Quotation of the Day…

by Don Boudreaux on July 3, 2015

in Complexity & Emergence, Hubris and humility, Myths and Fallacies, Prices, Reality Is Not Optional, Seen and Unseen, Work

… is from page 312 of Thomas Sowell’s 2009 volume Intellectuals and Society:

The intelligentsia … have encouraged the poor to believe that their poverty is caused by the rich – a message that may be a passing annoyance to the rich but a lasting handicap to the poor, who may see less need to make fundamental changes in their own lives that could lift them up, instead of focusing their efforts on tearing others down.

The intelligentsia have acted as if their ignorance of why some people earn unusually high incomes is a reason why those incomes are either suspect or ought not to be permitted.

I add here only that many of the intelligentsia who are here rightly criticized by Sowell are unaware of their ignorance of why some people earn unusually high (while other people earn usually low) incomes.  These members of the intelligentsia think they have this knowledge.  But as is so often true of a human being who is ignorant of X, his or her conclusions about X are typically mistaken despite his or her soaring confidence that he or she knows what’s going on.

Economically uninformed members of the intelligentsia (that is, nearly all members of the intelligentsia) seem, on my reading of much public commentary, to believe that workers’ pay – especially pay at the high end (such as the pay of CEOs) – is determine arbitrarily, by intention and design.  Thomas Piketty (who, as a trained economist, should know better) attributes high and rising CEO pay in the U.S. to a chummy relationship between corporate boards and CEOs, along with American social attitudes that permit boards to award CEOs high pay that is unconnected with the performance of CEOs.

Regardless of the particulars of each such ‘explanation’ of pay offered by this or that member of the intelligentsia, no such explanation is based upon any intelligent understanding of competition and marginal valuation.  Therefore, all such explanations – even the (relatively) more sophisticated ones that do not attribute all prices, wages, and salaries simply to some craftily designed scheme and intentional decisions of plutocrats – treat wages and salaries as being heavily determined by arbitrary forces.  It follows (in the minds of people who fall for such explanations) that good and smart government officials can counteract these arbitrary forces in ways that help ‘the poor’ yet which come either at the expense of no one at all or at the expense only of some ‘bad’ group of people who have somehow managed to arbitrarily serve themselves unjustifiably large slices of the economic pie.

Are wages paid to members of this group too low relative to your personal assessment of what this group’s wages ‘should’ be?  No problem.  Just threaten to cage or to shoot all employers of members of this group who refuse to raise the wages paid to members of this group.  Are salaries paid to members of that group too high relative to your personal assessment (My, what a god-like genius you are!) of what this group’s pay ‘should’ be?  No problem.  Just threaten to cage or to shoot anyone who is deemed responsible for setting such high pay yet who refuses to lower such pay to levels that you, with your uncanny brilliance, divine are appropriate.

In short, the explanation that most members of the intelligentsia have of the pattern of wages and salaries (and other prices) prevailing on the market is as intellectually credible as is the explanation that prehistoric humans had of the weather: it is determined directly by the often-capricious intentions of some mysterious and powerful mind (or cabal of such minds).


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