There’s an article today about Ron Unz, a “silicon valley millionaire” that appears to blur the line between conservative and progressive thinking in leadership ( http://hosted2.ap.org/APDEFAULT/f70471f764144b2fab526d39972d37b3/Article_2014-01-12-Millionaire-Minimum%20Wage/id-cf7a4805024a41a5bc8f915c2c4cd689 ). He’s called a wildcard and other things. In this article, he talks about wanting to increase minimum wage. It caught my eye because you don’t often see people resisting prescribed patterns of political thought. It also left me wanting, because while he may be an example of that, there’s something critical still missing.
It’s something I’m seeing a lot of over the past few years–convictions that don’t match the true reality of things, convictions that if blended with that reality might change to other convictions. This example and wage policy in general is as good a topic as any to illustrate. Before I start here, it’s probably a good idea to mention that I am going to be the last person to fail to acknowledge our systemic financial problems. This financial crisis has made reality in this country painfully obvious to me: the power-enabled few are running up a tab, the many are paying the tab in various forms of expense, and most don’t seem to understand who the few really are, what they’re doing, or how.
Wage Control as Policy: Addressing Effects, and Ineffectively
The problem inherent in wage policy is that pay is low for reasons that wage policy seems ultimately unable to fix, and I think at least some of us acknowledge that concept. Worse, wage policy in the long term only seems to perpetuate the need for more wage policy. I’d think a “lone wolf” would have a better chance of understanding that, but maybe that’s a bridge too far right now.
The reason that minimum wage can’t fix the problem is that the problem isn’t wage in itself. The problem is accessibility to compensation comparable to both willing effort and core needs. That sounds like double-speak, I know, but it’s not when you look at the big picture.
One aspect relates to the nature of commerce. A business forced to pay more for an employee’s service than it believes that service is worth (in terms of return on investment) is most likely going to take action to address that gap. Business that remains in the form of business is not in the business of withstanding cost it can possibly address, especially obvious costs like wage control. It’s the nature of business, especially business today (which could be another topic in itself). Further, action a business takes in response to new cost is not likely to involve simply absorbing it in a way that impacts profit if there are “better alternatives”. Cost reduction options beyond absorbing cost include exerting effort to streamline processes, reducing hours worked per employee by spreading hours across more employees (sometimes even just to dodge benefits), hiring fewer employees, raising prices, increasing labor output, and geographic placement of production (among other options that don’t seem to change the picture substantially here).
Some of those options are more feasible than others. For example, business is usually pretty keen to how much they can charge for their products/services to achieve the maximum profit their market will sustain. Charge more and sales will ultimately go down. Charge less and if cost is held constant they’re leaving profit on the table. There’s usually a little room to move, but not much compared to other options. As far as streamlining processes, it’s a diminishing returns game with not a large amount of room to begin with for many businesses. For businesses with mechanical, easy to model, and easy to measure processes, streamlining them is not only easier to reap large benefit from, it’s often a critical aspect of success. For others, there’s a certain amount that can be done, and the rest is a game of diminishing returns. So among primary options, reducing employee costs is usually one of the easier means of addressing cost.
Minimally, there are too many other attractive options to business in reaction to wage control than simply absorbing cost. This leads to…loss of wage control. Normally, it’s actually labor that winds up bearing more burden.
The financial crisis is a perfect example of this. People that have lost jobs are still having a hard time finding jobs because businesses are still not hiring out of speculative fear. At the same time, businesses are both stockpiling for worse conditions and trying to squeeze more out of their employees. People with jobs likely fear losing them, businesses know this, and so they add increased employee output per labor unit to their stockpiling (like other animals do for winter). How many of us see the spike in coworkers all around us being “let go” and then our job titles/duties change (widen) to fill the gap created by their departure?
To see the problem I’m getting at, compare a business’s difficulty in increasing its efficiency through process streamlining to simply increasing employee output through expanding employee responsibility. Businesses that are competitive usually already have efficiency in place as normal, relatively successful business operation. Further increasing process efficiency in order to recoup costs for use elsewhere is once again a diminishing returns game. In an economic climate where employment is at a premium, how much easier is it for a business to leverage that advantage by simply requiring more output from its employees?
