The Scrooge Factor. Meanness In America.
From a recent study by three economics students; Sreedhari Desai of Harvard, Arthur Brief of the University of Utah and Jennifer George of Rice University. The title is “When Executives Rake in Millions: Meanness in Organizations.”
“The topic of executive compensation has received tremendous attention over the years from both the research community and popular media. In this paper, we examine a heretofore ignored consequence of rising executive compensation. Specifically, we claim that higher income inequality between executives and ordinary workers results in executives perceiving themselves as being all-powerful and this perception of power leads them to maltreat rank and file workers. We present findings from two studies – an archival study and a laboratory experiment – that show that increasing executive compensation results in executives behaving meanly toward those lower down the hierarchy. We discuss the implications of our findings for organizations and offer some solutions to the problem.”
Beezer here. This basic concern is a long considered one in economics and the related considerations of ethics and morality. Even the great Adam Smith wrote about this.
From economist Maxine Udall (girl economist) blog, the following.
Adam Smith wrote about the influence of prevailing custom and fashion on moral sentiments in Theory of Moral Sentiments.
The different situations of different ages and countries are apt, in the same manner, to give different characters to the generality of those who live in them, and their sentiments concerning the particular degree of each quality, that is either blamable or praise-worthy, vary, according to that degree which is usual in their own country, and in their own times.
Nowadays, most of us would object to what appears to be cultural or ethnic stereotyping in some of what Smith wrote. I am unable to say to what extent Smith’s views reflected then existing national and cultural heterogeneity that will have no doubt been rendered by economic development more homogeneous over time. Smith was a sound thinker and critical observer, which causes me to attribute his generalizations about different nationalities somewhat to Scots-Anglo ethnocentrism and somewhat to possible real national differences. Nevertheless, his main point seems valid: that what is “either blamable or praiseworthy” varies “according to that degree which is usual” in our own country and own times, that our moral sentiments and behavior are shaped to some extent by the culture in which we dwell.
Smith goes on to discuss “customary characters” of professions and stages of life, conjecturing that they are shaped by the moral sentiments that accompany and promote the duties of a given profession or of a specific stage in the life cycle. Thus, some professions and life stages are more reticent or staid than others. But, while Smith sees custom in the form of social and professional norms reinforcing good moral sentiments and behavior, he also sees it as something that can erode the same.
It is not therefore in the general style of conduct or behaviour that custom authorises the widest departure from what is the natural propriety of action. With regard to particular usages, its influence is often much more destructive of good morals, and it is capable of establishing, as lawful and blameless, particular actions, which shock the plainest principles of right and wrong.
His point being that just as self-interest can prevent us seeing impropriety and injustice, so too can culture and custom. A slave holder in the antebellum US South had self-interested reasons for believing slavery to be morally acceptable. A poor white worker whose wages were depressed by the availability of slave labor might still find slavery acceptable and worth fighting to preserve because the norms and customs of his culture find no impropriety in slavery.”
Beezer again. An earlier Beezernotes post highlighted the work of behavioural scientist Sam Bowles of the Santa Fe Institute. Bowles has concentrated his study on the causes and effects of inequality in general and income disparity in particular. From that article:
And thus Bowles’ career was sent in one specific direction. Interestingly, it was his study of primitive hunter gatherer societies that became an early clue as to what might be wrong. “Inequality breeds conflict, and conflict breeds wasted resources,” Bowles argues……And inequality is sticky… If you’re born into the bottom 10 percent of incomes, your chances of becoming a member of the top 10% is 1.3%. For 99 out of 100 in this group, the “rags to riches” story is truly a myth. And this poverty persists through generations. It’s a tough problem and one that Bowles (and his students) are making a serious effort at understanding.”
Again from Maxine Udall:
“The conclusion seems self-evident. There is more at stake here than our economy. We must, as a nation, decide whether we want to continue on the path we have been on since roughly 1980. Do we want to continue to reward disproportionately a small fraction of the population that (based on recent performance) seems better at misallocating financial, physical, and human capital through speculative endeavors? Do we want to continue the trickle down of meanness? Shall we live in a society in which trust and fellow feeling are lost, replaced by mindless (not rational, not productive) winner-take-all competition that favors one group disproportionately? If the answers to these questions are all “yes,” then the social fabric may already be torn beyond repair and I fear we are about to learn firsthand how empires crumble.”
Beezer once again. Obviously the problem has been discussed for quite a while. Smith published his Moral Sentiments in 1759 and Charles Dicken’s character Ebenezer Scrooge appeared in ‘A Christmas Carol’ in 1843. Two and a half centuries later, income disparity once again rears its ugly head. And once again, thoughtful folks should be considering the potential impacts.
