Tuesday, August 12, 2014

Cog Value

There is a lot of stuff we don't know. One of the big ones is what things are worth. We know we have more needs and wants than there is stuff and time to go around. We know we would allocate it differently to everyone else if we were in charge. We know we can't keep everyone else's needs and wants in mind and prioritise. So the magic of the the invisible hand is that capitalism helps us discover that price. Sometimes it is surprising and inconsistent. Why do footballers, Britney Spears and Justin Bieber make so much when Olympic Athletes, Miles Davis and Orchestras struggle? Clearly the later are worth more! Not to you. That is why you spend your money elsewhere (... be honest though). Where the invisible hand doesn't work is when there is friction. I think this is part of the problem with income inequality. Workers who define themselves by a particular job and develop large barriers to exit don't necessarily earn what *they* are worth. They get paid their cog value. The price it would cost to find someone who can do the same job, not a share of the value they create. This may mean you get job security (assuming your job doesn't become redundant through creative destruction). The invisible hand is great at telling us what is valued. It is up to us to be flexible enough to take advantage of it. Don't define yourself by your job - or you become a cog.

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