It’s kind of ironic comparing the difficulty of streamlining process to “streamlining employed labor” like this when you think of what most of us experience in the labor pool, and it has something to do with a business’s apparent perception. Companies that don’t depend heavily on process efficiency for various reasons routinely adopt and preserve extremely wasteful aspects of their processes while at the same time squeezing the absolute most that they think they can out of their employees. Even more ironic is how businesses often address waste in their processes…by adding responsibility to labor specifically to recover efficiency from that waste. The joke gets arguably funnier when you look at the lemming groupthink between many large (ex. Fortune 500) companies regarding how they value their employees, some even in the tech sector.
As a side note, some people imagine the impact of the continual “streamlining” of labor output on average daily life for labor, although extreme views usually discount the fact that in all climates society still consumes and that many in the labor pool choose vocations tied to commerce only on the volatile, outer edge of consumption. I’m not going to stray too far from things here, the influence on that picture by social and economic constructs that influence the amount and range of that consumption is a whole other topic (and a good one).
While the things that business does that reduce benefit for employees may seem inhumane, when you look at a dynamic system like ours that for various reasons has large swings in cycles of activity (and there are reasons for that having more to do with policy than ownership of means of production) those actions can compare as pretty lean strategy among the spectrum of all possible. When it comes to a system as deep and dynamic as ours, lean is good, it promotes things like fast corrections to external stimuli. Waste is bad, for one it’s usually borne on the shoulders of those that can’t dodge it.
With that in mind, artificially raising wage through wage control not only introduces a distortion of the system as it was, the response tends to pass the cost on, and usually in part to the same people that wage control was meant to benefit. There are studies that attempt to contradict this, but in every single case they fail to account for third and higher order effects that drastically change the picture. These kinds of effects are an inherent and significant part of a system like ours, so studies that don’t take them into account are hard to give credibility to. Personally I attribute this absence to convictions having more influence than analytical methods.
For example, the overwhelming majority of minimum wage studies focus primarily on the impact of wage control on employment levels. The obvious problem with this is that adverse response doesn’t even have to take the form of reduced employment levels in order to cause damage. A resultant increased cost of living alone is enough to completely neutralize desired effects, render the investment in wage control application greater than returns, and even lead to more cost due to effects of the distortion. Even worse, some studies actually acknowledge price increases as a major business reaction and consider it a favorable outcome because employment levels statistically did not change during the period of study. That of course implies that it doesn’t matter where the cost of wage control goes, even if the cost goes right back to those ‘benefiting’ from wage control.
Here’s another example where shortsightedness reigns and actual outcomes run counter to intent. Ron proposes that wage increases in one sector won’t lead to fewer jobs in that sector because labor can’t easily be replaced with other means of production. He suggests that business can’t also find geographic relief because labor-intensive aspects of production have to occur close to where either required resources exist or where final products/services are provided (ex. agricultural, service-centered sectors). For one, the idea that agriculture has few labor options involving geographic relief is a little short-sighted. I grew up in a region heavily populated at any time by people providing migrant farm labor, much of which may not even have been above the table, and there are no borders to be found anywhere near there that might have been a geographic influence on that. On top of that, automation was transferring a lot of labor needs to other aspects of agriculture besides crop cultivation. Still, service-intensive business (ex. restaurants) is a clear-cut enough example. The problem there (as in other labor sectors) is shared across most ideas related to wage control–there’s no acknowledgement of the common sense realization that cost has to go somewhere, it doesn’t just disappear. In cases like that either businesses deal with the cost internally or pass the cost on through pricing to other places. It’s at least absurd to claim that this passing of cost is controlled.
