The graph shows that the wealthiest have overwhelmingly appropriated the gains of increased productivity.
What we're missing is the contributions to productivity.
This thread has clearly demonstrated that the justification for this is that in blinkered book-kepping terms at least the wealthy are the "wealth creators". Because the things that actually create wealth (such as innovations which lead to transformative technologies which boost productivity) don't show up on balancesheets. Only the ownership of increasing assets which such innovations lead to show up on balancesheets.
Simply having the idea doesn't boost the productivity. Its when people invest in the idea and get it implemented that it can boost productivity. We can't measure whether having the idea or investing in it yields more of the increase in productivity.
So we have clearly seen that the appropriation of increased productivity by the wealthiest has everything to do with balancesheet accounting and little to do with the human activities that actually create wealth.
No, we haven't. That's just your opinion on the matter. I happen to think that investing is what gets the money moving.
What we're missing is the contributions to productivity.
Because the methods of accounting put the emphasis on ownership to the exclusion of near all else.
CS writes:
Simply having the idea doesn't boost the productivity.
Free software. A particularly effective method of teaching. A revolutionary scientific idea. All sorts of things could boost productivity in ways that won't, in balance-sheet terms, get attributed to anyone except the shareholders of companies that benefit from them.
CS writes:
Its when people invest in the idea and get it implemented that it can boost productivity.
It is certainly a facilitating factor in most cases.
CS writes:
We can't measure whether having the idea or investing in it yields more of the increase in productivity.
But we can see that the benefits of increased productivity get allocated almost exclusively to those who certainly aren't responsible for almost all the wealth creation. Thus we cannot realistically conclude that wealth is trickling down.
CS writes:
I happen to think that investing is what gets the money moving.
Then let's give all the money in the world to one man and then we can attribute all subsequent wealth creation to him.
Sounds crazy? We may not be doing that in terms of a single person but we are doing that in terms of concentrating wealth in the hands of a single figure percent of the population. And increasingly so.
That isn't healthy for democracy. It isn't healthy for enterprise or entrepreneurism. Ultimately it isn't even healthy for capitalism.
Simply having the idea doesn't boost the productivity. Its when people invest in the idea and get it implemented that it can boost productivity. We can't measure whether having the idea or investing in it yields more of the increase in productivity.
Simply investing doesn't boost the productivity. It's when people have an idea and get someone to invest in it that it can boost productivity. We can't measure whether having the idea or investing in it yields more of the increase in productivity.
So why is the increase in productivity credited entirely to the investors? They already get 99.9% of the profit, why do they also have to get all the credit?
You thought it perfectly reasonable that someone who makes a $100,000 on an idea...
Ideas. Innovation. These are the life blood of a capitalist economic system. But they don't appear on your balance sheet. So you deny they have any economic value. This is madness.
Any particular reason you stopped quoting me at that particular point? Anyway, nice touch. A little trim here, a tailored response there, an easy rebuttal! Nothing to it!
Except that I didn't attack ideas and innovation, I attacked the ridiculous notion that a book responsible for an idea that makes $100,000 is itself worth $100,000.
So now let me attack the ridiculous notion that ideas and innovation do not appear on balance sheets. On any income statement it's right under R&D. For example, here's the income statement for IBM:
You see the row called Research and Development (it's the 7th line if you start at top line Revenue)? That's where the ideas and innovation appear on the income statement. Intellectual property would appear on the balance sheet under intangibles.
Where do the ideas and innovation for our bookowner with the $100,000 idea come in? It sort of depends. Did he get an idea for a new book and earn a $100,000 from his publisher? If so then I don't think the book would appear on any financial statements, not even his income tax. If he worked for a company who bought him the book then it would be on their income statement under expenses in the year they bought it, and under assets on their balance sheet after that. The expense to the company of the innovator's ideas is his total compensation where the book plays an insignificant role.
I suggest you type into Google the words 'economic value of unpaid work' and see what you get. Similarly type into Google 'economic value of education' and see what you get. If you ideas are so mainstream you should be able to provide a plethora of sources as a result of these searches that agree with you.
