Cut the Working Week to Share Out the Work

Our economic system urging both parents to work causes immense damage to children. 20 per cent of young people aged 18-24 are unemployed in the UK, a far higher rate than for the rest of the age range (16-64), which was 8.4 per cent. In the US, the unemployment rate of 16-24 year olds was a staggering 53.4 per cent! Yet the government continually increases the retirement age forcing the elderly to work in the expectation that they will die without ever collecting a state pension, while the youth have zero prospects. Does this make any social sense? It will leave a generation of young people wasting their youths struggling to find work, while the elderly have to work to avoid pension poverty.

It is all part of the One Percent's strategy of bringing on a Third World wage economy by driving people to accept low pay or face losing their jobs in factory closures and switches to the Third World. This was proved by a report from the UK Labour Force Survey which found 5.3 million workers put in an average of 7.2 hours of unpaid overtime a week last year, worth around £5,300 a year per person.

What is needed for social and economic fairness is, first, for the rich One Percent to cough up more of their accummulated wealth—in short, for them to pay their whack to alleviate a crisis brought on by their own greed. Then, second, for everyone else the available work should be shared fairly. A shorter flexible working week would provide more free time, allowing parents to spend more of it with their children, and teenagers more chance to get work skills. 20 hours a week seems a sensible sort of level, but the whole idea flies in the face of orthodoxy. If wage rates remained the same, many people could not afford it, so other changes would have to be made. Readjustments have to be made—increasing pensions and reducing the retirement age, allowing jobs to be released for the young to get essential work experience.

One idea touted for long is that everyone should get a state allowance—rather like the UK Child Allowance—replacing multiple benefits, then those who would rather not work, the elderly, the infirm, yes and those content not to work but live on a low income but be able to develop their personal skills, be educated better, become artists, musicians, develop their own businesses They need not be employed, leaving them free to do as they wished, while those motivated by remuneration could fulfil their own ambitions. In this increasingly technological world, we all, governments too, have to get used to the fact that when robots are doing the work, employment will be at a premium, but businesses and the economy still requires people, employed or not, to be able to spend. Robots do not. Without spending power no one can buy, and no one can make money serving robots!

The Ultra-rich—Intelligent? Talented? No, Lucky and Brutal

The ultra-rich 1% claim that they have unique qualities that explains why they are where they are—among the ultra rich. They credit themselves with success for which they were not responsible. Many got certain richly rewarded jobs by a ruthless greed or by being born to the right parents, talents that they would rather not boast about, so they claim it is intelligence, creativity, hard work, enterprise or acumen, much more acceptable talents.

In findings that have been widely replicated, psychologist, Daniel Kahneman, winner of a Nobel economics prize, studied for eight years the results of 25 wealth advisers. Their average performance was zero, but, when their results were above average, they got bonuses. Traders and fund managers across Wall Street had their massive compensation for success hardly or no better than random. Doubtless they got bonuses even when they did badly because everyone is allowed to have a bit of bad luck! Surprise, surprise, the city slickers did not want to hear Kahneman's findings.

So much for the financial sector and its super-educated analysts. As for other kinds of business, you tell me. Is your boss possessed of judgement, vision and management skills superior to those of anyone else in the firm, or did he or she get there through bluff, bullshit and bullying?

In another study “Crime and Law”, Belinda Board and Katarina Fritzon psychologically tested 39 senior managers and CEOs of leading British businesses, then performed the same tests on patients at Broadmoor hospital, a mental hospital for convicted criminals too insane for prison. On certain criteria, the manager’s scores matched or exceeded those of the criminally insane patients, beating even some psychopathic patients. These criteria are just those which closely resemble the characteristics that companies look for in managers. Some are:

• their skill in flattering powerful people to manipulate them
• egocentricity
• a strong sense of entitlement
• a readiness to exploit others
• a lack of empathy and conscience.

Paul Babiak and Robert Hare also point out in their book Snakes in Suits, that psychopathic traits are more likely to be selected and rewarded in modern management. So, while those with psychopathic tendencies born to a poor family are likely to go to prison, those with psychopathic tendencies born to a rich family are likely to end up as top managers. CEOs now take from their businesses “rewards” disproportionate to the work they do or the value they generate. Business has been rewarding the wrong skills.