Another perfect example of this short-sightedness is his mention of Wal-Mart. Force a wage increase on Wal-Mart for its employees, acknowledge that the cost has to go somewhere, and look where it’s likely to go. What is one of the most inexpensive forms of access to a variety of goods? Wal-Mart. If Wal-Mart reacts to forced wage control solely by raising its prices (which Ron actually suggests) then sure, there may be only a 1% increase in Wal-Mart’s prices, but many of its consumers are…people working at Wal-Mart (who likely have second and third jobs on top of it). What does that do to their wage increase? It definitely doesn’t preserve it. Do you think that cost is going to be spread out in a controlled manner exclusively beyond Wal-Mart employees to people that can actually withstand it, even through the chain of subsequent affected transactions passing aspects of that cost further on? Is someone that can afford to pay a little more going to go to Wal-Mart often, when there are alternatives like Target? And it’s easy to do math and say “hey, you have a 10% increase in wage but only a 1% increase in cost for 30% of your total expenditures, that’s great!”. Except that doesn’t account for how much their other costs are similarly affected by the same policy, and it doesn’t account for the fact that price increases are not the only result of wage control. Wage control applied to grocery stores alone can have an impact on costs for these same employees. They can also likely look forward to more employer pressure to increase their output at work and reduced benefits as well. When you see the picture in totality, it’s at least not clear that wage control is helping, and it’s definitely clear that it isn’t helping in the way it was intended.
Another angle worth looking at is the long term effects of a single wage increase compared to initial “sticker shock”. The longer time goes by after a given wage increase, the idea is that business would shift from reacting to the immediate “sticker shock” of a wage increase to a different kind of reaction–one that treats wage as an unavoidable form of labor cost with no consideration of the source. This assumes that none of the realization that occurs to a business due to an immediate wage increase occurs after a certain amount of time after an increase. That is a huge assumption, because business that employs labor near minimum wage is painfully aware of the value versus cost of labor regardless of when changes in wage are enacted. Still, assuming that is the case, employee cost is still higher than a value closer to equilibrium. Even assuming that enough business just treats employee wage as necessary cost, this still doesn’t insulate overpriced labor from cost-cutting measures. When the ratio of liabilities to assets exceeds a desired amount (and this is most definitely not limited to ratios of 1 or more), businesses that want to survive start cutting cost. The first thing to go under the axe due to cost-cutting measures are “low-hanging fruit”–things with the highest combination of cost savings and ease of implementing. To assume that employee cost isn’t evaluated in these cases is a departure from reality: employee cost is evaluated at regular intervals, as someone experiencing anything ranging from performance evaluation to layoff periods can tell you. On top of this, as the amplitude of cycles in our cyclical system shows (and counter to advertised benefits of policy) you can estimate a climate conducive to cost-cutting as roughly occurring one half of the time. So in general you can expect employee costs to be under scrutiny 1) to varying degrees continuously, and 2) to heightened degrees roughly one half of the time. In a wage control scenario you can expect even higher levels of scrutiny across the board. If that wasn’t enough, all of this is a best-case scenario. We’ve become very accustomed to business sentiment similar to profit at any cost, which leads to action with regards to employees in line with that sentiment.
In a perfect world, wage control would see wage increases result in cost increases only for “those that can afford it”. The optimal outcome from this perspective would likely be business directly deducting it from their profit margin to whatever extent possible. This of course occurs to some degree in business voluntarily (ie. not through wage control mandate) because it can be extremely smart business strategy, although it’s one end of a spectrum ranging from smartly valuing employees to various forms of “charity” (unidentified waste). The problem is that impacts like this to profit aren’t usually incurred. Business is programmed to maximize profit. A significant amount of cost is going to be transferred out of the immediate vicinity of a business’s books to somewhere else, often to its employees. For sustainable businesses transferring cost externally beyond that, that means consumers.
The next most optimal outcome is probably where cost is transferred to consumers but exclusively absorbed by those that can more easily absorb the cost compared to those that are receiving direct wage control benefit. If that doesn’t occur, a likely next best scenario is the cost transferred at least in major part away from those that wage policy is directly trying to aid. In that case consumers simply absorb the cost as a collective group through a spreading web of value transfer.
