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Jewish World Review
Oct. 24, 2006
/ 2 Mar-Cheshvan, 5767
Envy is bad economics
In London the media have been foaming at the mouth over the fact that the average chief executive in Britain's top 100 companies is paid 127 times more than the average wage earner. Such high pay has been widely denounced as "excessive," with business leaders joining in the hue and cry. Such indignation is misconceived and pointless. If remuneration at 127 times the average wage is wrong, what is right? One hundred times? Fifty? Twenty? Twice? Who's to say? The market determines these things. If you don't like the market's decisions, the alternative is wage controls, with bureaucrats fixing the scales. Who wants that? And when has it ever worked?
Pay is best seen in terms of spending power or the relative ability to live well. As such, there have always been huge differences throughout history. In England the Domesday survey of 1086 was the first ever undertaken of individual assets in a country. It reveals a bottomless gap between the nobles, bishops and abbots (about 100 men) at the top of society and the serfs at the bottom. The ratio was probably 1,000-to-1 or more.
However, these wealthy men were obligated to supply the crown with what was called knight service, a specific number of fully armored and mounted men, trained for battle and able to serve the crown for 40 to 60 days each year. The number of men so supplied was determined by the amount of land the noble or churchman held. This system led to endless rows and legal actions between the wealthy and the crown, which sometimes fueled rebellions. The rich claimed they were being "ruined" by the tax. One example of a universal truth: There are hidden disadvantages to being really wealthy.
During the Renaissance the head of the Medici bank in Florence had, no doubt, an annual income that was at least 1,000 times the spending power of the average Italian peasant. To defend his assets the banker had to go into expensive civic politics, build fortresslike city houses and fortified country villas and maintain a large contingent of armed horsemen. Moreover, he was expected to devote huge sums of money to the glory of God and the splendor of his family by building and endowing churches or private chapels in cathedrals and embellishing them with altarpieces created by the day's leading Tuscan and Flemish painters.
This art patronage was highly competitive and expensive. A Florentine banker might pay heavily to have a painter such as Hans Memling in Bruges produce a major (9-foot-wide) multipaneled work and then have it transported to Antwerp, shipped to Italy and carted overland to Florence, where, once there, it required ten porters just to carry it across the city.
In every age the rich have had inescapable obligations concerning their wealth. I've just been reading David Cannadine's biography of Andrew Mellon, the Pittsburgh entrepreneur and banker who founded some of America's greatest businesses and then served as Treasury Secretary for 11 years (1921 32). During the last years of his long life Mellon was rewarded for his public service by being prosecuted for imaginary tax evasion by President Franklin D. Roosevelt, a man who, though a lifelong recipient of unearned income, seems to have believed that creating great wealth is somehow immoral. Mellon seems to have spent little of his wealth in self-indulgence of any kind, instead using it to buy works of art that he eventually presented to the nation when founding the glorious National Gallery of Art in Washington, D.C.
I don't believe people earning average incomes are as envious of the rich as media commentary supposes. The kind of relativity people care about is that their incomes rise, their assets are greater than their parents' and their children do even better than they've done.
Such progress is certainly taking place, especially in countries like the U.S. and Britain that run relatively unshackled market economies. In the Oct. 2 issue of FORBES I learned that in the five years since the attack on the Twin Towers, America's GDP has increased by $3 trillion. This increase alone is roughly equivalent to the entire output of the world's fastest-growing economy, China. Clearly, scores of millions of Americans are doing better than ever before. That being so, the astronomical sums earned by a few on Wall Street are of small importance. In my observation great wealth brings more worries than happiness: several different homes to maintain and protect from thieves, squabbles with servants, the terror of a litigious divorce and fights with demanding children, as well as the fear of the wealth and all its trappings vanishing like fairy gold.
When a Difference Matters
Of course, huge differentials between countries present real problems. Average incomes in the richest countries can easily be as high as 100 times those in the poorest. This wouldn't matter as much if the really poor countries were slowly improving. But, because of bad government and internal wars, these countries are growing poorer, both relatively and absolutely.
At the same time China and India once the world's two poorest big countries are making giant strides toward affluence, each year pulling tens of millions of their citizens into the lighted circle of the good life. I believe that in due course the really wretched parts of the world will learn more from the India-China experience than they have ever been able to absorb from the West. The once poor can teach the still poor. I take an optimistic view of these things.
Envy is a foolish and self-destructive emotion. It is also thoroughly bad economics.
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