The über-rich are called the wealth creators, but they have preyed upon the earth’s natural wealth and workers’ labour and creativity, impoverishing both people and planet. Now they have almost bankrupted us. The wealth creators of neoliberal mythology are actually wealth destroyers. In the US:

• between 1947 and 1979, productivity rose by 119%, while the income of the bottom fifth of the population rose by 122%
• between 1979 and 2009, productivity rose by 80% , while the income of the bottom fifth fell by 4%
• in roughly the same period, the income of the top 1% rose by 270%.

In the UK:

• the money earned by the poorest tenth fell by 12% between 1999 and 2009, while the money made by the richest 10th rose by 37%
• The Gini coefficient, which measures income inequality, climbed in this country from 26 in 1979 to 40 in 2009

The undeserving rich are now in the frame, and the rest of us want our money back.

George Monbiot

George Monbiot writes, usually excellently penetrative articles, in The Guardian and on his own website. In the article above, his latest (8 November) essay is summarized in slightly edited form. See the originals at the link given here, or at The Guardian.

America Stops Laughing to Correct Apoplectic Republican Comic, Rush Limbaugh

Alternet has a plethora of interesting articles and often more interesting and informative comments. This link is to a comment thread to a short article about the right wing propagandist Rush Limbaugh, who is no repecter of the truth or even of facts. A comment by passnthru2 noted:

1. The richest 1 percent has 43 percent of the nation’s wealth—6 times that of the bottom 80 percent, which has just 7 percent
2. the richest 5 percent has 72 percent of the nation’s wealth—10 times that of the bottom 80 percent
3. the top 20 percent has 93 percent of the nation’s wealth—23 times that of the bottom 80 percent
4. the top 50 percent has 97.5 percent of the nation’s wealth—39 times that of the bottom 50 percent which has 2.5 percent

44 percent of Americans couldn’t get $2000 together if their lives depended on it, while the richest 400 families:

1. have $1.4 trillion, and yet,
2. pay under 14% income tax

These rich people and the big corporations they own are sitting on piles of cash, yet they refuse to pay decent wages, and do everything in their power to lower the workers wages, for example using professional bigots like Rush Limbaugh whose splenetic rants impress a substantial section of the redneck population. It explains why there is a recession, and illustrates the huge fault in capitalism.

The rich always want more, and have to drive up profits to get more. They can do it by charging more and by paying their workers proportionally or absolutely less. They can even move their businesses abroad and pay the domestic worker nothing at all! But when people have less to spend whether it is absolutely less through wage cuts or relatively less by price inflation, they cannot afford to buy as much as they could previously. The retail trade goes into recession, and manufacturing businesses follow.

RustyCannon observed that if they were to pay people better, retail and therefore industry would be stimulated. Poor workers necessarily spend what they receive in earnings. They do not earn enough to save it. So the economy would be stimulated if the rich would just realize that they are starving the economy of liquidity by their greed. If the rich will not do it then the government must. President Carter created jobs, then Reagan came in, cut taxes for the rich, and drove unemployment through the roof.

The theory was “trickle down”. Give the rich more tax breaks and less regulations and they will spend more readily, employing people to expand their businesses. It doesn’t work. Republican President, George W Bush did not create as many jobs in the two terms of his presidency as did Carter in the single term he had. The rich just begin to expect more tax breaks to accumulate more risk free wealth—it is easier than taking the risks of trading. 30 years of this has just lead to manufacturers closing factories and destroying lives at home to move maufacture abroad to low labor cost countries. 50,000 manufacturing companies went in the Bush administration alone.

The large and enterprising middle class that was the economic engine of the USA is being impoverished by the stranglehold the rich have on the nation’s ready money—the top 400 wealthiest own more than the bottom 150 million. The economy is starved of demand. Middle class wages have been flat for 3 decades, yet the cost of living has continued to climb. Two income homes are now needed just to get by. The middle class no longer has as much disposable income, and what it has is falling, leaving its demand for products and services lower, with knock-ons to other small businesses dependent on them.