Reality of course doesn’t exactly match these scenarios involving benefit exceeding drawbacks though. People with more wealth have more options as consumers, many of which don’t involve giving business to minimum wage markets, at least not directly. People with less wealth have fewer options, and for core needs if the cost of living goes up their purchase power of course goes down, and the intended benefits of wage control are reduced. This leads to net results that run counter to intent. It’s one of the reasons (and whew there are others) we keep coming back to the same question: raise minimum wage again? Ironically, wage increase exerted across the board of all wage would have an effect closer to intent, although one of the other problems of wage control in that case becomes obvious: wage control tempts cost of living increases and money losing meaning (inflation). Again, studies have been conducted here, but as with many fields of study there’s a failure to account for the totality of the picture, so much so that understanding of the subject is called into question, at least by me.
Let me drive that particular point home, please. There are economists numbered by the dozens if not by 3 digits–some with full PhDs (a few even with Nobel awards in economics) actively contributing to the body of economic knowledge in the field–who fully back wage control yet completely fail to recognize or acknowledge impacts as simple as cost of living. To compare, I got a C+ in Macroeconomics 101. Granted I was not applying myself (neither I nor my teacher tied ideas to things that I was passionate about at the time), but hopefully this says something about the value of both earned degrees and large portions of the body of work in economics. And yes, this most certainly occurs in other fields, especially mine.
People that believe in and apply wage control in systems similar to ours (and there are many) consistently fail to recognize these nth order effects that run counter to intent. The existence of “nth order effects” is a dominant, primary characteristic of these systems–systems that employ wide-scale trade of value in various forms (ex. most if not all major economic systems throughout the world). Many of these effects are common sense–give someone something within a system designed for balance and which tracks such things, and someone else has to shoulder the burden. People draw value judgements at times in situations like this and call it morally justified depending on who has to shoulder the burden, yet they lack the understanding required to even make educated decisions based on those value judgements. When people fail to this degree in understanding how our system works in relation to real people and real lives, it should be obvious that applying policy based on it is at least ill-advised. More importantly, it illustrates a failure to understand why people appear to be in need of wage help in the first place.
Long story short, if you want efficiency in production you can’t have your cake and eat it too to the degree that policies like wage control (especially “minimum wage” concepts) depend on.
Things begin to look even grimmer when you look deeper and begin to realize the core causes that lead people to call for wage policy to begin with–people having significantly low access to the system. There’s one significant economic reason for this (among many others): massive transfers of value directly away from them and from others in their economic vicinity (which has a collateral effect). Due to the inherent nature of the system (some of the same nature that renders wage control ineffective), massive transfers of a magnitude like this require that little comparable equality of value be involved in those transfers…in other words, it requires people cheating (fraud) or altering the rules of the system (creating unbalanced risk) to maximize concentrated wealth or power (personal power or to an immediate vicinity). This causes huge distortions in the system, with cause and effect relationships that greatly benefit those with certain key types of access to the system and greatly harm those without. Worse, the harm increases greatly as someone’s financial stability and access to the system (in order to recoup finance) goes down…at least until the point of government assistance. The ‘web’ of a system like this has these types of cause and effect.
The current financial crisis has made the situation obvious. When you look at the factors leading up to it, they’re similar to ones leading up to previous crises. They primarily have to do with collusion between key members of government and business circumventing both rules for government intended to prevent concentration of power and rules for business to prevent adverse damage to the benefits of market freedom for the people. From a big picture standpoint, collusion created unbalanced risk leading to a bubble, it burst, and everyone lost. Except those people who had the least to do with the causes shouldered the most severe damage in terms of cost versus their financial situation.
As one example of the form that mass transfers of value (distortions of the system) takes, in order to maximize re-electability elected leaders have routinely broken the law by not just consulting with monetary policy makers (which by itself is against the law) but in a deliberate manner with the goal of changing the nature of financial law and regulation in order to affect increased stimulation of markets. The motive for a leader in government is that if times are good (through successful market stimulation) and person X is elected, then person X looks very good in terms of continued electability. One result is “often” excess stimulation (what people call bubbles). Bubbles tend to burst, leading to massive transfers of value that often hit people harder when they have less ability to weather financial storms harder. Their welfare condition is significantly worse (often risking access to core needs for survival), and their ability to recover through options that access to the system provides is reduced, so they feel the effects longer.
