Friday, January 14, 2005

Differences in wages in a free market

A common complaint from opponents of a free market system--as well as from others that just like to whine--is that professional athletes receive exorbitant salaries, whereas teachers and scientists, who presumably provide something more valuable to society, receive considerably less.

To me, this observation seems born of greed and arrogance. Greed, because the person making the observation cannot stand that athletes receives a higher salary, and arrogance, because making this observation demeans the economic decisions of those that don't think athletes are paid too much, and so are willing to buy tickets to games, watch them on television, and buy the various sports paraphernalia.

But still, this person could reply back that, no, it's not greed because I don't want to receive more money--it's just that doctors, teachers and scientists are more valuable to society than basketball players, and yet they are paid much less. Therefore, as the market system does not adequately award behavior that is beneficial to society, it is inherently flawed.

In this, again, is the arrogance and condescension toward the desires of other people, who have voted with their money to create the high salaries of other people. But it does raise the valid point, "is capitalism inherently flawed if it provides a higher salary to those that are less important to society as a whole?"

Don Boudreaux, Chairman of the Department of Economics at George Mason University, and contributor to the blog Cafe Hayek, provides an answer. He first acknowledges that the social benefit provided by some lesser paid occupations is greater than the social benefit provided by some higher paid ones:

Let’s all agree (because it’s likely true) that if all collegiate education were wiped out today, in a single stroke, the loss to society would be far larger than the loss would be if, instead, all professional baseball were wiped out in a single stroke.
Boudreaux then notes that the occupation of teaching, as well as the school he teaches at, would survive, and still flourish, even, if he where fired, whereas if a high power sports superstar were fired, it would have a noticeable impact on the team's performance and fan-drawing power. He then writes:

The total value that Americans place on professional sports is impossible to determine by looking at the salaries of professional athletes. These salaries reveal only the value to each team of each athlete. Likewise, it's a gross mistake to conclude that, because professional athletes are paid more than even Nobel Prize winning scientists, society values sports more than it values research and education.

Here Boudreaux is saying that while an individual basketball player might be more important to the occupation of basketball than an individual teacher is to the occupation of teaching, this says nothing about the worth of the actual occupations to society. It only means that fewer people possess the talents necessary to become a star basketball player than possess the talents neccessary to become a star teacher (about which Boudreaux writes, "Isn't this fact worthy of long and loud applause?!").

Boudreaux then concludes with an observation that capitalist detractors always seem to miss when pointing out the foibles of the free market system:

Finally, isn’t it wonderful that we are so very wealthy – that the masses of Americans earn such high incomes and have so much leisure – that as consumers we support very lucrative enterprises that entertain us so thoroughly?

We're drowning in affluence here, folks. We have sweaters for dogs, American Eagle mints, and more cellphones than there are men women and children. Again, greed is the only reason that detractors of capitalism continue to harp on it. Why should others get paid more than I? Never mind that all boats rise with the tide in capitalism, it isn't fair that some boats rise higher!

This reminds me of the famous quip: Capitalism is the inequal distribution of wealth; Socialism is the equal distribution of poverty.

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