When people, encouraged by the sleepwalking bankers, began using the equity in their homes, they created a false demand bubble, and a false sense of prosperity. Disastrous greed among bankers who thought our money was theirs, led them to gamble with those unsound derivatives. Trading them backwards and forwards each day yielded immense bionuses for doing nothing in the least bit useful. That bubble burst, leaving us in the mess we are in, yet with no will to regulate the banksters and the rentiers, and sustained “head in the sand” insanity among Republicans determined to tie down Obama, and bring him down, if at all possible.

Further cuts as demanded by the Republicans can only make the situation worse, and that is the fault of the Republicans themselves who ought to have accummulated in the good years to spend in the bleak ones. They spent through the good years and now, when spending is the only way out of depression, they want to cut. Strong financial regulation and a New Deal like FDR’s will be necessary to reinvigorate the economy—measures that Republican bigots like Limbaugh call socialism for the sake of their indoctrinated disciples.

GBS—What Obama Should Have Done in the Face of Congressional Budget Opposition

…the existing system is in essense nothing but a gigantic robbery of the poor. what is the matter with society is that the legal owners of the country and its capital are getting for nothing whatsoever an enormous share of the wealth produced from day to day in this country… balancing the Budget or forming a Budget was simply this: how much money can we get out of the people?

G B Shaw, In Praise of Guy Fawkes, 1932

Of course, when all the measures directed at the poor are insufficient, a capitalist President and Congress have to consider taxation of the rich, who will never consent until the politicians have convinced them that every last dime has been screwed from the people. Today, they are even greedier and more unreasonable than they were in the 1930s, and we know how they ended!

If Obama were a socialist, having no socialist majority in Congress, according to Shaw, he ought to have resigned in the face of the idiotic Congressional Republican opposition. He should have said:

Very well, I resign, so you Republicans take this budget in hand yourselves. I know perfectly well that you will do everything you can to get the money without coming down on the rich. You will cut services and amenities, and tax every dime of earned wages and nothing or as little as possible on unearned incomes. You will pretend that the US of America will be communistic if a dime of the vast wealth of the rich is conscripted on behalf of the country, and will continue in the face of the dire situation to leave the rich all their tax breaks and bacon lard.

You will not mention what sum of money those tax breaks mean to the treasury, and therefore to the people, nor what the treasury could raise if the rich were obliged to pay tax even at the same rate as the poor, let alone the higher rates that are justified. The poor will spend their money here in the US, creating jobs for others, and demanding goods and services boosting our economy. The rich spend and invest much of their money abroad, depriving the US of jobs, goods and services, and breaking communities in the process.

Very well, serve the rich according to your traditions, and take the plaudits of success or the consequences of failure. I am not in on this deal. My conscience is clear.

LA Dodgers a Microcosm of American Society

The LA Dodgers are bankrupt. They do not have the cash to pay their employees’ wages. We are talking about a community here. The Dodgers are a baseball team much loved by its many patrons, as sports teams usually are, whether big or small. And the Dodgers are bankrupt despite recent success—they made the play offs as recently as 2008 and 2009. Why then has this catastrophe engulfed the team? Andrew Gumbel of the UK Observer has explained it.

The fact is that the owner of the team has sucked them dry for his own aggrandisement. It should be a lesson for Americans, especially those who persistently defend the mega rich, people whom they do not know and never will, and people who are richer than they can ever imagine—America’s plutocrats, the corrupt and greedy rich.

Frank McCourt, not the deceased Irish novelist but a car lot magnate, bought the team and bled it dry to support a life of luxury for himself and his family. McCourt bought the Dodgers from News Corp, who had used it to build up a regional sports network. To do it, McCourt borrowed $150m from Bank of America, $75m from Major League Baseball and $196m from Fox, so he had not spent a penny of his own money.

McCourt then sliced off what was most profitable, the stadium car park and the ticket office as his own operations, which charged the Dodgers rent, and, in turn, giving McCourt security to borrow more dollars. He paid himself $5m a year, his wife, Jamie, $2m pa as chief executive, and their two children $600,000 each—one was a student at Stanford University and Goldman Sachs employed the other. McCourt also enjoyed a private jet and four luxurious houses in Hollywood and Malibu. In typical robbing financier style, the money and debt were spread among, and constantly moved between McCourt’s shell companies and subsidiaries to hide what was going on.