Another form of mass distortion occurs when both elected and unelected leaders also collude with industry in order to directly increase their own financial/power ownership. There are countless documented examples of this. The turnstyle between the financial services industry and government financial regulation institutions is as clear evidence as any. Leaders in industry participate in (and often initiate) the collusion alongside those in the government because it allows an increase in private power: collusion that distorts laws/regulation empowers big business to greatly expand profit opportunity, exert existing power to close competition down, create cartels, at times affect risk in markets, and ultimately change the system to maximally provide themselves with continued increases in wealth and various forms of power. Members of government that are involved benefit from similar results like increased wealth, power through business backing, conflicts of interest in investments related to their collusion, the ability to convert their supportive actions into powerful positions in those same businesses, and so on (the list goes on).
Another primary source of mass distortion is special interest representing small sectors of people (in comparison to “by the people, for the people”) colluding with government to further distort the system by successfully exerting power to create undue benefit for their representative group. This occurs steadily in discrete steps over time, and its effects are cumulative. This type of distortion is among the most destructive because of course only certain interests are served (not a more common good) and it usually creates a reaction: favor gained through it usually transfers and transforms favor away from those not in the group. The cumulative effects of it can be devastating in terms of common access to the system. You can thank special interest of this nature for the current state of health care, for example.
Another factor involved in massive transfers of value is monetary policy itself. That’s a whole talk for another day because it both aids the types of collusion already mentioned and influences the exact behavior of resulting mass transfers of value (away from many to few). In addition, it’s a steady tax on people with an added bonus of possibly being buried under a financial avalanche. Monetary policy in this country is based on the premise that orders of magnitude of difference between real owned value and value in note form is necessary to sustain value transfer in a system as large as ours. The reasoning in part is that without it business as a whole could not function on a scale this large (that reasoning is non-factual, but it is the reasoning behind things). The other side of the reasoning is that it provides “breathing room” for monetary policy controls to prevent unpredictable economic activity. In practice, monetary policy has two direct effects on real, earned value owned by real people: its continual application creates a steady loss of value in the form of influencing steady inflation over time (which wage often does not increase to offset), and the strategies employed by monetary policy risk a complete collapse of that value as system reactions on the same order of magnitude as policy are tempted. That’s on top of the ways in which it aids in other types of collusion. Once again, for those of us with less access to the system, there are fewer options available to us to dodge or even weather the impacts here.
You can even blanket these different forms of manipulation of the sytem into one: special interest (interest serving an individual or a select group, at the expense of those outside the group).
The normal means by which both market ‘leadership’ (public and private together) and monetary policy attempt to guide value are in maintenance of financial law and regulation, various forms of direct government financial transactions, and in policy aimed to guide the financial services industry. These are all intended at least in part to provide control over economic activity in order to prevent unstable economic behavior. Whether or not those controls work is a wholly different question, but the intent at least is not to serve a select few. The financial services industry is a poster child for the problem we face though because it may be the single most concentrated and active form of value transfer in this country. When leaders across public and private sectors collude to maximize their own gain by circumventing and even redefining rules, it causes mammoth distortions and redirection of value. This type of power accumulation 100% led to the crisis we are in.
Unfortunately, distortions leading to financial losses is not just a cause but also an effect. The ultimate damage takes the form of the system itself having changed in terms of its rules in order to benefit a select few in an imbalanced way compared to others. This is a significant core cause of financial problems for people, and worse–it affects their access to the system. It influences the available choices for people in terms of education and training for a vocation. It influences who they can work for (assuming they can find work), and it influences how much benefit/cost they can possibly experience in that relationship. It influences how far their earned value can go to pay for the things they need. It influences how much they have to work outside of work to live daily life. It even influences how much people can set aside for a nest egg. This is how much force special interest can exert on someone with few options to choose from to begin with.
