From whence comes income? (Walter Williams)

Town Hall ^ | 04/23/03 | Walter Williams

[Kwilliams]

Here's part of a letter from a reader: "A hard-working, conscientious person can earn $10,000 a year in a fast-food restaurant. At the same time, movie stars and athletes, who make very little contribution to society, can earn in excess of $10,000,000 a year. A baseball player earns more with every swing of the bat than many people do in a year."

The reader's inference is that there's something unfair about income differences of such magnitude. It also reflects ignorance about the sources of income in a free society; that's music to the ears of political demagogues with an insatiable taste for command and control.

I think some of the ignorance and much of the demagoguery stems from the usage of the phrase "income distribution." It might make some people think income is distributed; in other words, there's a dealer of dollars. The reason that some people have few dollars while others have millions upon millions is that the dollar dealer is unjust.

An alternative vision might be that there's a pile of money intended for all of us. The reason why some are rich and some are poor is that the greedy rich got to the pile first and took their unfair share. Clearly, in either case, justice would require a re-dealing, or redistribution, of the dollars, where the government takes ill-gotten gains of the few and returns them to their rightful owners.

Most people, except a few congressmen, would view those explanations of the sources of income as nonsense. In a free society, for the most part, income is earned. It's earned by serving and pleasing one's fellow man.

Why is it that Michael Jordan earns $33 million a year and I don't even earn one-half of one percent of that? I can play basketball, but my problem is with my fellow man, who'd plunk down $200 to see Jordan play and wouldn't pay a dollar to see me play. I'm also willing to sell my name as endorsements for sneakers and sport clothing, but no one has approached me.

The bottom line explanation of Michael Jordan's income relative to mine lies in his capacity to please his fellow man. The person who takes exception to Jordan's salary or sees him, as my letter-writer does, as making "little contribution to society" is really disagreeing with decisions made by millions upon millions of independent decision-makers who decided to fork over their money to see Jordan play. The suggestion that Congress ought to take part of Jordan's earnings and give it to someone else is the same as arrogantly saying, "I know better who ought to receive those dollars."

Another part of the explanation for Jordan's high salary is simply a matter of supply and demand. If there were tens and tens of millions of people with Jordan's talents, you can rest assured he wouldn't be earning $33 million a year. And similarly you can bet that if people really valued hamburgers and there were only a few people with those skills, they'd be earning much more than they currently earn.

We might think of dollars as being "certificates of performance." The better I serve my fellow man, and the higher the value he places on that service, the more certificates of performance he gives me. The more certificates I earn, the greater my claim on the goods my fellow man produces. That's the morality of the market. In order for one to have a claim on what his fellow man produces, he must first serve him. Contrast that moral standard to Congress' standing offer, "Vote for me and I'll take what your fellow man produces and give it to you."

©2003 Creators Syndicate, Inc.

[kylaka]

Walter Williams is a precious asset to collective knowledge of this country. I'm currently reading Sowell's "Economics" for the economicaly impaired. Though he wrote it in plain english, without charts and graphs, it still takin' me awhile.

Anyone with even a grain of knowledge about capitalism, versus the alternatives could never, ever vote for a democrat.

[Black Agnes]

ping.

[rainingred]

While I am a big fan of Walter Williams, I think his use of professional athletes as an example of beneficiaries of a free market is off the mark. Tax payers subsidize most of the major league sports franchises. We do it by building their arenas and sports facilities. If the owners of baseball , basketball and football teams had to pay for their own venues their "employees" incomes could suffer.
I'm not aware of any fast food franchises who's facilities are subsides by US dollars. But, in this day and age, I could be wrong . . .

[Capitalism2003]

I just finished William's book "More Liberty Means Less Government: Our founders knew this well"..excellent read...lighter reading than Sowell but packed with just as much liberty-minded common sense. Pick it up on Amazon, or wait a few days and I'll list mine on Ebay :)

[mcenedo]

bump for Walter.

He is one of my favorites (Krauthammer, Sowell, Coulter and Horowitz would fill my top 5.)

[fabian]

I hope we end the "redistribution" of workers hard earned money with the national sale tax and dump the income tax.

[Lady Eileen]

I hope Rush will have Mr. Williams guest host sometime soon......he is my favorite.