Consider, as just one example, the phenomenon of one group of labor (non union normally) being angry at the higher pay received by another labor group (normally unionized), but apparently having little irritation over CEO pay that’s 100 or more times the average pay of other employees of the same company. Is it come to the point where the CEO pay has become acceptable, but living wages for labor has not?
Beezer has witnessed this firsthand. A citizen is angry because unions get better pay and benefits than they do. I ask, “Do the unions determine your pay?” “Of course not,” is the truthful reply. “Then who does determine your pay?” I ask. “My boss does,” is the truthful reply. “Then I suggest you be angry with your boss. Either that or you form a union to negotiate better pay,” is my response.
Of course the underlying problem this angry citizen faces is that it’s government policy to treat private sector employees as commodities. They receive little or no consideration in our laws. So while CEO pay skyrockets to unheard of levels, labor does not receive it’s fair share of the profits of the corporation.
We are no longer a nation that believes in being ‘our brother’s keeper’ but one that believes instead in being ‘our brothers competitor.’ This will not end well.
Once again, thanks to economist’s view for opening up this line of reasoning.
Tags: Adam Smith, Beezernotes, Charles Dickens, Economist's View, Income Inequality, Maxinne Udall, Scrooge
July 26th, 2010 at 5:00 pm
We may not have been a nation of”our brothers keeper” but we are becoming that under Obama. 40% of our citizens pay no taxes yet reap the rewards of govt expenditures.Our country was not based on redistribution of wealth but self reliance, unfortunately that is ending.Soon there will be no one left to pay the bills.
July 27th, 2010 at 10:28 am
Redistribution of wealth happens, irregardless of one’s philosophy about how it should happen.
For the past 30 years the redistribution has been decidely upward. That’s what happened. Denying that reality reveals one is being completely ideological. Not practical.
No one argues this trend should continue. One way to reverse it is to have good jobs that pay a living wage. Because that hasn’t happened the past 30 years, you get 40% of the WORKING population not making enough money to pay, net, income taxes. This is a symptom of the problem, not the problem.
So if what we’ve been doing isn’t working, what will? More tax cuts isn’t the answer. We already tried that. In fact, the longest period of strong economic growth happened when tax rates were more progressive. Just the opposite of what was predicted by the dominant philosophy.
So what do we try? Would full employment as a goal be a good idea? What would that look like? Should we be more aggressive in requiring balanced trade? What would that look like?
Should we encourage industry to pay living wages, and protect them from unfair cheap labor competition? What would that look like?
We need to start being more practical. And to stop worrying about one ideology or another. Experiment.
July 27th, 2010 at 3:12 pm
You live in fantasyland. Full employment would cost massive inflation. Tax cuts has always spurred investment and created jobs so where do you get the idea that progressive taxes help employment? I assume because of your philosophy you paid your employees a “living wage”, maybe thats why you’re out of buisness now. I guess you feel you didn’t pay enough taxes while you were in buisness so why didn’t you add a little more to your income tax to help the govt run a little bit better.Beez, you know govt is inept in everything it does. Money is wasted on unheard of projects and govt employees are far overpaid so why do you want to continue this trend? Leave the private sector alone, throw out the ecsessive regulations and you will see our economy prosper.As long as you continue to support the Barnie Franks and Chris Dodds of the world we and our country will fail.
July 29th, 2010 at 10:13 am
The private sector is in buisness to make money. They can only pay wages suitable for the preformance of the task.You seem to want an equal share for the employee without the risk or investment of the employer. Thats socialism and it does not belong in the US.
July 29th, 2010 at 1:24 pm
You mis-represent my views.
I’m a capitalist. I think labor should be organized, otherwise it will be treated only as a commodity. That’s human nature. Labor will gain its share based upon negotiation.
Wages should be protected. Labor should be protected. Cheap foreign labor produced products should pay a tariff to negate the cheap labor advantage.
Domestic manufacturing firms should be protected. We don’t need to offshore our production. In fact, it’s turning out to be a real bad idea. Want to trade with us, fine. Balanced trade. We’re no longer in the business of being everyone’s sucker.
July 29th, 2010 at 1:42 pm
I agree, but that said the Fed said today that the US economy is starting to look like Japan and we may be headed for a period of deflation. The continuing spending by the govt is not having the positive effect it was touted to have. Tax cuts and the continuation of Bush’s tax cuts may be necessry to spur on private economic development. If we fall into a defationary period(Japans lasting 10 years) this would be worse than inflation.
July 29th, 2010 at 3:15 pm
Let me be more spcific of what I agree with. I believe in balanced trade and restrictions on offshore manufacturing by US firms.
