Economics 101: That Didn’t Take Long

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From a Mark Shea post back on April 15:

Seattle CEO to pay his employees $70K minimum wage

He will take a large pay cut to do it.

Proud of my home town.

Meanwhile, the naysayers keep responding to the evidence of the success and doability of a living wage with “Sure it works in reality.  But will it work in theory?”

Fast forward a quarter of a year:

What few outsiders realized, however, was how much turmoil all the hoopla was causing at the company itself. To begin with, Gravity was simply unprepared for the onslaught of emails, Facebook posts and phone calls. The attention was thrilling, but it was also exhausting and distracting. And with so many eyes focused on the firm, some hoping to witness failure, the pressure has been intense.

More troubling, a few customers, dismayed by what they viewed as a political statement, withdrew their business. Others, anticipating a fee increase — despite repeated assurances to the contrary — also left. While dozens of new clients, inspired by Mr. Price’s announcement, were signing up, those accounts will not start paying off for at least another year. To handle the flood, he has already had to hire a dozen additional employees — now at a significantly higher cost — and is struggling to figure out whether more are needed without knowing for certain how long the bonanza will last.

Two of Mr. Price’s most valued employees quit, spurred in part by their view that it was unfair to double the pay of some new hires while the longest-serving staff members got small or no raises. Some friends and associates in Seattle’s close-knit entrepreneurial network were also piqued that Mr. Price’s action made them look stingy in front of their own employees.

Then potentially the worst blow of all: Less than two weeks after the announcement, Mr. Price’s older brother and Gravity co-founder, Lucas Price, citing longstanding differences, filed a lawsuit that potentially threatened the company’s very existence. With legal bills quickly mounting and most of his own paycheck and last year’s $2.2 million in profits plowed into the salary increases, Dan Price said, “We don’t have a margin of error to pay those legal fees.”

Go here to read the rest.  Contrary to those who believe in the economics of make believe, there is a reason why employees in a business are paid at different levels, based on experience, skills and what they can add to an enterprise.  Employers, governments or bloggers who seek to ignore such basic economics do so at their peril.  Go here ,where my co-blogger Darwin Catholic has two outstanding posts on this issue, to read more on this topic.

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26 Comments

  1. Meanwhile, the naysayers keep responding to the evidence of the success and doability of a living wage with “Sure it works in reality. But will it work in theory?”

    The year my mother completed high school (1948), mean compensation per worker amounted to about $20,000 per annum in today’s currency units (a figure which includes fringe benefits). That would be about 30% lower than the Seattle city council’s idea of a ‘living wage’ and 70% lower than Mark Shea’s idea of a living wage. I wonder what Mark Shea fancies their actual condition was at that time.

  2. Well, this company could hold a tin cup rattle like Shea does every three months. That might help raise the minimum wage at this company!

  3. I’m sure if he acknowledged it at all, Shea will claim that it would all work out if just those other people would behave. Perhaps they would after working in some kind of gulag…

  4. You can bad mouth Ayn Rand all you like , but once again she has been proved to be correct, Also check out the Amtrak mess. Atlas is shrugging his heart out.LOL LOL LOL

  5. Mark-who wrote: “Sure it works in reality. But will it work in theory?” If that isn’t the stupidest juxtaposition of reality/theory I haven’t lived long enough (almost 65 years) to see it. Plus, there needs to be a comma after “Sure.” :

  6. Mark Shea needs to get a real job instead of feeding his gelatinous girth and shooting off his mouth. I am sick and tired of these fat white liberal men in the vein of Michael Moore telling us how much we got to tighten our belts for the poor whom they keep poor. Sorry. Am in a foul mood over liberal crap.

  7. You can bad mouth Ayn Rand all you like , but once again she has been proved to be correct, Also check out the Amtrak mess. Atlas is shrugging his heart out.LOL LOL LOL

    Rand is notable for her normative arguments, which are seldom subject to proof through citing isolated examples. And there is no Amtrak mess. A passably experienced engineer ran the train 50 mph over standard speeds on a given stretch of track. No one quite knows as of yet just why he did so; the one thing that is known is that he was not on the phone at the time. If you fancy private enterprise is immune to mechanical failure or employee inattention, I’m in the bridge-vending business.

  8. Mark Shea needs to get a real job instead of feeding his gelatinous girth and shooting off his mouth.

    I assume he has other work he does not discuss. I do not think he published anything prior to 1996 (when he was around 39 years old, I believe). It’s difficult to believe he makes a living off his writing. Amy Welborn once quoted her rake off from royalties as being about $14,000 a year, and the market for monographic literature is not getting better. He did receive a stipend from Catholic Answers at one point, though I doubt anywhere near the scandalous sum Karl Keating was paid by the board of that troubled apostolate.

