Business & Economics: August 2003 Archives

Tyler Cowen mentions (but doesn't link to!) a NYTimes review of a recent book about how women negotiate, titled "Women Don't Ask".

Most of what the review discusses tracks with typical stereotypes, but one hypothesis stood out to me:

Consider pay. One study found that male graduates of an Ivy League business school negotiated for a 4.3 percent higher starting salary than they were initially offered, while female graduates negotiated for just 2.7 percent. If the first offer was the same for each, say $35,000, this would amount to a $560 advantage for the men.

Over time this advantage could snowball. If men negotiated a 2 percent raise each year and women accepted 1 percent, after 40 years the annual salary would be $79,024 for men and $52,987 for women — nearly a 50 percent gap. The cumulative gap over a career would exceed $440,000.

Professor Babcock and Ms. Laschever [the authors] speculate that much if not all of the male-female gap in earnings can be explained by women's aversion to negotiating.

Today sorta marks the 141st anniversary of the now-traditional 8 hour workday. Before the industrial revolution, most workers labored for 10 to 12 hours a day -- they must have been engineers.

French laws are way ahead of our tradition, however, with their legally mandated 35 hour week. What does it cost the French taxpayer to pay government workers the same for 35 hours of productivity as they were previously paid for 40 hours? Quite a bit: around 30 billion francs in 2001. I can't even imagine the total cost to the French economy when private corporations are factored in.

35 hours a week isn't even a job, it's more like a hobby. Like blogging. Not that anyone spends that much time writing for their blog, I'm sure.

This is the third in a series on rights, power, voting, and utility.
Part 1: The 19th Amendment -- Good Idea?
Part 2: The "Right" to Vote, and Utility

With all the discussion of the costs and benefits of allowing women to vote, it's natural to ask the next question: why do we need democracy at all? If society could be more prosperous had women not been allowed to vote, then perhaps they shouldn't have been allowed to do so. The problem then, however, becomes a question of who gets to set the goals, and who gets to define "prosperous" (since we're not merely talking about monetary prosperity, but utility, and utility is different for everyone).

Historically, the people who have gotten to define "prosperous" have been people with hard power. Hard power represents the ability to use physical force to compel others to conform to your desires, and is often manifested in the form of armies and weapons, real estate and capital, and the knowledge and desire required to apply these tools to disagreeable circumstances. America wasn't able to break free from England purely by the virtue of our natural rights to freedom and liberty; rather, these rights and our desire to possess them motivated our forefathers to use their hard power to overthrow English rule. It's often said that we "have" a right to this or that, but unless we have the hard power available to seize and defend that right, it's little more than a rhetorical construct.

God may grant us the rights of life, liberty, and the pursuit of happiness, but unless we have the hardware to back it up we're likely to have those rights taken away in fact. Our natural rights are not rights that are enforced by God, but they define the extent to which it is permissible to use force against each other, and they define who is right and who is wrong in such conflicts. If you attack me without provocation, God is not likely to intervene to stop you -- but he will sanction my use of hard power in self-defense. (SDB writes a little about hard power as it applies to relations between countries.)

The power to vote is not hard power, but soft power; votes only have meaning as long as those with the hard power respect them. If you look around the world, internationalists want to replace the hard power of armies with the soft power of UN negotiations, international courts (ICC), environmental treaties (Kyoto); however, dictators and strongmen continue to subjugate their people through the use of hard power, and generally show no respect for soft power unless it happens to coincide with their wishes -- take Saddam's treatment of the myriad UN resolutions, for example. Soft power can only be used successfully when those who possess hard power restrain themselves.

As I wrote in part 2, above, voting is not a right; as such, if you are forbidden the power to vote you are not being inherently wronged, as long as your true rights are not being violated. Using force merely to gain the power to vote is not morally acceptable. However, it's uncommon for societies with a single voter (a king), or a small, select group of voters (feudalism, or an oligarchy) to respect the rights of those without hard power of their own.

This situation sets up a rather interesting conflict, assuming those with hard power want to respect the natural rights of those without. Those with hard power can set up social institutions (democracy, courts, &c.) to ensure that everyone's natural rights are protected, but if those soft power structures overstep their bounds they will become burdensome, and they may eventually be overthrown. This perspective views democracy and other forms of soft power as grants from those with hard power who have an interest in respecting the rights of the powerless.

Soft power structures show their true strength over time, as they manipulate the foundations of hard power. For example, the 2nd and 3rd Amendments attempt to permanently diffuse the concentration of hard power, on the basis of the natural rights to private property and self-defense. These words don't factually eliminate the hard power that could oppress you, but over time they work in the minds of men to change their thoughts, and to further ingrain the respect for you rights that led those with power to restrain themselves in the first place. Soft power must entice and coerce hard power, subtly influencing over time.

