Saturday, January 23, 2010

Teacher vs Sports Star: Can Huge Wage Disparities Be Just?

A common complaint against the free market economic system is that it supposedly distributes money unfairly, so that people who perform apparently meaningless tasks are richly rewarded while more (again, apparently) useful members to society are not nearly so well off. I intend this to be a short essay showing not only that the critics making such a case are making assumptions that are not questionable and that the "less useful" rich individuals may be more useful than they appear at first blush.

First off, let us give an example of this criticism. A common target for criticism are athletes. A common example of the underpaid but valuable member of society is the teacher. The criticism goes something like this: "Why should a baseball player get paid millions to play a silly game while a teacher, playing a huge role in providing our children a future, get paid so little in comparison? We should tax those players a lot more, they do not deserve the money they have."

There are a number of assumptions in this criticism that should not be granted and the critic should have to support. First, we have the assumption that pay should be linked to some usefulness to society as defined by the critic. Society itself has made this determination and, via millions of economic transactions, reached this result that the critic dislikes. The critic needs to explain, explicitly, what criterion we should use to determine who gets what, as clearly they do not believe voluntary transactions and economic liberty lead to the proper conclusion. Their solution is made explicit: take away money from the ballplayers by force.

In the free market, every cent given to the ballplayer is given voluntarily; both the player and the team create a contract that they both agree to follow. The team received its money from fans who buy tickets, hats, gloves, and other memorabilia, again voluntarily. Nobody forced young Jimmy to cough up the money for a ticket; he paid because he saw the value of the ticket to be equal to or more than the money paid to purchase it. Everything is done voluntarily here. If the critic wishes to impose involuntary transactions of money (making somebody worse without any compensation), the moral burden lies on them to defend that over a system of voluntary exchange.

But is the teacher really worth more than the ballplayer? I would argue no; the market gives more to the ballplayer because he is worth more than the teacher.

I'll wait for the screams of protest to die down...ok.

I'm planning to become a teacher myself, so I have some idea as to their worth. Qualitatively, the education a student receives is probably worth a great deal more to that individual than following any particular sports team. Unfortunately, most people end their analysis of the situation there. There is another factor to take into account, however, and that is the number of people who gain happiness. The total value of a person to society is the quality of their value multiplied by the quantity they produce.

Let us assume a baseball player is worth 1/1000 of a teacher to any particular person. That teacher (let us make him a high school teacher) may have around 100 students per year; in a 30 year career, that gives us 3,000 students. The value of that teacher to society is as follows:

1T (T=value of a teacher) X 3,000 = 3,000 T

Now, our baseball player may entertain ten million fans over their career. That number is probably low, but it is nice and round and in the ball park (forgive the pun!). The value of that player, to society, is as follows:

.001T X 10,000,000 = 10,000 T

So, using these numbers, we came out with a result showing the baseball player is worth over three times as much to society as the teacher. This is not meant to actually determine the value of a particular profession over another, but merely to illustrate that it is possible for a perceived "inferior" person to society, who it is popular to hate for their wealth, may be of more value than another, supposedly "better" individual. These numbers are also rather stringent against my case; most people gain very little value from their various high school classes while they gain a great deal of happiness following their teams. Also, the number of fans may very well be higher, while the number of students can be lower, especially if we include students who repeat classes (lowering the number under 3,000 of different pupils the teacher has). But the point is made: the populist tug towards envy of those who make a great deal of money is not necessarily based in reason or ethics.

The free market is composed of billions of individual transactions, all of them voluntary. Each person looks at a potential offer and evaluates the situation for themselves. If the proposed trade is equal to or greater than the cost paid, the transaction takes place, and no coercion occurs, respecting the humanity of the other person. If the proposed trade is less than the value of the cost, no trade occurs, again without coercion.

Those who wish to introduce coercion into the system (statists, American liberals, socialists, communists, etc.) propose harming certain people in favor of others. The burden lies on them to explain why such harm should be introduced into a system lacking such coercion. Some criteria needs to be stated to show how we will know how much any particular person "deserves" to make, as to avoid those given power to remake society abusing that coercive power for their own gain. It also needs to be shown that the results of such a system will be better than that of the free market, whether for all or for some, and in the latter case it must be explained why certain people should be made better off via force. I believe any statist who takes up this challenge will find the second portion (the criteria by which we determine economics, other than individual liberty) to be the most difficult, if not impossible, aspect.

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