And what was going on was that the assets of the team were being stripped and moved into the personal accounts of a single family and a few hangers on.

Yes, it ought to be a lesson for the average American, whether poor and unemployed or middle class and imagining that they are well off. You just do not have a clue, especially you Tea Partiers taken in by rich men’s stunts to keep you on side. The invisible über rich of the USA are taking you all for the same sort of ride as McCourt took the community that supported the LA Dodgers. They are robbing you silly, and too many of you are defending them!

You cheer because they are sending your boys to distant lands to get maimed and killed, and they make money out of armaments and the vast support industry of the military-industrial complex that supports it. Often you don’t even get a badly paid job out of it. They manufacture more and more abroad in low cost countries. You lose your jobs, or the threat is used to keep wages down or to get concessions from the city and the state treasury, and all of it goes into pockets just as McCourt’s did. You don’t know what is going on because they are like McCourt experts in hiding it, and have a gigantic publicity service called the media to feed you anything to keep you confused and divided.

Get real! You Yankees are like the Dodgers fans—being conned!

Is the Wagon Rolling Against the Robbing Rich?

Amid the recent fiscal carnage in Washington several studies of the US have been published concerning the situation of the average American. First, IMF economists analyzed the US public deficit and debt levels, and their relation to the demands aging Baby Boomers will place on the government’s Medicare and Medicaid healthcare programs, while the birth rate lags at a record low:

The United States is facing an untenable fiscal situation due to the combination of high fiscal deficits, an aging population and rapid growth in government provided healthcare benefits.

IMF study, An Analysis of US Fiscal and Generational Imbalances:
Who Will Pay and How?

To “go a long way in returning the United States to a fiscally sustainable path”, the US government must cut the entitlement programs and especially healthcare—among the most expensive in the world—that face rapidly rising costs in coming years. Americans will have to pay more taxes and the government will have to cut spending on Baby Boomers—those Americans between about 45 and 65—and their immediate heirs.

To eliminate all current deficits and long term shortfalls on social plans for the current generation “would require all taxes to go up and all transfers to be cut immediately and permanently by 35 percent”, and “delay in the adjustment makes it more costly”.

Unless currently living Americans pay more in net taxes or unless government spending on current generations is curtailed, future Americans will face net tax rates that are about 21.5 percentage points… higher than those facing current newborn Americans.

Of course, the IMF is an arm of US foreign policy, or rather, an arm of the international policies of the US uber rich class who rule the world for the sole purpose of making themselves richer than their already obscene levels of riches. The IMF always makes the people pay whenever the rulers of any country get its finances in a twist by their greedy machinations. The ruling clique in the US are among the main beneficiaries usually. It is time they paid! Normally, they pay least, often nothing!

But the average Yankee seems amazingly placid, or gets worked up over the wrong enemy, all too often supporting the greedy manipulators because they are all too easy to fool. Often, they seem to think that they are themselves among the uber rich, but less than a single percent of the population are. That one percent have gotten three times richer in real terms over the last 30 years, while the average Yankee has got poorer once inflation is accounted for.

Not surprisingly, more Americans say that their financial situation is worse not better in recent years. For the first time since 1972, 31.5 percent of Americans are “not at all” satisfied with their financial situation compared with 23.4 percent who are “pretty well” satisfied (General Social Survey, NORC, University of Chicago).

Americans are also more insecure about employment. A record 16.4 percent thought it “likely” (fairly or very) that they would lose their job or be laid off. As few as 52.2 percent thought it “not at all likely” that they would lose their job or be laid off, easily the lowest confidence ever recorded by the GSS. Those who thought their standard of living was “much better” or “somewhat better” than their parents declined.

The General Social Survey—which NORC has conducted for forty years based on 2,044 interviews—is a biennial survey that gathers data on contemporary American society to monitor and explain trends and constants in attitudes, behaviors, and attributes.

On top of these, American “happiness” has been measured and took some blows, but some American stoicism shone through here. While only 28.8 percent of Americans, the lowest percentage since 1972, were “happy”, another 14.2 percent were “not too happy”. Happiness was hit mainly because of the economy and people’s own finances. Even so, 85.8 percent of Americans were “happy”.