Democracy has proven to be quite adept at manipulating and controlling those with hard power. America's military is the most powerful force that has ever existed on the planet, and if its generals were able to wield that power at their own discretion they would rule the world. But America's military is under civilian control, and that control is passed on every few years without involving the use of hard power. This principle is not merely written in our Constitution, but is ingrained in the hearts and minds of every man and woman who carries a rifle or drives a tank. They possess hard power, but they restrain its use because of their committment to the powerless.

Was our initial government in 1788, after the ratification of the Constitution, democratic? Yes, although only a limited group of people was allowed to vote. Under our modern system, many more people are allowed to vote, but still not everyone: children, convicts, non-citizens, the insane, the unborn(?). Are we democratic? Certainly. There is clearly a range of suffrage that is allowable under democratic rule, and over time we have moved along that spectrum -- but I don't expect that we will ever move to total suffrage, because those with power (hard and soft) don't think that granting the power to vote to those without it would lead to a better government.

Do children, convicts, non-citizens, the insane, and the unborn have the rights to life, libery, and the pursuit of happiness? Each of those groups of people has their power limited for different reasons, and many would argue that some have rights and others do not, for whatever reason. At the root level, however, the question of granting soft power to these groups comes down to that of the interests of those who currently wield power. And we say no. We may or may not recognize and respect their rights (if they exist, which is a separate issue), but we don't grant them power because we don't think it would be in our best interests They do not possess hard power of their own to use in seizing soft power.

Our nation is free and prosperous as a direct result of our respect for each other's natural rights. Economic liberty and social freedom have given us a tremendous amount of hard and soft power, and we use that power to create wealth and raise our standard of living, as well as to (hopefully) spread the values that have led to our success. Our experience has shown that rights are more likely to be respected when power is diffused as widely as possible. In response to part 1, a commenter wrote that by recognizing the rights of women (and by granting them soft power?) we have attracted the best and brightest women from around the world, and that they add immeasurably to our prosperity. Our foundational ideas hold that when rights are respected, economic and cultural success follow behind.

Making fine cultural adjustments is difficult and error-prone, as in general we decide against it. It may be the case that granting women suffrage has been a net loss, but it's so difficult to calculate -- and the gross benefits are so obvious -- that the nation (and those with power at the time) decided to err on the side of further diffusion. We do restict the power of some groups based on what most believe are rather clear criteria, but those circumstances are limited and (except for the unborn) mostly non-controversial.

So why democracy? Because democracy tends to diffuse power more successfully than any other form of government, and diffuse soft power limits the interference of those with hard power by subtly manipulating their goals and desires, thereby increasing their respect for the rights of the powerless.

Here's an awesome example of how capitalism creates value. Those who claim that America got fat and rich by exploiting others don't understand economics at all.

This is the second in a series on rights, power, voting, and utility.
Part 1: The 19th Amendment -- Good Idea?
Part 3: Why Do We Need Democracy?

There's no such thing as a "right to vote". There's the power to vote, but no-one has a natural, God-given right to vote. We have the rights to life, liberty, and the pursuit of happiness, but none of those require or imply the right to vote. An absolute dictatorship could respect our God-given natural rights, and be entirely just. For instance, most families don't operate as democracies, and yet most families respect these basic rights.

One my my friends (I hope she's still my friend) responded to my earlier post about the 19th amendment and said that she doesn't want to apply economic principles to civil rights. However, economic principles apply to every human endeavor, whether we recognize it or not. No one needs to come put a price tag on your forehead for there to be a cost associated with the rights and powers you enjoy. That cost is there automatically, regardless of your approval, and economics is merely the study of the costs and benefits associated with everything humans do.

Costs and benefits often aren't monetary -- generally economists refer to "utility" to describe how valuable something is to a person. Love and affection, the power to vote, $1000, clean air -- all of these items have utility to people, and different people will value them differently. When it comes to the power to vote, I hypothesized that if you were to walk up to a random guy on the street and offer him a 20% permanent raise in exchange for his power to vote, he'd probably sell it to you. Most people don't vote, and many who do don't take it very seriously. If Joe Shmoe won't sell his vote for a 20% raise, maybe he will for 50%, or 100%, or 1000%. There's a price, you just have to find it and be willing to pay it. Some people may place infinite value on their power to vote, but I doubt there are many such people -- especially if you separate the power to vote from the natural rights we hold so dear.