All of these forms of special interest are damaging to “normal people” because their options to react are of course relatively limited. Many normal people don’t even see the damage or the factors leading up to it. Even assuming awareness, the playing field starts off unbalanced. By default it is a single person versus many groups and individuals with power comparable to a group. Contrast that with people who have key access to the system: they can afford to exert power to change the system and create more access to power as part (or whole) of their job–actually being paid while devoting part or an entire duration of a full time job to influencing the system. Normal people on the individual level can back and join groups that do have access if they’re able, but usually the goals of those groups don’t mesh 100% (at least) with benefit for them, and the numbers of these groups are dwarfed by others their goals conflict with. The most effective option normal people have always seems to be banding together with others in the same boat. While this power can trump everything in opposition, it requires a high degree of highly voluntary group effort. In practice, most of us know how much effort it actually takes even to form enough power to cause a ripple. We’re just not easily able to do so at a level required to make a difference while we are burdened with daily life’s duties (some of which are actually a result of the problem I’m talking about here). This is additionally damaging to people with less access to the system than the norm because their options are even fewer. Things are different with normal people as labor at least in that business needs labor. That is leverage an individual can access and use. It’s not quite as easy when it comes to the broad spectrum of special interest I’m talking about here.
This pattern of changes to the system and resultant mass value transfer induced by various forms of ‘special interest” is a major factor in “income inequality”, and it’s saddening that few have drawn the complete connection (not just “evil industry” or the wealthy not paying their “fair share”) because the evidence is everywhere. People just routinely attribute this evidence to other causes. Often it’s because their pattern of prescribed thought prevents them from seeing the reality that either their beloved industry is one half of the problem or their beloved government is the other half of the problem.
When you see the reality there–and it’s the same reality we’ve had for a good number of decades now–you can probably begin to understand just how reactionary wage policy is, too. No one that would benefit from wage policy would ever back it if they knew what the real impact within the actual reality of our system is and they had the power to make more fundamental changes. Why would they back it? It clearly doesn’t help them long term. At best it’s just a force inadvertently exerted that helps psychologically deter them from seeking real access to the system.
When you step back and look at these things, you see power creating more power. When you look at the results, you see people that don’t benefit from that power collectively shouldering the burden in various direct and indirect forms. That of course makes their financial situations even more grim. Ultimately it adds a significant downward force acting against people building financial freedom above assistance and above minimum wage. So when I personally hear people touting wage control as policy, I acknowledge the obvious: either they do not fully understand how our system really works (in which case they have no business touting policy where they have no concept of or appreciation for the damage to good people), or they do and they’re touting doomed policy for other reasons. In that second case, it’s hard for me to imagine sanity or motive that doesn’t involve dishonesty and grim intent.
This is the problem I continually see in political discourse–a gross misunderstanding of the effect of power on people and how it manifests in systems that may not be straightforward for us to understand. We seem to continue to adopt prescribed patterns of thought without understanding the totality of what occurs.
Many conservatives tout “Reaganomics” as genius. (I don’t mean to pick on Reagan specifically by the way, there’s clear evidence that presidents from our current one all the way back to his terms have been willing and active direct participants in ‘diverting access’ for their own personal benefit.) What you see though when you really look at the 1980s is parallels to today. It becomes obvious that what Reagan failed to do is apply another one of his famous quotes properly to economic thinking: that government is the problem (in this case, 1/2 of the problem). “Trickle-down” economics doesn’t work when power is afforded in a way that…prevents things from trickling down. That power is afforded primarily by collusion between government and business that runs counter to our system’s design. He obviously grossly underestimated the danger of letting business do what it wants, because one result is what we’ve seen: an effective merger of government and business. I am of course not saying that the existence of government is the problem, it’s in how government is now designed. Our government was originally designed in large response to similar chronic problems experienced with British government: a shared imperial mentality, a very recent history steeped in monarchy, various levels of religious oppression, an increasing lack of representation, and so on. These are the things we can thank for American checks and balances, division of power, forms of oversight, and our reinforcing social sentiment. These critical aspects of our systems’ design are being circumvented now though in increasing ways. Design has been changed counter to intent by power in the name of power in order to serve a select few. I hate to sound this negative and absolute about it, but it’s hard not to when you see the totality of things.
