Sometimes Living Like a King Isn’t Good Enough

Lower and middle income Americans are living better than kings, writes Richard Rahn in this Washington Times article.

As we go into this Christmas week, you should count your blessings that you live in 2014. Would you prefer to live as the French King Louis XIV did (1643-1715), or as you do today? The average low-income American, who makes $25,000 per year, lives in a home that has air conditioning, a color TV and a dishwasher, owns an automobile, and eats more calories than he should from an immense variety of food. [Source.]

Richard Rahn recommends the HumanProgress.org site to learn more.

As we struggle with our everyday challenges and watch news stories of disasters and conflicts around the world, it is easy not to notice the steady progress of most people around the world.

Against the ongoing material progress people actually live is the world they read about and hear about from friends. That world is often painted as one of growing inequality. We may all be living better than 17th Century kings of Europe, but some of us are are apparently living too much better. Instead of learning to enjoy the material prosperity often taken for granted, many focus on apparent injustice in income and wealth distribution.

I would argue that in the income inequality debate, most people don’t really care that some jobs pay more than than others. People generally wish to earn more but most understand that making more means producing more. Earning higher wages means finding ways to work harder or smarter. Servers in a restaurant understand that waiting more tables translates to receiving more tips, unless the quality of service falls trying to handle too many tables.

Servers who believe they are treated unjustly by management usually can turn to other restaurants for work, or to other occupations. At the local Trader Joe’s, many of the employees I talk to are taking college classes full-time or part-time. They are investing in themselves, increasing their “human capital” to increase their future income-earning ability (and likely enjoyment).

The lack of equity that matters to most people isn’t income difference, since they understand incomes reflect different skill levels. People are instead more likely to get upset by injustice. Lack of equity is when people are treated unfairly.  Some are paid more than others for reasons that seem unjustified.

A recent article about layoffs and the New York Times, notes not just the financial shortfalls leading to a hundred journalists being let go, but reports also that a company executive who is a cousin of the company owners is being paid $2 million dollars a year. That just doesn’t seem fair. Plus the article notes that many top female executives at the New York Times have been let go. That seems unfair too.

In a market economy, wages are connected to productivity. The value of the goods and services a person produces or helps produce set the upper limit on wages. Among the many challenges for managers is to figure out what contribution each employee provides, and how to best compensate them. Pay too much and other employees can become angry and jealous. Pay too little and high value employee will be hired away by competitors willing to pay more.