About the value of an education, I agree you can get many different answers about the value of an education as it affects future earnings and so forth, but that's not the kind of value we're talking about here. We're talking about economics figures that end up in GDP measures like those in your graph, and in this case an education is worth what you pay for it. The money paid goes on the income statements of colleges and universities.
The future economic value to the recipient of the education as measured by a multi-year return on investment as compared to not getting an education is actually something not only pretty measurable, it has definitely been measured, at least on this side of the pond, let me see if I can look it up...
However, data from Pew Research goes on to prove that individuals with a college degree will actually earn an average of $20,000 more annually than their non-degree counterparts.
But that's just an overall answer. Certainly area of specialty and actual cost that varies from one college to the next matters a great deal in making the calculation for any specific situation.
But again, this is a future estimate having nothing to do with economic statistics. When the year 2012 comes to an end colleges and universities around the country will tote up incomes and expenses and report them on their financial statements, then when the next version of your graph comes out they will be reflected on the line for GDP. But the hypothetical future value of all those educations appears nowhere on your graph. No one knows because the future hasn't happened yet.
I looked up Investopedia definition of 'value' on the basis that this might be sympathetic to your notion. But even that seems to contradict everything you are saying.
I'm well aware that disagreement seems to driving silly misinterpretations of what I'm saying, but the definitions from Investopedia agree perfectly with what I've been saying. But one thing I have to say again for what feels like at least the 10th time in this thread: value and price are not the same thing. Why do you think I believe this, especially after all the detail I've provided over the past few days about how I think about value and price. How could I describe a price/value ratio with values not equal to 1 if I thought they were the same thing?
Anyway, about the Investopedia definition of value: it doesn't have one. What you actually looked up was Value Investing, which is not a synonym for the neoclassical definition of value, but let's continue anyway. Here's the portion you excerpted again, but note that you didn't actually quote their definition but the explanation that follows the definition:
quote:The big problem for value investing is estimating intrinsic value. Remember, there is no "correct" intrinsic value. Two investors can be given the exact same information and place a different value on a company. For this reason, another central concept to value investing is that of "margin of safety". This just means that you buy at a big enough discount to allow some room for error in your estimation of value.
Also keep in mind that the very definition of value investing is subjective. Some value investors only look at present assets/earnings and don't place any value on future growth. Other value investors base strategies completely around the estimation of future growth and cash flows. Despite the different methodologies, it all comes back to trying to buy something for less than it is worth. —Investopedia on Value Investing
See the part where it says there is no such thing as intrinsic value? Isn't that what I've been telling you all along? That something is worth what someone will pay? Sound familiar? Guess what? It applies to stocks in spades.
But why does a stock vary in value. Let's look at a random stock, I just randomly typed "ABCD" into Google Finance:
Click on the 1-year link on the chart if it's not already displaying 1-year. Omigod, what happened starting in March? Why was anyone buying that stock? Could it possibly be that buyers and sellers had different ideas about the value of the company? Of course! A buyer believes that the value will be higher in the future, and he therefore values the company above the current price. A seller believes the value will be lower in the future, and he therefore values the company below the current price.
Clear now?
And one more time: I don't believe value and price are the same thing. Sheesh!
If for some reason the supply of vitamin C became limited in a region of the world (including in available food) then its perceived value would increase and the price would rise.
And that's false.
Actually, it should be a clear sign to you that your position is in trouble. I can find people all around the world willing to pay $0 for the oxygen in the air (I'll just call it air from now on).
But aside from yourself, can you find anyone else who will say it has no value?
Commodities in virtually infinite supply will always have a very, very low value.
No. They'll always have very, very low price. Which is different than value.
The problem with your valuation of infinity for air is that it never changes hands at that value and never will. Even if you drop the price to a mere $10,000 for a year's supply you won't get any takers, though you might check with Dr Adequate who would apparently consider it a bargain.