[Black Agnes]

That sounds terribly 'mark of the beast'ish. Nobody can buy or sell w/o the 'mark'. Not that you don't need it to earn money now. Just that it would match the wording more exactly than income tax.

[Libertarianize the GOP]

http://www.freerepublic.com/perl/bump-list

[John H K]

Well, our farmers are heavily subsidized, and the food that fast food restaurants buy is bought from them.

[Badray]

" I'm not aware of any fast food franchises who's facilities are subsides by US dollars. But, in this day and age, I could be wrong . . ."

As could I, but I believe that Mickey D is one of the largest beneficiaries of government largess, particularly in it's overseas operations. But beyond that, even if there were no subsidies to sports, what would Jordan make? Only $30 Million? Or $15 Million? It's still a lot more than the whopper flopper will ever make.

Williams nails it again. Jordan is rewarded by the market for his talent. So was Ray Kroc. How many Jordans and Krocs are there? Not many or they wouldn't earn what they earn.

[ggekko]

Supply and demand determine prices. Librarians are among the most chronically unhappy and cranky professional group I have ever encountered. The reason is that while librarians are highly educated and have mastered some arcane skills there is little demand for their services and they therefore tend to be very poorly paid.

Baseball players, by contrast, have skills that are extremely rare and are in high demand. Very few men can hit a major league curveball. In the total scheme of things it is a trivial skill but it is nevertheless very rare.

[Badray]

1] How difficult is your skill to learn?

2] How easily can you be replaced?

3] Is there a demand for it?

Do you think that the librarians (with all that education) ever stopped to realize that they weren't going to be highly paid?

[ggekko]

"1] How difficult is your skill to learn?"

My skills are probably somewhat harder to obtain than
average; that doesn't mean that I indulge in the idea
that I am owed a certain degree of compensation because
of the degree of difficulty involved in obatining these
skills. The degree of difficulty and expense involved
does, however, tend to restrict the amount of competition
in a given field.

"2] How easily can you be replaced?"

More easily than a neurosurgeon less easily than a
garbageman.

"3] Is there a demand for it?"

Less than for a neurosurgeon more than for a garbageman.

"Do you think that the librarians (with all that education) ever stopped to realize that they weren't going to be highly paid?"

I am not sure; the ones that I have met do seem to resent their level of compensation. They apparently did not give the matter enough thought in college.

There is only a very broad relationship between education level and income. Among various professions the relationship between education level and income is more complicated.

Doctors often make the argument that thay are entitled to a higher level of income by virtue of the amount of training involved with becoming a Doctor. The reality is that Doctors have been very effective as group in controlling the medical market through the AMA. The AMA indirectly controls how many medical students are admitted to medical school and is very effective in detering non-Doctors from performing even routine medical procedures. This restriction of medical practice tends to inflate Doctor salaries.

Architects are, according to the Government, are the most educated professional group and yet on average architect salaries are much lower than Doctor salaries. The Architect's professional organization has not been as effective in restricting access to "para-architect" services as the AMA has been for Doctors. In general the demand for a typical architect's services is less than that seen for a typical Doctor and architects have been less successful in restricting access to their services than Doctors have been.

The fact that market forces can greatly influence income levels among different professions is anathema to the left. "Comparable Worth" and other such schemes are attempts to replace market for labor with social engineers. It won't work because such schemes will create shortages in high demand fields but that won't stop the left from trying it anyway since they are impervious to reason.

[farmfriend]

I don't listen to Rush anymore but when I did, I always loved it when Walt would fill in. I may have liked him more than Rush. Dr. Sowell, I think I have that spelled right, filled in a few times in the earlier years. Liked him a lot as well.

[MeekOneGOP]

BIG bttt for later read. Thanks for the ping.

Walter Williams, my second favorite Dubya ! :O)

If you have a ping list, I'd like on it. If not, I'd like on the WW ping list, whoever has it!

[MeekOneGOP]

He is one of my favorites (Krauthammer, Sowell, Coulter and Horowitz would fill my top 5.)

And surely Mark Steyn is somewhere just below there, eh? :O)

[mhking]

Black conservative ping

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[RWG]

The bottom line explanation of Michael Jordan's income relative to mine lies in his capacity to please his fellow man...dealers and hookers do the same but they get arrested. Pleasing fellow man is no justification for anything, the senate pleased clinton.