  9. I’m sure if he acknowledged it at all, Shea will claim that it would all work out if just those other people would behave.

    I wonder of he’s been confused by those passages in the social encyclicals where the pope speaks of wages as if they were stipends one might receive from one’s order.

  10. his gelatinous girth

    He and Fr. Johansen and a travel agent named Windsor once tried to set up some holiday where people would travel on a cruise and listen to their presentations. They promoted it on the web with pictures of themselves. They did not get enough takers. They did get a number of rubukes over the air telling them they needed to get in shape before they did any traveling. That was around 12 years ago. Coping with that does not get any easier as one ages until one is in one’s terminal years and too tired or depressed to eat. I’ve gained 40#.

  11. 1“The kingdom of heaven is like a landowner who went out at dawn to hire laborers for his vineyard. 2 After agreeing with them for the usual daily wage, he sent them into his vineyard. 3 Going out about nine o’clock, he saw others standing idle in the marketplace, 4* and he said to them, ‘You too go into my vineyard, and I will give you what is just.’ 5 So they went off. [And] he went out again around noon, and around three o’clock, and did likewise. 6 Going out about five o’clock, he found others standing around, and said to them, ‘Why do you stand here idle all day?’ 7 They answered, ‘Because no one has hired us.’ He said to them, ‘You too go into my vineyard.’ 8* a When it was evening the owner of the vineyard said to his foreman, ‘Summon the laborers and give them their pay, beginning with the last and ending with the first.’ 9 When those who had started about five o’clock came, each received the usual daily wage. 10 So when the first came, they thought that they would receive more, but each of them also got the usual wage. 11And on receiving it they grumbled against the landowner, 12 saying, ‘These last ones worked only one hour, and you have made them equal to us, who bore the day’s burden and the heat.’ 13 He said to one of them in reply, ‘My friend, I am not cheating you.* Did you not agree with me for the usual daily wage? 14* Take what is yours and go. What if I wish to give this last one the same as you? 15[Or] am I not free to do as I wish with my own money? Are you envious because I am generous?’

  12. As usual Christ was teaching something other than economics, the call for salvation to the Gentiles and sinners. If this had been a real life example, hiring day laborers by the owner of the land the next day would have been “interesting”.

  13. After Katrina, federal funds (i.e., taxpayer dollars) went to New Orleans residents to
    help them with their housing expenses while the city got back on its feet. The rents
    in New Orleans instantly rose.

    If every Seattle resident was guaranteed $70K/year, how long before that city would
    see $10 loaves of bread and the doubling of rents on lower-end apartments?

  14. see $10 loaves of bread and the doubling of rents on lower-end apartments?

    It would not see $10 loaves of bread. Anyone attempting to sell standard-issue baked goods at that price would be quickly undercut. The law of one price is not strictly true, but the price of foodstuffs only varies within narrow bands across the country. Not so the price of real estate.

  15. Secular humanist employ propaganda to subvert the Gospels from redemption/salvation to secular stuff and political power. The joys of eternal life far exceed any fleeting earthly delight.

    Christ spoke in parables Those with bad intents would not get it. That parable is about the Kingdom of God, not the minimum wage or a living wage. And, it teaches that the landowner (God) may do with his wages (rewards of eternal life) as He wishes. And, that a late, true conversion, for God, may be as effective as a lifetime of faith and good works.

    Another parable I like is the one about the widow’s mite. To God, the widow’s penny given from her need was as effective charity as the rich man’s millions given from his surpluses.

  16. That company will not remain in business and when it fails, Mark Shea will not talk about it. For what it’s worth, my employer, whom I have worked for for more than 20 years, does not pay me that much in salary. I’m not even at the midpoint of my pay grade and will never reach the maximum.

  17. The Parable of the Laborers in the Vineyard is, of course, about a supernatural reward dispensed by a merciful God to even a deathbed repentance. It has nothing to bring to a Marxist view of economics. That economics is contrived, unnatural and unjust.

  18. I’m not sure how “Economics 101” is proved by a company having trouble due more to fallout from the publicity than to the wages themselves. Ideally the experiment would’ve been such that Gravity raised the employee pay without trying to get credit for it, as unlikely as that might be.

  19. “I’m not sure how “Economics 101″ is proved by a company having trouble due more to fallout from the publicity than to the wages themselves.”

    Employees leaving over the pay raises and being sued by a co-owner had nothing to do with fallout from the news coverage.

  20. Yeah, I know Jesus was making a theological point. But He was also dead on about the grumbling reaction to the employer’s generosity.