And in fact it would be a bargain. But the free air everywhere else is an even bigger bargain. And that is why no one will pay you $10k for your year's supply of aironly insane people pay for something that is readily available everywhere else for free.
The only way you'll be able to get people to assign a higher value to air is if you somehow limited the supply (it's that old law of supply and demand again)
No. That's how to get people to pay a higher price for air; but it doesn't increase its value.
When the year 2012 comes to an end colleges and universities around the country will tote up incomes and expenses and report them on their financial statements, then when the next version of your graph comes out they will be reflected on the line for GDP. But the hypothetical future value of all those educations appears nowhere on your graph. No one knows because the future hasn't happened yet.
I am not asking you about the future. If we are going to use education as our example - Then I am asking what the effect investing in education over the last 30 years has had on productivity and thus GDP? In short what is the economic value of education investment made over the last 30 years? Where is this shown on your balance-sheet?
Percy writes:
I don't believe value and price are the same thing.
Good. Then you will necessarily agree that toting up the incomes and expenses of schools and colleges isn't going to give you the economic value of education investment made over the last 30 years.
Education is an investment in the future. Payments for educations are posted to the income statements of colleges and universities in the year they are paid. Returns from an investment in education are collected in subsequent years through higher salaries and a better career. They don't appear on balance sheets but on income statements, but income isn't broken down into two categories, one the amount that would have been earned without an education, and the rest the additional amount earned because of an education.
No one says an education has no value, but it doesn't have a value that can be assigned hard numbers. But if you're looking for where the returns from investment in education show up on income statements and balance sheets then you won't find them. That's the sense in which I mean value when I say it has none, that there are no hard numbers that appear on any accounting ledgers.
So why am I saying that some things have no value in this hard number sense when they so clearly have value in another? Because you presented a graph that included GDP and productivity, and those are hard numbers. The numbers for GDP and productivity are arrived at by toting up numbers from the the income statements from companies all across the country. These are hard numbers that are not made up. If you want to know how the money from productivity gains got into the hands of the wealthy then you have to follow the money, you can't just make stuff up.
The income statements posted each quarter by publicly traded companies tells us that the incremental income from productivity gains that is reflected in company income statements is paid out to company officers in extravagant salaries and share grants and various other perks. This increased company income could have been used to increase the salaries of the rest of the workers, but this occurred only to a small extent. Decisions like this are made at the highest levels, at the Boards of Directors level.
I can add up the contributions plus and minus at each level of a company from purchase of raw materials to R&D to sales and marketing and so forth and show how they find they their way onto income statements and then are finally toted up to appear on graphs of GDP and productivity. I know how the money flows through a company and how it is reported.
You have to follow the money. Before you again assert that companies are appropriating to themselves the proceeds from productivity gains that rightfully belong to the workers you must figure out how you're going to get it all to work out on the income statements that feed the GDP and productivity numbers you're basing your arguments on.
So we have clearly seen that the appropriation of increased productivity by the wealthiest has everything to do with balancesheet accounting and little to do with the human activities that actually create wealth.
You keep failing to see the obvious contradiction in your approach. You're using the "blinkered bookkeeping" numbers of GDP and productivity that use the measures of value you reject to argue that what they really show is that values they don't measure and that you have no numbers for but made up in own your head were appropriated by the wealthy.
Ideas, innovation, new technologies, they're all reflected in GDP measures. They show up on company income statement under R&D. If you want to see how the returns from these investments are being funneled to the wealthy then you have to follow the money trail. When you do you'll find it leads through company board rooms.
I said that a drop in supply would cause a price increase,
And you also said it would cause a value increase.
I understand now. You interpreted my statement using a definition of value other than the one I was using, and so it doesn't make sense to you.
If you have problems with the way I'm relating value and price to one another then it would be best to focus on that by either describing the problems you see or asking questions.
If for some reason the supply of vitamin C became limited in a region of the world (including in available food) then its perceived value would increase and the price would rise.
And that's false.
Actually that's standard marketing. The higher the perceived value of something the more people are willing to pay.