Not all aspects of happiness fell during the downturn. 97 percent of marriages were judged to be “happy” (very or pretty), and 86.0 percent of Americans claim to be “very satisfied” or “moderately satisfied” with their work, a steady average since 1972.

If anything, it suggests that the average American lives in a cocoon. They are concerned for themselves and their immediate family, and are satisfied that they are not being repossessed like the family over the street, and still have a job to hang on to. Despite the hugely vaunted Christianity of the Christian nation, the average American is indifferent to his neighbour, as long as he’s all right.

The motto is not “Do unto others as you would be done by”, it is “I’m all right, Bud, You look after yourself”.

Fortunately, recent proposed cuts in public services have been firmly rebutted by encouraging united strength and purpose. Is the US sleeping Leviathan waking up? Let’s hope so, then you smug financiers, corporate bosses, bankers and bought men will have to watch out! Once enough of the people stop being taken in by the great Washington Repucrat-Demoblican farce, then the wagon of unity may be rolling, and the callous and greedy exploiters of the rest of us will be crushed by its irresistible momentum.

Who Would Want to be a Teacher in Walker’s Wisconsin?

Craig A Olson, a University of Illinois professor of labor and employment relations, and an expert in employment relations and labor economics, shows the salaries of Wisconsin teachers have fallen behind changes in the cost of living as well as wage growth in the private sector over the last 16 years.

By comparing public data from 1995 to 2009 of the earnings of an average college graduate employed in the private sector in the US versus the earnings of an average college educated teacher in Wisconsin, after accounting for inflation, and not counting fringe benefits, Olsen found:

1. in Wisconsin, the average teacher’s salary declined by 10 percent,
2. the average private sector college graduate’s weekly earnings increased by 10 percent.

In 1995, the average college educated private sector worker in the US earned 17 percent more than a Wisconsin teacher, in 2009, this gap had increased to 36 percent. Olson commented:

Not only did Wisconsin teachers not keep up with inflation, their earning power also fell behind their private sector counterparts.

Many teachers accept that they have some security of employment compared with many in private industry, and have school holidays—though they seem a much better perk than they are because the have to spend more time preparing for the academic semester than many onlookers think. So they are content not to be paid the same salary as their fellow graduates in the sometimes riskier private sector, but this work shows that their wages are getting progressively worse, with no added benefits to compensate for the decline.

Governor Walker argued that Wisconsin public employees should be required to pay higher premium co-payments to match the higher co-payments paid by employees in the private sector. In Illinois, the average inflation adjusted premium for a family health insurance policy for Illinois teachers increased from $5,758 to $10,905 from 1993 to 2008. Health insurance premium costs for the private sector also have risen sharply during that time, increasing from $5,742 in 1999 to $13,770 in 2010, adjusted to 2009 prices.

But typically, when premiums have gone up the most, teachers, through their local unions, accepted lower salary increases or agreed to higher teacher health insurance premiums when compared to districts that faced smaller increases in premiums. And Wisconsin teachers did protect their health benefits when premiums were rising rapidly… by accepting lower wage increases.

Olson thinks that Walker’s budget bill will have ill considered consequences. While these changes will save Wisconsin school districts some money in the short term, he thinks it will have an adverse impact on the quality of the state’s teacher workforce:

My rough calculations of the changes in employee pension and health benefit contributions required under the proposal suggest the changes will cost the average Wisconsin teacher about $5,000 in total compensation. This reduction in total compensation is equal to about 10 percent of the salary for an average Wisconsin teacher. Since salary increases under the bill are limited without a voter referendum to changes in the cost of living, teachers will have great difficulty negotiating higher pay to offset these higher contributions. Obviously, it will make it more difficult for Wisconsin to attract high quality young adults into teaching. What parent in Wisconsin would encourage their child to become a teacher given the trends of the last 16 years and Governor Walker’s proposal?

