Wages vs social value

Today is the 23^rd anniversary of the death of Townes Van Zandt, who is now universally regarded as one of the greatest songwriters ever.

And yet during his lifetime he made very little money. Even in his best years he got less than $100,000 from song-writing royalties, and for much of his life he might well have earned more from the oil drilling rights bequeathed by his rich family than from his music.

Which vindicates a recent tweet from Cameron Murray:

Actions that have social value only rarely coincide with actions that are monetarily compensated.

In Van Zandt’s case, this was partly because his genius was not fully recognised during his lifetime. But there are other reasons why Cameron point is correct in many more cases – reasons which are in fact entirely consistent with mainstream economics. I’m thinking of three ideas here.

1. Externalities. Let’s assume (heroically) that people are paid their marginal product. Even where this is the case, it is the private marginal product for which they are rewarded, not the social marginal product. The two differ because of externalities. A worker whose job generates huge carbon emissions or other pollution will have a wage greater than their social value.

There are other forms of pollution. There’s also risk pollution. In the run-up to the financial crisis, bankers were paid more than their social value because the risks generated by their activities would fall upon others; they were externalities. I suspect this is still the case.

And then there’s intellectual pollution. “Writers” such as Giles Coren or Toby Young have a highish marginal product for their employers, but their gibberings coarsen the public sphere. One baleful effect of Twitter is that this is brought to wider attention than previously and thus imposes a greater negative externality.

By the same token, there are also positive externalities, as when researchers’ findings inspire further ones. William Nordhaus has famously shown that innovators have captured “only a miniscule fraction of the social returns from technological advances.”

2. Compensating advantages. Adam Smith thought the rewards to work tended to be equal across all occupations, once we considered both financial and non-financial returns. And, he said:

Honour makes a great part of the reward of all honourable professions. In point of pecuniary gain, all things considered, they are generally under-recompensed.

So, for example, professions such as nursing carry low wages but these are offset by a sense of pride and honour. But professions where these are lacking must pay more to offset that lack.

In his wonderful Bullshit Jobs, David Graeber has revived this idea. Many businesses, he writes, “now feel that if there’s work that’s gratifying in any way at all, they really shouldn’t have to pay for it.” But the same bosses who begrudge paying writers, he says, “are willing to shell out handsome salaries for 'Vice Presidents for Creative Development' and the like, who do absolutely nothing.” This is pure Smith: financial rewards offset the dissatisfaction that comes from doing a bullshit job, whilst enjoyable work pays less.

3. Bargaining. Your income does not depend upon how much social value you produce. It depends upon your power to extract that value. And Van Zandt was typical of musicians in being unable to do so. In Rockonomics, Alan Krueger wrote that “musicians are not rewarded fairly for their services” because they earn little compared to the countless hours of entertainment they deliver. He pointed out that the typical musician made only $100 in 2018 from streaming and that many artists have suffered from bad record deals: Paul McCartney, he says, made more money with Wings than he did with the Beatles. Jolie Holland, the Van Zandt of our era, has said:

I barely make a living. I think you have to be famous to make a living. I live out of a suitcase.

Although Econ101 tells fairy stories of how W=MP, bargaining (pdf) models are in fact mainstream economics: I recommend chapter 5 of Sam Bowles Microeconomics for a discussion of them.

Yes, we can and should supplement such models with analyses of how power relations (which of course include sexism and racism) also affect (pdf) wages and drive further wedges between social value and earnings. But we don’t need to do so to see that Cameron is right. Mainstream economics alone shows that wages need not often coincide with social value.

Comments

[David Ballard]

Also the 66th anniversary of the death of Hank Williams. Happy New Year

[Impressionist]

Also:
Denise Coates - income

2016 - £217 million
2017 - £265 million
2018 - £323 million

Social value ?????

Hope no-one's going to point out that she gives to charity.

[Jeremy GH]

Re Denise Coates's charitable giving - looking at the Charity Commission website, her foundation received - from her companies, not her - a fraction of her income (£75M in 2018), and gave a smaller fraction (£10M)...

And re the relative financial rewards in the music business, the recent film 'Yesterday' has an an interesting take.

[Luis Enrique]

There’s also the mainstream concept of consumer surplus, which is about the gap between price and (subjective) value. Workers might get paid the marginal product, but that’s a physical quantity (“one unit of nursing services”) but the price at those quantities that workers produce trade at are a different question. If nursing sells at a lower price than vice presidenting of creative development, that by no means tells us the latter is more socially valuable than the former, even in the absence of externalities etc.

(I haven’t read it but my suspicion is Greaber’s book might be coloured by prejudice against private sector roles he does not understand. Plus he didn’t revive that idea as such e,g. http://eprints.lse.ac.uk/36001/1/Disspaper14.pdf )

[Luis Enrique]

Plus I'm not seeing any justification of the word "rarely". I reckon I could write a very long list of things that create social value and which are paid for in £

[Kevin Carson]

The distribution of wealth under capitalism results from a framing of "property rights" that mostly rewards where you're sitting or what you're sitting on, not what you've done. It's almost entirely a matter of rents of one kind or another.

[georgesdelatour]

It’s almost as if the value of songs depends on the subjective opinions of listeners; not in the number of hours of socially necessary labour time required to write them.

[Robert S Mitchell]

"In the run-up to the financial crisis, bankers were paid more than their social value because the risks generated by their activities would fall upon others; they were externalities."

The Fed took enough risk onto its balance sheet to stabilize panicky traders.

We can avoid a recurrence if the Fed explicitly sold panic insurance. Then banks could hedge against irrational, spreading panics.

The Fed could use the returns from selling panic insurance to at least partially fund a basic income, which recognizes everyone's value.

[Luis Enrique]

I realise retrospectively that this post is mostly about the amount of £ not coinciding with the amount of social value, whereas Cameron’s tweet was about the *things* not coinciding.

[Jim]

Who says Van Zandt's song writing had social value? You may think so, I (having never heard of him) think otherwise. By definition his songs can't have had much impact on society, no-one bought them, so no-one heard them. Or put another way, his financial reward was directly in proportion to the amount of people who put social value on his songs, ie not many people and not much reward.

Now if it was today, and his songs were being ripped off online, and everyone was listening to them for free, but he wasn't getting any cash for that I could see your point. But given no-one ever heard him much you can't say he had any great social impact can you? All you're doing is saying that 'in your opinion' he 'should' have had more impact than he did. Thats just your subjective opinion.

[Robert S Mitchell]

Jim, I think the underlying assumption is that anyone playing music has more social value than any financier. Even if you only play for yourself, at least you're not doing harm.

[asquith]

Perhaps you could buy yourself a soul as your next 'investment', Jim?

[Jan Wiklund]

I think the concept of "externalities" is rather flawed - people are social animals and most of what we do is hopelessly intertwined with what other people do. So almost everything are "externalities", in the meaning of interfering with the life of other people. It is only in the ridiculously individualist universe of mainstream economics that "externalities" becomes a strange exception.

[Jim]

" the underlying assumption is that anyone playing music has more social value than any financier."

You're never heard my musical ability, or lack thereof. Its social value would be something akin to that of the Luftwaffe c. 1940.

[Robert S Mitchell]

Jim: I'm reminded of a Gomer Pyle rerun on TV last night, in which Sergeant Carter was singing "Love is a many-splendored thing". No one thought he had talent, but isn't it socially better for him to sing rather than teach how to do violence efficiently? My position is that we would all be better off if soldiers sang all day long, even if they suck at it, instead of killing people and blowing things up all day long, even though they may be very good at that ...