Actually, it should be a clear sign to you that your position is in trouble. I can find people all around the world willing to pay $0 for the oxygen in the air (I'll just call it air from now on).
But aside from yourself, can you find anyone else who will say it has no value?
If I could find anyone willing to pay me money for the air they're already breathing I would consider myself extremely fortunate. It isn't that air isn't essential for survival because it is. It's that it's in infinite supply, and the law of supply and demand tells us that goods in infinite supply have very little value in terms of what someone would be willing to pay for them. The only way you could get money for air is to contrive a situation where you could threaten to take someone's air away, but that would likely involve guns and kidnapping and sealed boxes, so let's not go there.
It might help to use an example that isn't essential for human survival, because I think that aspect is confusing the issue. Imagine you're on a beach and pick up a beach pebble. You decide to sell that pebble. How are you going to do that? Everyone on the beach can reach down and pick up a pebble as easily as you did. The virtually infinite availability of sand pebbles means the value of your pebble is zero.
But say you were a kid. You might fill your pocket with the prettiest sand pebbles, and then when you returned home maybe the lady next door would give you a few dollars for them so she could use them in her table-top waterfall sculpture. But this is only because sand pebbles are much more rare inland. It's the law of supply and demand again, and both will vary regionally. Air, on the other hand, tends to be everywhere.
No. They'll always have very, very low price. Which is different than value.
All you're doing is making clear that we're defining value differently. I've described how I view the relationship between value and price about a dozen times so far in this thread. How are you viewing it?
And in fact it would be a bargain. But the free air everywhere else is an even bigger bargain. And that is why no one will pay you $10k for your year's supply of aironly insane people pay for something that is readily available everywhere else for free.
Yes, that's precisely the point. Air is an essential element for survival but is virtually worthless as an economic commodity. And economics is the topic here, not health.
The only way you'll be able to get people to assign a higher value to air is if you somehow limited the supply (it's that old law of supply and demand again)
No. That's how to get people to pay a higher price for air; but it doesn't increase its value.
Again, this is simple marketing. The more people value something in economic terms the more they'll pay for it.
I realize you've got your hands full dealing with the rest of the crew, and they're largely working the same angle so I'll cover only the last bit of your post:
Seriously, Crash, a reality show? Really? This is where you're learning your economics? Did you know that at least some reality shows are in part planned/scripted? Do you know for a fact you can trust everything you see on this show?
Obviously portions of the show are contrived - it's usually the case that somebody shows up with an antique, and then Rick says "let me call my buddy, he's an expert in things like this" and then in the next cut, the expert is there; obviously that elides a timespan of hours or days where the expert's appearance is arranged, the customer comes back in, etc. But the people and their goods are real, because you can really go to the World Famous Gold and Silver Pawn Shop and see these people and buy and sell to them. They were a functioning pawn shop for years before they were on TV.
I don't claim I can "trust everything I see on the show" but these are obviously real customers with real antiques making real decisions about whether or not to take Rick's lowball offers.
So you're telling me that the expert tells the customer the gun is worth $15,000 and that the customer knows he can get $15,000 (or heck, even just $10,000) by selling it on eBay or traveling to the auction, but he instead sells it to Rick for $4000. What aren't you telling me here?
There's nothing I'm not telling you. You're just burdened by your own version of Morton's Demon, here; I'm telling you something that directly contradicts a cherished belief, and as a result you refuse to accept it or investigate it further. (Hence your angry denial that you don't have to watch even an episode of the show.)
Come on, get real.
How about you get real:
Civil War sword, authenticated by an expert and valued at auction for as much as $4000. Rick offers the guy $1000 and he takes it.
Here's the frame of a Shelby Cobra, valued as-is at $60,000 by an expert right in front of the guy; Rick and his dad (they jointly own the shop) offer $30,000 and the guy takes it.
That's what I could find on YouTube, anyway. Watching "Pawn Stars" will rapidly disabuse you of the applicability of "Homo economus" to real-world financial transactions.
If for some reason the supply of vitamin C became limited in a region of the world (including in available food) then its perceived value would increase and the price would rise.