The cause of the Walker attack is supposedly the deficit. And whose deficit is it? Clinton had a virtually balanced budget, but the aim of Republicans is to stiff the poor to give the rich more wealth. Theft from the poor is the source of the deficit, most obviously the manufacture and sale of junk bonds and the accompanying accumulation of banking bonuses in the so-called banking crisis. Banks now are back to their old tricks, and so Joe and Jane Public are forever coughing up their hard earned moolah for the benefit of the already sickeningly rich. Hillary Clinton tells us the US is losing the information war. Without proper education, the country will nosedive into the trough. The pigs at the top already have already had their nose in it for the last thirty years. If many Arabs, every American’s favorite bogeymen of the hour, can evict their corrupt leaders, maybe it is time smart Americans did.

It is Time We Removed Inequality

Robert H Frank, an economics professor at the Johnson Graduate School of Management at Cornell University, wrote in the New York Times about the present financial crisis, comparing it with past times and using a new survey.

Incomes in the US rose at about the same rate, almost 3 percent a year, for all income levels in the three decades immediately after World War II. Prosperity extended across the whole population, irrespective of class. The country's infrastructure of highways, railroads, dams and bridges were well maintained, and new industries in communications, electronics and airlines were growing.

In the last three decades the economy has grown only slowly, infrastructure is decaying, and many people have trouble finding adequate work because industry is floundering.

Moreover the change in circumstances has not been evenly distributed. The share of total income going to the top 1 percent of earners, which stood at 8.9 percent in 1976, rose to 23.5 percent by 2007, but during the same period, the average inflation-adjusted hourly wage declined by more than 7 percent. The rich have been getting richer ever more quickly while the poor and the squeezed middle classes have remained static or lost out. The situation is plainly unfair and antisocial by any standard.

Societies must be founded on a sense of fairness and justice even if they are not unquestionably fair. The people of the US have been ready to tolerate a degree of unfairness in income and wealth distribution providing that they felt they had a chance of joining the wealthy by dint of personal effort, and proving that living standards generally improved because a large number of people were working in concert to build a better country. In short, providing that income was not distributed unfairly to a minority of the already rich while everyone else struggled.

Frank notes that the founder of modern capitalist theory, the Scot, Adam Smith, who wrote Wealth of Nations, the capitalist's bible, peppered it with trenchant moral analysis. He was, after all, a professor of moral philosophy at the University of Glasgow.

Yet rising inequality has created enormous losses and few gains, even for its ostensible beneficiaries, the mega rich class, who now have reason to worry that social instability will ruin them, if it is allowed to develop further. In any case, increasing riches alone never improves overall happiness once people have sufficient not to feel insecure. All that happens is that they notice that others are just as well off, and they then want another increase. Everyone wants to keep up with the Joneses, but these people are already loaded!

Frank reveals that he and two co-workers have found that the US state counties where income inequality grew fastest also showed the biggest increases in symptoms of financial distress. Even after controlling for other factors, counties with the biggest increases in inequality had the largest increases in bankruptcy filings, and also reported the largest increases in divorce rates, divorce rates being reliable indicator of financial distress.

Families short on cash will try to make ends meet by moving to where housing is cheaper, usually farther from work. So, long commute times are another footprint of financial distress, and the counties where commute times had grown the most were those with the largest increases in inequality.

Even basic public services are no longer being properly maintained because of the persistent objection the rich have to paying their proportionate share of taxation. Rich and poor alike endure crumbling roads, weak bridges, an unreliable rail system, and insecure cargo containers, and many Americans live in the shadow of poorly maintained dams that could collapse at any moment. The right wing lobbyists and their academic parrots say nothing can be done, and most advocate policies like tax cuts for the wealthy that put the burden on the poorest in society.

There is no compelling evidence that greater inequality bolsters economic growth or enhances anyone’s well being. The rich remain a minority, though they hold a majority of the country's dollars. They can buy bigger mansions and host expensive parties, but it will not keep the majority employed and adequately compensated, and in any case the wealth of the rich is mainly invested abroad in places like China and India where the best rates of return can be had, and the exchange rate offer a hedge against losses. Then again the obscene bonuses wall street bankers and brokers pay themselves attract the most intelligent graduates, leaving vital sectors like industry, science, technology and engineering devoid of creative talent—and bang goes any competitive advantage we might expect to have in the future. Yet, any grifter can learn how to gamble in junk bonds but not how to succeed in science or engineering, or even in proper good stock picking.

