The Occupy Wall Street movement is a complete enigma. I mean – I know what they’re trying to say. But they’re just so so so wrong. To the point of frustration and the bringing of many tears to my eyes.
And their main gripe, from what I can tell, is that the OWS protesters are the 99%. And that the 1%, who own the world, are all situated in the investment banks and bank holding companies of Wall Street. So, to summarise:
- Envy (they also want to be the 1%); and
- Greed (mainly because they wants what the 1% gots).
But that aside – I think that the real issue here is the confusion between “value” and “price”. These activists are looking at a CEO’s price (his/her salary) as representative of his/her value in society… And they’re comparing it to what the poor teachers are earning, and how much value they add to the younglings that are going to grow up and make the world their oyster. Et cetera.
But they are bound to be disappointed. Because the two concepts of “value” and “price” are only vaguely correlated – and mostly have nothing to do with each other.
What is value?
Value is intrinsic. It defines how well a particular good/service fits my particular needs/desires. With the most value belonging to the goods that are non-negotiable.
What is price?
Price is extrinsic and relative: a function of demand, supply, and availability of substitutes. Price is, in effect, almost entirely a negotiation.
A good example of the difference
Let’s look at my value-hierarchy as an average human being, based on what I cannot live without right this minute, extending outward. It goes as follows:
- Oxygen – without it, I’d last about 90 seconds.
- Water – without it, 4 days.
- Carbohydrates – without it, maybe 10 days.
- Protein – can last without it, but might be good to have muscles to find the water and the carbohydrate.
- Fibre – can also last without it, but now that I’m building muscle to search for the water and carbs, time to suspend some of the strain.
- Clothing – right, let’s stop the inefficient wastage of energy by having to run around to stay warm.
- Shelter – might be nice to have a cave over my head. Or a hut.
- Fats – well now it’s an idea to start storing some energy away for those winter months when the carbs and protein might be a bit thin on the ground.
- Utensils – oh look! That’s a much easier way of doing things. Love it.
- A tribe – might be a bit easier to do all these things if I could just spread the work around.
- Storage space – where to put all this STUFF that I’m getting. Time for a new cave.
- Status – how great would it be if I could get people to do the work for me?
- Aesthetics – wouldn’t it be nice if stuff looked nice?
- A holiday destination – how great would it be to get away from all these people who tire me so by bugging me with all these questions?
- Cellphone – I need to screen this sh*t with caller id. Damn.
But if I go and look at my budget (my price-hierarchy), here is what I spend money on, in order of priority:
- Rent (I don’t do long distance from the office and/or traffic – so the rent hurts)
- Dining out (I love me my restaurants)
- Cellphone bill
- Other stuff
- Water (only because it’s part of my rent)
- Air (does not get paid for)
And what am I trying to point out? That actually, based on life in general, the most necessary (and therefore, most valuable) commodities are the ones for which I pay the least. But I am willing to pay relatively high prices for items of near superfluous intrinsic value…
So then: why should the economy at large function any differently?
Let’s agree that a teacher has more intrinsic value than a CEO. But a teacher’s intrinsic value has absolutely no bearing whatsoever on their salary. Their salary is determined by:
- Demand for teachers (how much do we want our kids to be educated – and how easy is it for one to get around that need)
- Supply of teachers (how easy is it to become a teacher, how many of them are there, and how do we distinguish between the good ones and the bad ones)
- The bargaining power of teachers as a group (are they unionised, and how effective are those unions at negotiating wages)
- The incentives of the salary-payers (who sits on the other side of the wage negotiation table, and how much do they really care what teachers are paid?); and most importantly…
- The relative worth of education (Does the economy reward education with higher and better paid jobs?).
Isn’t that ironically interesting? When you think about it, the average teacher’s salary is really defined by how well we are paying the best-educated amongst us. And given that CEOs are generally some of the most educated people out there, the obvious solution to the teacher salary crisis is to pay the CEOs more.
But we should drop this hypocritical nonsense about being paid what you’re worth. No – you must be paid based on where you choose to position yourself in the demand-supply spectrum.
And if genetics and/or circumstance prevent that – the harsh truth is that it’s very unfortunate. But it is what it is.