And that's false.
Actually that's standard marketing. The higher the perceived value of something the more people are willing to pay.
And that's not a reply at all to what I said.
Actually, it should be a clear sign to you that your position is in trouble. I can find people all around the world willing to pay $0 for the oxygen in the air (I'll just call it air from now on).
But aside from yourself, can you find anyone else who will say it has no value?
If I could find anyone willing to pay me money for the air they're already breathing I would consider myself extremely fortunate. It isn't that air isn't essential for survival because it is. It's that it's in infinite supply, and the law of supply and demand tells us that goods in infinite supply have very little value in terms of what someone would be willing to pay for them. The only way you could get money for air is to contrive a situation where you could threaten to take someone's air away, but that would likely involve guns and kidnapping and sealed boxes, so let's not go there.
It might help to use an example that isn't essential for human survival, because I think that aspect is confusing the issue. Imagine you're on a beach and pick up a beach pebble. You decide to sell that pebble. How are you going to do that? Everyone on the beach can reach down and pick up a pebble as easily as you did. The virtually infinite availability of sand pebbles means the value of your pebble is zero.
But say you were a kid. You might fill your pocket with the prettiest sand pebbles, and then when you returned home maybe the lady next door would give you a few dollars for them so she could use them in her table-top waterfall sculpture. But this is only because sand pebbles are much more rare inland. It's the law of supply and demand again, and both will vary regionally. Air, on the other hand, tends to be everywhere.
So aside from yourself, can you find anyone else who will say air has no value?
I've described how I view the relationship between value and price about a dozen times so far in this thread.
And a dozen times differently at that.
Air is an essential element for survival but is virtually worthless as an economic commodity.
And that's also bullshit. I'm sure those people working at the coal-fired power plants can tell you how equally profitable it would be for their business if they didn't have air into which they could dump their toxic waste but instead had to bottle it all up and store it in tanks. Or those ranchers whose business would be just as profitable if they had to fit all of their cattle with oxygen tanks. Air isn't an economic commodity? Are you sure? Air doesn't play any role in any economic production at all? It's just worthless? Get rid of it and we might all die, but business will go on as usual?
Puh-lease! Give me a break sir. There's plenty of value in that air.
Oh but wait... it doesn't appear on a random list of costs and profits, so it therefore doesn't count.
You interpreted my statement using a definition of value other than the one I was using, and so it doesn't make sense to you.
What is this special definition? Where have you laid it out?
It isn't a special definition. As I've said many times in this thread, I'm using the definition of value from mainstream economics where value and price are closely related. The price people are willing to pay for a good will vary according to their perception of its value.
So aside from yourself, can you find anyone else who will say air has no value?
You mean in the sense of getting people to pay money for the same air that's freely available all around us? Sure. Can you imagine a circumstance where anyone would pay money for air? If you can get someone to pay you for air then congratulations, you could sell snow to penguins.
I've described how I view the relationship between value and price about a dozen times so far in this thread.
And a dozen times differently at that.
If you explain where you see contradictions then I will clarify.
Air is an essential element for survival but is virtually worthless as an economic commodity.
And that's also bullshit. I'm sure those people working at the coal-fired power plants can tell you how equally profitable it would be for their business if they didn't have air into which they could dump their toxic waste but instead had to bottle it all up and store it in tanks. Or those ranchers whose business would be just as profitable if they had to fit all of their cattle with oxygen tanks. Air isn't an economic commodity? Are you sure? Air doesn't play any role in any economic production at all? It's just worthless? Get rid of it and we might all die, but business will go on as usual?
Air is not an economic commodity because it never changes hands for money for the purposes you mention like breathing or burning coal. Changing hands for money is the definition of an economic commodity. Oxygen for hospitals or space stations or oxy-acetylene torches is an economic commodity because it changes hands for money.
Air is not an economic commodity but a natural resource that is ubiquitous and in virtually infinite supply.
You interpreted my statement using a definition of value other than the one I was using, and so it doesn't make sense to you.