July 29th, 2010 at 9:52 pm
The reality of it is unions in the early part of the 20th century were necessary to equalize labor with industry but they have outlived their usefulness. Employees are no longer required to work the long hours or work in sub standard conditions as they had before. Benefits such as health care, paid vacation time, sick time and industry funded pensions and 401ks is common in our time. There is now an equality between both. A strain develops when the unemployment rate goes below 4% or above 7% allowing an unequal advantage to each party. When the labor force is near full employment labor has the advantage and uses that to create high labor costs and the same is true when labor is abundant the opposite happens. Unions today like the SEIU have become political pawns of the democratic party and promote their agenda. The SEIU has just bought an ad on TV which compares the AZ illegal alien law with the Japaneze internman camps during WW2. They are also comparing the border fense with the constuction of the Berlin Wall.They are no longer a negociating entity but a political force. Govt unions are so strong it is almost impossible to fire an employee. Fed. and state unions have driven up the cost of govt with their excessive pay rates (30% higher than the private sector)along with their pensions and other perks that they are breaking our govt. Unions had their time and place but they have outlived their need.
July 31st, 2010 at 8:24 am
You do make a correct observation about the ebb and flow of union negotiating power.
That said, the need for labor to form unions is always needed. Otherwise, individual workers have literally zero power to defend themselves from predatory employers.
August 2nd, 2010 at 11:02 pm
Benefits from companies have already been in place for new hires. Companies have instituted wage structures for jobs within and set up benefits for their employees once hired so I’m not sure what you mean when you say employees need to defend themselves from predatory employers. The trouble with unions, they believe all employees are entitled to increases in wages, benefits and other perks each year regardless of how the company is suceeding financially. I saw this with the airline industry when Eastern failed and was forced to file bankruptcy. The pilots and flt attendents agreed to large pay cuts and a reduction in benefits in order to help the company survive,while the mechanics union and baggage handilers refused any cuts in pay or benefits but in fact went on stike demanding more.You all saw what happened, because of the greed of these unions thousands were soon out on the street. All employees lost out. Their jobs, their pensions were lost along with medical care and it was all caused by the greed of the union.
August 2nd, 2010 at 11:05 pm
and Obama wasn’t aound to bail out the airline industry like he did with the union killer auto indstry
August 3rd, 2010 at 1:30 pm
Each company failure is different. But it seems some always want to blame labor, no matter the circumstances.
I’m not familiar with the details of Eastern’s demise. Were the unions paid the same as other unionized airlines? Were the pilot and flight attendants paid the same as competitor airlines?
Did Eastern make management mistakes? Did creditors refuse to renegotiate schedules? Did other airlines go under at this time?
Also, because we have no full employment policies, the government didn’t step in and facilitate a bankruptcy that would keep Eastern operating — as was done by Obama with GM and Chrysler. The government has the ability to force all parties to compromise, if it wants to. Obama did it because, unlike Republican candidates, he is concerned about labor and labor’s rights.
Everyone gave up something and the companies came out of bankruptcy. It saved a lot of jobs, not just those of these companies, but all those in the supply chain as well as all those employed in communities where suppliers exist.
August 3rd, 2010 at 2:05 pm
Yes, I blame labor for bringing down Eastern, PanAm, National and several other small airlines. Pilot’s unions have always tried to work with the companies to find a solution to the problems that effect both parties and in fact agreed upon a large cut in pay while the Teamsters union which represent all other workers in the airlines have always taken a hard line and refused to make any sacrifices to save the airline. This is true in all the airlines that failed. The failure of the airlines started during the Carter administration when fuel prices skyroketed and costs went up so high for the airlines that they were forced to ask for employee consessions which the teamsters failed to do, costing the demise of these airlines. They cut off their own nose. Greed is what they are about, much like the Greed that existed in the auto industry.
August 3rd, 2010 at 4:55 pm
Another thing you fail to realize is that many companies such as the airlines have many non union worker as well as several unions representing different types of workers within. Each union can control the whole airline by its demands. They can easily shut down the whole operation affecting every employee union or non union and they use this power to force unfain nogociation. American Airlines employ over 250 thousand employees and all can be adversly affected by the greed of one union representing only a small minority. You state employers have the upper hand, you’re wrong, its the other way around. The airline can be totally stopped resulting in loss of jobs and loss of revenue simply by a union that represents a small but vital part of the operation. This is why baggage handelers made 28 dollars an hour back in the 80′s. The greed displayed by the unions is a killer of industry and not an asset to society.