No one dares to argue that rising inequality is required in the name of fairness. John Rawls in his theory of justice as fairness (A Theory of Justice) though inequality was only justifiable when the poor were nevertheless getting wealthier, albeit maybe not as quickly as the wealthy. So we should agree inequality is a bad thing, and do something about it.

In the UK, Professor Greg Philo suggested that the top 10% should pay a one off tax of 20% of their wealth. It caused some outcry, but surprisingly, a lot of wealthy people were willing to do it. They were the ones who realized it would be far worse if social unrest got so bad, especially if it were worldwide, as is the financial crisis, that all of their wealth might be threatened by social instability. They knew that the one off payment, though substantial, would repay itself if we got into a new ers of financial stability as a consequence. Their remaining investments would soon grow to pay back the lost 20%. Though the short sighted greedy rich would moan like hell until the benefits came through, everyone would end up happy.

The Human as Molecule—The Statistical Mechanics of Wage Earners

PhysOrg.com—A Purdue University professor of chemical engineering has used “econophysics” to show that under ideal circumstances free markets promote fair salaries for workers and do not support CEO compensation practices common today. The research presents a new perspective on 18th century economist Adam Smith’s concept that an “invisible hand” drives a free market economy to a collective good:

It is generally believed that the free market cares only about efficiency and not fairness. However, my theory shows that even though companies focus primarily on making profits and individuals are only looking out for themselves, the collective self-organizing free market dynamics, under ideal conditions, leads to fairness as an emergent property. In reality, the self-correcting free market mechanisms have broken down for CEOs and other top executives in the market, but they seem to be working fine for the remaining 95 percent of employees.

Venkat Venkatasubramanian

Venkatasubramanian proposes using statistical mechanics and econophysics concepts to gain some insights into the problem:

This is at the intersection of physics and economics. We are generalizing concepts from statistical thermodynamics—the branch of physics that describes the behavior of gases, liquids and solids under heat—to analyze how free markets should perform ideally.

Findings are detailed in a research paper that appeared in the online journal Entropy. Venkatasubramanian has already used the approach to determine that the 2008 salaries of the top 35 CEOs in the United States were about 129 times their ideal fair salaries—and CEOs in the Standard & Poor’s 500 averaged about 50 times their fair pay—raising questions about the effectiveness of the free market to properly determine CEO pay.

In the new work, the researcher has determined that fairness is integral to a normally functioning free market economy. A key idea in Venkatasubramanian’s theory is a new interpretation of entropy, used in science to measure disorder in thermodynamics and uncertainty in information theory. He shows, however, that entropy also is a measure of fairness, an insight that seems to have been largely missed over the years, he said. Andrew Hirsch, another Purdue professor adds:

Venkat’s insight goes beyond the simple grafting of the mathematics of information theory and statistical physics onto the question of fairness of salary distributions within a free market economy. He has recast the notion of entropy into a context that has meaning and relevance for this particular problem.

Venkatasubramanian calls his new theory, statistical teleodynamics, from the Greek telos, which means goal driven:

In statistical thermodynamics, we study the movement of large numbers of molecules. In economic systems, we have a large number of people moving around in a free market system, but instead of thermal energy driving the movement people are motivated by goals.

His theory describes how goal driven rational agents, normally people, will behave in a free market economic environment under ideal conditions.

The bottom line is that the free market does care about fairness. Clearly, the next step is to conduct more comprehensive studies of salary distributions in various organizations and sectors in order to understand in greater detail the deviations in the real world from the ideal, fairness maximizing, free market for labor.

The excessive pay of CEO's can be seen from a simple analysis of the wage distribution curve—too many have incomes way above the average that any defendable distribution curve predicts—showing that CEO's, who pay themselves, with only formal approval from the occasional stockholder meeting, rate themselves as superhuman, according to normal distribution measures. Venkatasubramanian seems to have come up with an ususual basis for a compensation distribution curve, which he claims is 95% fair, but attempts to use the mathematics of statistical physics in sociology and economics have failed in the past. It remains to be seen whether this approach is based on valid asumptions and not merely the desire to use a neat mathematical scheme outside its original frame of reference.