What is this special definition? Where have you laid it out?
It isn't a special definition. As I've said many times in this thread, I'm using the definition of value from mainstream economics where value and price are closely related. The price people are willing to pay for a good will vary according to their perception of its value.
That tells me nothing. I could replace the word 'value' in your explanation with a dozen other words and still end up with a coherent and true sentence and yet walk away from reading it none the wiser as to what the hell those words mean.
I'm using the definition of 'demand' from mainstream economics where 'demand' and price are closely related. The price people are willing to pay for a good will vary according to their perception of its 'demand'.
I'm using the definition of 'scarcity' from mainstream economics where 'scarcity' and price are closely related. The price people are willing to pay for a good will vary according to their perception of its 'scarcity'.
I'm using the definition of 'quality' from mainstream economics where 'quality' and price are closely related. The price people are willing to pay for a good will vary according to their perception of its 'quality'.
This definition of 'value' is too vague and unspecific.
So aside from yourself, can you find anyone else who will say air has no value?
You mean in the sense of getting people to pay money for the same air that's freely available all around us? Sure. Can you imagine a circumstance where anyone would pay money for air? If you can get someone to pay you for air then congratulations, you could sell snow to penguins.
Okay. Well and good, but the question was: "So aside from yourself, can you find anyone else who will say air has no value?" Please, if you can, address that question, and not the several other invented questions you've so far been responding to.
Air is not an economic commodity because it never changes hands for money for the purposes you mention like breathing or burning coal.
This thread is suffering from a confusion between two ways of looking at value. The most significant problem is the steadfast denial by many that my way of looking at value is valid or even exists within economics. I'm hopeful that the following quotes will set this thinking to rest.
In neoclassical economics, the value of an object or service is often seen as nothing but the price it would bring in an open and competitive market. This is determined primarily by the demand for the object relative to supply. Many neoclassical economic theories equate the value of a commodity with its price, whether the market is competitive or not. As such, everything is seen as a commodity and if there is no market to set a price then there is no economic value.
Note the last part of the last sentence: "If there is no market to set a price then there is no economic value."
The subjective theory of value, also known as the theory of subjective value, is an economic theory of value that identifies worth as being based on the wants and needs of the members of a society, as opposed to value being inherent to an object. ... "Value" here is partially separate from exchange value or price, except insofar as the latter is intended to help identify the former; the value of any good or service simply being whatever someone would trade for it in the present. ... The theory holds that things become valuable in the economic sense (have exchange value or price) under two conditions: 1) They are useful in satisfying human wants, and are therefore desired. 2) There are not enough of them, or just enough of them, to satisfy demand. Any goods that are in unlimited supply would have no value.
Note that last sentence: "Any goods that are in unlimited supply would have no value."
Economists contrast economic goods with what they call free goods. A free good is something which can be obtained without any sacrifice. In more technical language, a free good is one that humans can obtain in quantities sufficient to satisfy their wants at a zero price. A free good is so readily available by nature that its quantity supplied exceeds quantity demanded. There is more than enough to go around, to satisfy the quantity demanded. An example of a free good might be fresh air in the country. ... Economists point out that both free goods and economic goods possess utility. People place a value on air; it just happens that in most cases, the quantity of breathable air supplied exceeds the quantity demanded. But things may be valued in two different ways. Some things like air and water are very valuable in use, but usually have no value in trade. Diamonds have a great deal of value in trade, but less value in use. Economic value is always in the eye of the beholder.
Pay particular attention to that last paragraph where it draws a distinction between value in use versus value in trade. Using their terminology, in this thread I've been talking about value in trade.
I don't know if their terminology is universal, but it is so useful in the context of this discussion that I shall adopt it. CS and I are talking about value in trade, and we've been very clear about that. The rest of you are talking about value in use, and further claim that no other way of thinking about value exists or makes sense, but there is little support for this position.
Hopefully the distinction between these two ways of looking at value is now clear and we can move on to focus on the discussion of value in trade, the context I originally intended when I began this thread.
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