August 3rd, 2010 at 6:01 pm
Hey, Not to get off the subject but back to the govt squirrel project, I have more, much more interesting projects that will far exceed the benefits of the squirrels. The dems just authorized a study for 300k in an important study of HOT FLASHES in monkeys during metopause. Oh another great one that could affect us all “how to correctly freeze rat sperm so it stays potent, (hope they didn’t mean democrats). Just part of the MaCain 100 abuses of crazy expenditures by the dems.I wonder who won, the reds or the greys, guess I’ll have to contact my congresswoman.
August 3rd, 2010 at 6:29 pm
All these studies are part of the stimulus pkg. to create jobs. How we do’in?
August 5th, 2010 at 12:31 pm
what, no answer?
August 5th, 2010 at 1:03 pm
I have no idea why scientists study what they study. I do know they have a specific inquiry in mind. You and I might think it’s a waste. But for those scientists, it has value.
A lot of research sounds weird because it’s so specific and often too technical for the average Joe to comprehend. And a lot of research ends up disproving what the researchers had hoped could be proved. Is that worth anything?
August 5th, 2010 at 3:26 pm
I was more interested on your response to the labor unions.
August 5th, 2010 at 10:02 pm
The 685 thousand dollar replacement of windows in a permanently closed viewing facility overlooking MT St Helens must have been one hell of an experimant. How about monkey on cocain? Oh, yeh replacement of elevators in a federal building that were just replaced 6 months ago. These are just a few of the thousands. Dems just want to spend for spending sake. Pelosi called back congress to vote on a 26 billion dollar bill that would support their pensions. There is 428 billion left in the stimulus which we are paying interest on, why don’t we give it back to our lenders,(CHINA) and reduce the debt for our children and grandchildren. Keynsian economics is not working. Unemployment continues to sky rocket.Where are the believers in uncle Miltie?
August 5th, 2010 at 10:04 pm
That was teachers pensions.
August 6th, 2010 at 10:06 am
Job one is to preserve and create jobs. The private economy is recovering and creating jobs. Problem is state and local governments are laying off just as many. At least for now. So there’s still a need to stimulate.
We’re in a recession caused by a financial collapse. These types of recessions usually last longer and recover slower than run of the mill business cycle recessions. The truth is, however, that we’ve been creating private sector jobs for six months now. The last couple recessions it took as long as 21 months before the private sector started adding jobs.
I know you won’t give Obama any credit in all this (except for blaming him for the recession), but the good ship America has started to recover. It will be lumpy, and probably drawn out, but it’s going to recover.
And just for clarity’s sake, Keynes believed in balanced budgets, not deficits. He’s associated with deficits because, during the Depression, he counseled deficit spending to fight the Depression. Which at the time was a novel idea.
Keynes didn’t counsel running deficits all the time. That’s an idea Reagan made popular.
It’s called the two santa strategy. Be santa and give tax cuts. Be santa and promise more government benefits at the same time. Works marvelously well politically, as we’ve seen. Not so well as economic policy, however.
The author of the policy was Jude Wanniski an advisor to Reagan.
August 7th, 2010 at 9:39 am
Unions have a necessary role to play because individual labor has no power to improve his or her pay. Organized labor does.
The choice is between two imperfect solutions. One where labor is considered just another widget in the economy. Another where labor has some power to elevate itself above that base.
I’m in favor of the second option. You prefer the first.
August 8th, 2010 at 7:38 pm
Reagan inherited an economy from Carter where interest rates for mortgages were at 21%, buinesses were unable to expand, oiland gas had skyrocketed, tax rates were as high as 90% and we were involved in a long never ending cold war. He destroyed the power of the Soviets, caused the Berlin wall to fall lowered income tax rates and as a result our economy expanded. The liberals then gave Obama the Nobel prace prize.
August 10th, 2010 at 10:18 am
Fed Chair Volcker raised the rates to combat inflation, caused in part by the oil price jump. Which sunk the economy into recession and sunk Carter as President.
The Volcker effort worked and inflation was subdued, which opened the economy to recovery. But it took a couple years and did not really begin in earnest for three, after Reagan actually raised tax rates, reversing for all intents and purposes his earlier tax cuts.
I still don’t believe the tax cuts or the tax hikes had much to do with the recovery. It was the natural recovery from an inflation induced recession.
The Cold War ‘peace dividend’ helped subsequent Presidencies, including Clinton’s. But gradually, for various reasons, our defense spending began an inexorable climb. Defense spending under Obama is greater than that under Bush! I figure you’re all for that.
I don’t know why Obama got the peace prize. Didn’t pay much attention to all that. I guess the prize was in hope he’d reverse what many see as a too aggressive US foreign policy. But I really don’t know.