workers, we aren't trying to sell quite as many coconuts. As fewer people are buying coconuts, the people who are buying it are the ones who want the roadside coconuts a little more than the marginal buyers before did. So the price is able to be a little higher. (I really ought to look as well at how this works with the competition.)
But what matters most isn't whether there's an increase in wages and costs, but what they are in relation to each other. Increasing pay and costs is just inflation. What we care about are real wages, not nominal wages. And I think this is a poor example for that, because grocery costs are regressive. Someone making a thousand times the money does not spend a thousand times as much on groceries. Suppose that groceries double relative to income, for everyone. It is those who have the largest share spent on groceries, that is, the poorest, with the most mouths to feed, who suffer most.
But this whole time you've acted in contempt of the petit bourgeois as well. You, for some reason, want the roadside coconut seller to lose money.
Nevertheless, what you said is correct. Now, why is it bad? Amazon provides more value than those small businesses did.
What is "screwing in pay"?
Are they paying at or above market value? Then there's no better anywhere else. Are they paying below market value? Then those workers should be able to leave for better opportunities.
Or are you saying that there's some just price for labor, above what the market pays? What is it?
Minimum wages, when binding, lead to unemployment, but that seems not to be what you are suggesting; you would rather there be fewer workers. (Oh, yes. Why do you want higher TFR again, then?) But on the whole, I don't know that that works. The prosperity that we live in now is built by the labor of humanity; removing people concentrates the spoils, but decreases them.
And of course, lower costs of labor allows businesses that otherwise couldn't to prosper.
So if I understand you rightly, what you are saying is that Amazon leads to a drop in wages, because there is now no longer another option of making a small business. So yes, the effect of decreasing the amount of small business does depress wages; of course, the direct employment has the opposite effect.
But again, does this mean it is bad? Let's suppose that there were a free, instant teleportation device. This is far better than Amazon—zero cost, 1 minute shipping. Would you really want this banned? It's not like people don't have other sectors that they can work in. (And if you think they might not be able to switch professions, why is using less efficient means of technology better than the other options, like private charity or government welfare?) (If you've never read Bastiat's Candlemaker's Petition, it's amusing.)
Okay, so the problem is not insofar as they harm competitors, right? You see the problem to be that they increase inequality.
But why is that bad? In particular, why is that so bad that it outweighs all the good they do?
Further, is there a limit? How much inequality is okay? Surely they shouldn't distribute it all?
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