    Gravity’s problem was not with the new wage structure but with people’s reactions to it, especially among the higher-paid employees. Never let economists tel you that humans are “rational actors”. From what I’ve read those already making $50-60K already rather than being happy with a rise their response was “hey, I’m no longer making double what those slobs down there are.”

  21. “are “rational actors”.”

    I think its perfectly rational for someone who has several years with a company and who has developed skills needed by the company, to look askance at new hires making virtually the same as them. If you work for a company that is going to reward all employees virtually the same, why put in extra effort for the company?

  22. But He was also dead on about the grumbling reaction to the employer’s generosity.

    Yeah but the employer didn’t exactly call out the entire town to watch and shout “LOOK HOW GENEROUS I AM!”

    If Gravity had done it on their own with maybe some comments about it in some local publications and a few trade magazines, nobody would really care. It wasn’t just their posturing, but the opportunity Shea and others like him took to try and beat up on those who disagree politically. So don’t act all surprised that the ones struck now take a moment to laugh and hoist the aggressors upon their own petard.

    Gravity’s problem was not with the new wage structure but with people’s reactions to it, especially among the higher-paid employees.

    Wait a sec… what did I just say above? “it would all work out if just those other people would behave. Perhaps they would after working in some kind of gulag…”

  23. We also find this in Matthew:

    [14] “It will be as when a man who was going on a journey called in his servants and entrusted his possessions to them. [15] To one he gave five talents; to another, two; to a third, one—to each according to his ability. Then he went away. Immediately [16] the one who received five talents went and traded with them, and made another five. [17] Likewise, the one who received two made another two. [18] But the man who received one went off and dug a hole in the ground and buried his master’s money. [19] After a long time the master of those servants came back and settled accounts with them. [20] The one who had received five talents came forward bringing the additional five. He said, ‘Master, you gave me five talents. See, I have made five more.’ [21] His master said to him, ‘Well done, my good and faithful servant. Since you were faithful in small matters, I will give you great responsibilities. Come, share your master’s joy.’ [22] [Then] the one who had received two talents also came forward and said, ‘Master, you gave me two talents. See, I have made two more.’ [23] His master said to him, ‘Well done, my good and faithful servant. Since you were faithful in small matters, I will give you great responsibilities. Come, share your master’s joy.’ [24] Then the one who had received the one talent came forward and said, ‘Master, I knew you were a demanding person, harvesting where you did not plant and gathering where you did not scatter; [25] so out of fear I went off and buried your talent in the ground. Here it is back.’ [26] His master said to him in reply, ‘You wicked, lazy servant! So you knew that I harvest where I did not plant and gather where I did not scatter? [27]Should you not then have put my money in the bank so that I could have got it back with interest[!] on my return? [28]Now then! Take the talent from him and give it to the one with ten. [29]For to everyone who has, more will be given and he will grow rich; but from the one who has not, even what he has will be taken away. [30] And throw this useless servant into the darkness outside, where there will be wailing and grinding of teeth.’

    With a parellel in Luke:

    [12] “A nobleman went off to a distant country to obtain the kingship for himself and then to return. [13] He called ten of his servants and gave them ten gold coins and told them, ‘Engage in trade with these until I return.’ [14] His fellow citizens, however, despised him and sent a delegation after him to announce, ‘We do not want this man to be our king.’ [15] But when he returned after obtaining the kingship, he had the servants called, to whom he had given the money, to learn what they had gained by trading. [16] The first came forward and said, ‘Sir, your gold coin has earned ten additional ones.’ [17] He replied, ‘Well done, good servant! You have been faithful in this very small matter; take charge of ten cities.’ [18] Then the second came and reported, ‘Your gold coin, sir, has earned five more.’ [19] And to this servant too he said, ‘You, take charge of five cities.’ [20] Then the other servant came and said, ‘Sir, here is your gold coin; I kept it stored away in a handkerchief, [21] for I was afraid of you, because you are a demanding person; you take up what you did not lay down and you harvest what you did not plant.’ [22] He said to him, ‘With your own words I shall condemn you, you wicked servant. You knew I was a demanding person, taking up what I did not lay down and harvesting what I did not plant; [23] why did you not put my money in a bank? Then on my return I would have collected it with interest.’ [24] And to those standing by he said, ‘Take the gold coin from him and give it to the servant who has ten.’ [25] But they said to him, ‘Sir, he has ten gold coins.’ [26] ‘I tell you, to everyone who has, more will be given, but from the one who has not, even what he has will be taken away.

    Naturally, Donald’s earlier remark about Christ teaching something besides economics also applies here.

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