Conversations with a Socialist: Market Value

"Every member of the global community should have the same value.  We need everyone."  

This is the sentiment expressed by a colleague of mine.  This self-avowed socialist and I were walking back from a seminar together and discussing issues related to incentives, cooperation, and altruism.  As we were discussing the role of money and prices in markets, she expressed her frustration at the fact that some people are paid more than others even though all the jobs contribute to the final product.  She desires a world where everyone is valued equally.  The truth is, the price the market puts on one's time should not be thought of as providing a guide to one's importance or as some measure of objective value.  The sad reality of life is that resources are not infinite.  This includes human resources.  Our time, talents, and brainpower are not unlimited.  When communities set goals, be it through the market, the dictates of government, or the wisdom of parents there are going to be some contributions toward those goals that people are not going to want to make just for the fun of the activity.  Ceteris paribus (all else equal), some jobs are going to be short of the necessary amount of volunteers.  The community then has two options if it doesn't want to give up on the goal: it can create incentives that make more people want to volunteer for that activity (higher compensation, privilege, etc.) or it can force someone to do it against their will.  Believers in liberty consider the second option to be offensive to human dignity and well-being in almost any instance.  The first option is the most desireable and the market is the most efficient means of choosing the appropriate (i.e. minimum necessary) compensation premium for the task in question.  You get paid more than I do not because you are a better or more valuable person in some intrinsic sense, you get paid more because you are doing a job that I am not willing to do for what you get paid (willingness including the effort to become qualified).

Note: This conclusion does not apply to comparisons of pay between professionals and those in training in the same field.  For example, a Ph.D. student is compensated to a much smaller degree than their professors even though the Ph.D. student is willing to do the work of a professor.  This is based on the assumed inability of the student to do the job.

Comment on Krugman's "The Fall and Rise of Development Economics"

This was assigned reading in my Economic Development class.  Krugman won the most recent Nobel Prize for Economics and is an influential author.  One can see why from this example.  He is certainly good at communicating his economic ideas.  This article deals with methodology and I found it especially interesting.  Methodology in economics is a topic that interests me and I have generally wrestled with how mathematical the profession has become.  Modern theories and models must be advanced using a model based on mathematical tools.  I admit that I have been sceptical of this at times.  This article wrestles with this question and I was especially struck by this statement:

"If you look at the writing of anyone who claims to be able to write about social issues without stooping to restrictive modeling, you will find that his insights are based essentially on the use of metaphor. And metaphor is, of course, a kind of heuristic modeling technique.

In fact, we are all builders and purveyors of unrealistic simplifications. Some of us are self-aware: we use our models as metaphors. Others, including people who are indisputably brilliant and seemingly sophisticated, are sleepwalkers: they unconsciously use metaphors as models."

A well-written and worthy defense of mathematical modeling in social sciences.