Another gap in a lot of conservative thinking comes from a noble concept of individuals reaching within, tapping into potential, and rising above all of the “noise” (ex. lots in life and various sentiment that naturally follows from it) to achieve greater things. There’s a lot to be said about this concept as a value. The problem it often leads to though is blindness to another concept that many progressives know too well: the fact that some lots in life are often made more challenging than others in unnecessary ways due to problems like those mentioned above. Ironically, this would probably trigger a lot of the same reaction you see in many conservatives when they face oppressive aspects of government–that government has no right to do this. The missing piece of course is knowing more about key factors that create these “unequal lots in life”. I have discussions like this all the time with conservatives I know. It’s often a mental leap for some to say the least.
It’s not like progressives that adopt prescribed patterns of thought have the answer either, and wage control ideas are just one example. For one, one of the most significant factors driving income distribution is exactly the distortion of the system I mentioned before. While many progressives (and I) see the problem, many don’t understand the cause, and if they did, they would at least not support wage control as an answer because it has a cost in itself and doesn’t directly address the problem. The problem is that many people adopting these types of views see every problem as a nail and government as a hammer, and that kind of hammer can easily pick a different target than a nail. That theme of course recurs throughout popular progressive views.
Another example hits right at the heart of a lot of progressive sentiment–views on centralized control (government). For one, while centralized forms of control may be necessary evils in realizing the potential of large social groups, it is also imbued with an inherent flaw. It necessitates people exerting control without the result providing direct feedback that “hits home”. When people aren’t directly impacted by the results of their action related to ‘guiding society’, results can and often range from inefficiency to gross compromise of leadership (corruption, undue oppression, exploitation, etc). Further, some approaches to central control have historically shown to be less effective due to these things than others, and the results are logical, to boot. A good example is systems where central planning is the cornerstone. A socio-economic system that promotes the common good is great, but if that system has no inherent mechanisms to deal with the human condition, power invariably concentrates in order to “guide” it, power corrupts, and people invariably suffer. This is the nature of history. And of course the USSR is by far not the only example, history is littered with these results.
Central control that isn’t designed to effectively use human nature to compel cooperation and supportive contribution to the whole aren’t nearly as effective as those that do. And regardless of the form of control taken, since the form of control itself is a concentration of power, if that control isn’t designed to deter further concentration where there’s risk of it then it can easily increase. The result usually short-circuits the control’s design, and if it happens enough throughout the system then common welfare is compromised. This is exactly what happened with the core causes mentioned above: central control allowed itself to be influenced by special interest, concentration of power increased in an imbalanced way, and suddenly the system is serving some more than others and at their expense. As an example of how many progressives fail to realize things like this, there’s no reason certain socialist approaches can’t work on small scales where power cannot accumulate, but most people that say they espouse socialism in certain forms don’t even understand what socialism is or why aspects of it can easily be advantageous over other approaches on very small scales (ironic example: collective bargaining on scales smaller than unions). I’ve even seen people mistake socialist approaches for “individualist” ones and rail against them while touting larger cookie cutter socio-economic systems that don’t even exhibit as many socialist traits. On the plus side, some people that argue on these topics at least see value in mixed forms of leadership in general, which can potentially open the mental door.
So, after all of that, what’s a better solution for wage policy? I’ll say this–wage control is obviously not a long term solution, it appears only to perpetuate existing problems on top of creating new ones. Addressing damage caused by factors like undue focus of power and widespread transfer of value is part of a better solution (one that addresses all imbalances in access to the system). And ironically, for at least the last 20 years or so, it appears that addressing the focus of power is something leaders have spent the least amount of time doing, even while saying things that would lead us to believe otherwise. Given the nature of things, this shouldn’t come as a surprise.