Nicholas Brady writes in today’s The Washington Post about “Wall Street’s wealth.” Among other things, he wondered about “…Wall Street…activities that had no redeeming social value, and…disoriented executive pay scales.”
I have to ask: whose socially redeeming value definition? Whose standard of “disoriented” pay scales? Based on what primacy of social standing do those who disparage stand in judgment of their peers? What arrogance.
One man offered to sell something, and another agreed to buy it. One man wanted something, and another man offered to supply it. All four men became better off than they were before; each man gained something of value to him that he hadn’t had before. The things gained had value to these men, specifically, not to some self-appointed arbiter of propriety. How much more socially valuable can such activities get?
Are there activities that have no socially redeeming value? Probably. But is being valueless, whether socially or economically, necessarily harmful? Of course not. They simply are irrelevant, and those who wish to transact with these are fully within their rights as free Americans to do so; such transactions have no impact on their neighbors. Let’s look at some other transactions that have caught some fame in recent years, things like transactions in mortgage-backed securities and their derivatives. These and similar instruments like credit default swaps, and the institutions who traded in them, are blamed for starting the current economic malaise. However, mortgage-backed securities are instruments of Fannie Mae and Freddy Mac. Indeed, these two institutions were created explicitly to buy up lending institutions’ mortgages, package and securitize them, and then resell these new instruments on the open market. The purpose of these and of the two FMs was to make it easier for lending institutions to lend mortgages, to make mortgages more readily available, to ease Americans’ purchase of their homes. Government said transactions with these instruments was socially redeeming. Hmm….
Along the way, derivatives of these securities were developed, credit default swaps were developed as “insurance” policies on these derivatives, and so on. Were transactions in these derivatives and new securities and their derivatives at fault for the current economic straits? Or was it regulations that hid the nature of these instruments and their derivatives so that buyers and sellers of them didn’t fully understand what they were transacting? Or was it financial institutions that concentrated too much of their asset base in these instruments? Or was it those buyers and sellers entering in that market that they didn’t understand? Clearly, transacting in willful ignorance, and over concentrating assets were economically unsound, and in their impact, they were, in the context of social redemption, also unsound, not merely valueless. I’ll come back to this in a bit.
On what basis are the pay scales deemed disoriented? Are all skills of equal value? One measure of the value of skills is easily assessed by anyone who cares to look. One man offers to sell something, and another agrees to buy it. Here that thing is the one man’s skill. Does the employer get what it pays for? Does the employer get sufficient value in labor output from the man possessing the skill to produce that output? Does an athlete with a multi-million dollar contract, based on his skill at (throwing|hitting|catching a moving|stationary ball (of some shape)), bring in multi-millions of dollars in ticket sales and/or related marketing revenue? Does the business executive with a multi-million dollar contract bring in multi-millions of dollars in revenue for the company that employs him?
In a free market, i.e., one that is not regulated into politically correctness or centrally directed because Progressives in government Know Better, the answers to those questions provide their own definition of “disorientation.” If the employed are not bringing in multi-millions of dollars in revenue, they are not earning their multi-millions of dollars of pay, and they are terminated. The same is true for the $10 dollar an hour laborer. If his work isn’t worth those $10 dollars, he too, is terminated. If the value received for the work is worth the cost of the work, neither the wage nor the salary is “disoriented.” What is disoriented, to take this to its logical extreme, is to claim that washing dishes in the corner diner has the same value as the ability to put together deals that lead to the financing of an entrepreneur’s diner, or a chain of them.
Of course there are those who abuse the system, there are those who outright steal, there are those who hide behind the rules and/or obfuscation to obtain compensation out of proportion to the revenue their work produces. However, these are corner cases or completely out of the envelope cases; they are not justification to claim that all high cost activities are socially valueless or that salaries are too high and unearned—or to claim that low wages are in some way too low. They are justification only to let a free market correct the corner cases—the free market is a quite effective self-correcting system; they are justification only to let the legal system handle the out of the envelope cases—American jurisprudence, for all its presently Byzantine nature, remains both the best in the world, and on an absolute scale a quite effective system.