A commenter asks an interesting question:

You're a long way from establishing your critical point, focusing only on the downsides of unionism to productivity. What about the downsides of focusing only on the next quarter's return? Any individual corporation would be best served by a return to servitude (company towns, anyone?). The system as a whole may well be better served by having a systematic counterweight to maximizing short-term profits.

Just curious. Are you paid on a piece-work basis or do you draw a salary? Given what you do here, shouldn't you be paid on a piecework basis?

As you think about that, remember that there are other values in this world than maximizing short-term productivity, like treating people with dignity. Who knows, maybe the people who get paid a little more can actually afford to buy the products that the economy generates.



Actually, this is a series of interesting questions. I was going to respond in the comments, but then many of you would miss it.

So, first things first: alleged corporate "short-termism". There's very good evidence for certain kinds of managerial abuse that might fall under this heading. Earnings manipulation. Unnecessary mergers. Internal empire building. At a stretch, insider trading.

But the idea that companies maximize short term profits at the expense of long-term returns is, to put it mildly, unproven. Undoubtedly there are some companies that eat their seed corn, just as their are companies that could use a better focus on current performance--well-funded start-ups generally fall into the latter category. On the whole, though, companies pay attention to both long-term profits and short-term performance.

That's because everything these companies do is public. And the public--or at least the part of the public that managers care about, the investment class--is not completely moronic. Pfizer could maximize its short term profit by slashing its R&D to zero and firing its sales force. But investors would hammer the stock, because they can recognize that this means the stock will soon have no cash flow.

This is not to say that some companies do not err on the side of too little investment; only that as far as we can tell, there is no systematic bias towards doing so. Most research on mass layoffs focuses on the workers rather than the firms, but what little data there is suggests that on average, productivity rises after them. This is unsurprising unless you actually buy into the notion that companies have absolutely no idea who produces and who doesn't.

Companies are not the omniscient revenue maximizers that some conservatives like to claim, but neither are they the venal buffoons of liberal legend. Which should be obvious from the fact that much of the stuff we have works pretty well, and better every year.

On the second question, there's a pretty rich body of literature on when piecework rates make sense. I highly recommend the chapter on the subject from Tim Harford's thoroughly excellent book, The Logic of Life. Piecework makes sense when quality is readily observable and monitoring costs are low. The Atlantic wants me to maximize the quaity and readership of the blog, not the number of posts; that's why I don't get paid on piecework. Though of course I do, when I'm writing for other publications. But the question of compensation structure is not a matter of business being mean; most low-wage workers don't get paid on piecework, and plenty of highly paid workers do--solo lawyers and consultants, for example.

On the third point--well, sure. This is an empirical debate about productivity, not a philosophical debate about income redistribution. But biased reading of empirical data is one of the ways that people try to delude others into following their philosophical choices. I think lower taxes and less government spending are a good idea. That doesn't mean I can pretend, as some conservatives do, that lowering taxes raises revenue to the government.

On the fourth point, this is a silly canard. On an economy level, we cannot produce more by paying workers more, any more than you can increase the height of your house by calling the basement the first floor. The amount of stuff everyone has is determined (more or less) by the productive capacity of the economy. You can redistribute that stuff between people, and you can change the mix of stuff that gets made. But you cannot make more of it by changing the nominal price of labor. The only way to get more stuff as a society is to improve our productive capacity, mostly by research and capital investment.

Even redistribution is tricky, because the rich consume stuff with relatively high prices, because of scarcity and fashion. But those things consume fewer resources to make than the mass produced items that most people buy. You cannot turn a $20,000 Hermes handbag into 1,000 $20 Target handbags. Nor can you give everyone 1/1,000,000 of Donald Trump's awesome view. Our ability to redistribute is limited, at the very outside, by the number of resources put into the high price items that the wealthy consume.