Minnesota’s Economic News — W/E 6/2/23
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It makes everyone richer.
When the Star Tribune published an article in August entitled, “Worker pay stagnates as it soars for CEOs,” it missed an opportunity to achieve balanced reporting. The article amounted to an uncritical summary of a report produced by the left-wing Economic Policy Institute, without any alternative research or viewpoints.
First, the piece failed to reveal the Economic Policy Institute (EPI) is largely funded and run by labor unions and left-wing academics. EPI is described as a nonprofit think tank “that focuses on low- and middle-income Americans,” language lifted almost word-for-word from the organization’s website.
By contrast, when describing think tanks like Center of the American Experiment that lean toward free-market solutions, the Star Tribune almost always uses the “conservative” qualifier.
Second, the article never explored the idea that certain professions might be worth paying more for. As British journalist and politician Daniel Hannan has explained, in today’s global economy there is “wider international competition for top jobs” and “the difference between a moderately competent CEO and a brilliant one is worth billions. The same is not true of drivers, cleaners, receptionists—or newspaper columnists. That, in a nutshell, is what dictates salaries.”
Third, the piece didn’t offer a single alternative viewpoint to assertions such as, “we could tax away half of what [CEOs] take in, and I think the economy would be the same size.”
James Brandt got it exactly right in his letter published by the Star Tribune on Jan. 23, 2017: “If Bill Gates and the other rich men had never been born, the world would be worse off, and the poor would be no richer.”
Creating value, and thus wealth, does not hurt the poor; it makes everyone richer. This fact has been quantified by Yale economics professor William Nordhaus, who found “most of the benefits of technological change are passed on to consumers rather than captured by producers.” His research for the National Bureau of Economic Research reported that innovators capture about 2 percent of the value they create and the other 98 percent flows to consumers.
Need further convincing? Jason Furman, who served as chair of the Council of Economic Advisers in the Obama administration, said, “There is little dispute that Walmart’s price reductions have benefited the 120 million American workers employed outside of the retail sector. Plausible estimates of the magnitude of the savings from Walmart are enormous—a total of $263 billion in 2004, or $2,329 per household.”
Sure, Sam Walton’s heirs are wealthy— about $100 billion among them—but consumers are receiving value of over $250 billion a year from that creation. So over 20 years we’ve received $5 trillion in value for the $100 billion kept by the Walton family. That’s quite a deal.
On a purely practical level, should we really care that great innovators keep two percent of what they create? No, we should want to create more value, and our focus should be on reducing poverty, not inequality. If that means more people will become rich, all the better.
The result of technological advance, innovation, and free-market globalization has been wonderful and breathtaking. The last 100 years (or 50, or 25) have seen the greatest reduction in poverty in human history. In 2015, 68 percent of the world population had access to proper sanitation facilities compared to only 24 percent in 1980. Every day for the past 25 years, 285,000 more people have gained access to safe water.
Johan Norberg, Swedish author of Progress: Ten Reasons to Look Forward to the Future, said, “When we don’t see the progress that we’ve made, we begin to search for scapegoats for the problems that remain.” You don’t need to like the super-rich, but you should recognize that most of them got there by making the rest of us richer, and not fall for rhetoric that somehow blames them for trapping others in poverty.
A version of this article first appeared as a “Counterpoint” in the Star Tribune.