With all that understanding, it's quite reasonable to wonder whether or not giving women the power to vote was a wise idea. I agree that it has moral value, and we gain some utility as a society from that good morality, but does that moral utility out-weigh the utility of every effect that has arisen because women can vote? It's possible that that moral utility is more valuable to you than anything else, but I doubt that's the case.

The question is whether or not our present circumstances are overall better or worse than they would be if women had never been given the power to vote. Yes, there is some degree of utility that arises from the moral good that was done in granting women that power, but that utility is not of infinite value.

For instance, the War on Drugs would probably not exist if women couldn't vote; the War on Drugs costs us billions of dollars a year and incarcerates millions of otherwise-innocent people. It also encourages a lot of violent crime associated with the black market. On the other hand, the War on Drugs probably reduces drug use, and reduces the societal costs associated with that. So, your opinion of the War on Drugs can influence your opinion of the total utility gained or lost when women were given the power to vote. There are many other issues that have been affected by the 19th Amendment, and all of them should affect the way you value the power of women to vote.

Courtney has some links to the conversation going on at Dean's World. In the comment section there she promised a post on the subject herself -- but so far, nothing!

Continued in part 3, "Why Do We Need Democracy?"

Update:
Dean Esmay explains some of the thinking during the early suffrage movements.

It's fashionable to look at demographics and try to draw conclusions, but it generally doesn't work very well. Donald Sensing points to one example, wherein a writer named Spengler claims:

Which brings us to the threat of radical Islam. "You are decadent and hedonistic. We on the other hand are willing to die for what we believe, and we are a billion strong. You cannot kill all of us, so you will have to accede to what we demand." That, in a nutshell, constitutes the Islamist challenge to the West.

Neither the demographic shift toward Muslim immigrants nor meretricious self-interest explains Western Europe's appeasement of Islam, but rather the terrifying logic of the numbers. That is why President Bush has thrown his prestige behind the rickety prospect of an Israeli-Palestinian peace. And that is why Islamism has only lost a battle in Iraq, but well might win the war.

Demographics always indicate that the poor and oppressed are eventually going to take over the world. Why? Because poor people have more kids than rich people. That's just the way it is. Somehow, the the rich and powerful manage to stay in control anyway.... I'm not dismissing demographics, but I do think such arguments need to be taken with a grain of salt. The situation is never as clear as it looks from raw population numbers.

As the poor and weak gain power and wealth, their growth rate drops and their priorities change. Rich people want freedom, stability, and trade -- not violent revolution. Radical Arab Muslims aren't going to take over the world, because if they ever have that kind of power they won't be Radical Arab Muslims anymore.

This is the first in a series on rights, power, voting, and utility.
Part 2: The "Right" to Vote, and Utility
Part 3: Why Do We Need Democracy?

Call me old fashioned, but women voters? What planet are we on? Beam me back up to the mothership.

As Dean Esmay notes, it's been 83 years, and what have women really done for us? Prohibition -- good move. That worked well. Oh sure, it was ratified before women could vote, but it was their idea. Let's see... that's pretty much it.

Let's be serious here though and really consider. Are we as a nation better off having given women the power to vote? I agree that from a moral perspective it was the right thing to do, but I don't think the issue is that black and white; there were substantial groups of women opposed to granting women suffrage.

If you told me, Michael, the country could have a 20% higher standard of living if we were to go back in time and start again as a monarchy, I'd say "sign me up!" I think most people would be willing to trade their vote away for a substantial salary increase. Any individual would sell their vote for the right price, so it's not unreasonable to speculate on the costs and benefits of women's suffrage.

Each individual woman has more freedom than she would otherwise have had, and each individual man has less power than he would otherwise have had -- at least as far as voting goes. But women tend to vote socially and economically liberal, so it's possible that men have more freedom now than they would have had if women had not been allowed to vote, simply because women may have voted for more civil liberties than men alone would have. However, it's also possible that women's liberal voting tendencies have reduced our freedoms, considering that modern "liberals" aren't really all that concerned with maintaining liberty. Similar hypotheticals can be set up with regard to the economy.

It seems likely that if women had not been given the power to vote, more conservative/libertarian laws would have been enacted than actually have been. Women are big supporters of the War on Drugs, for example, and big social spenders. Therefore, those who hold conservative/libertarian positions would probably have a government more to their liking if women had not been given suffrage.

I'm not a historian, but I play one on TV, and if you look through history you'll realize that the position of women in America is really an aberration. Through out every culture, through out all time, women have never been as free and powerful as they are in the United States right now. In an absolute sense, giving women equal social power was an act of indulgence for men; women are physically weaker than men, and in might-makes-right societies that weakness translates directly into social subjugation. It's quite reasonably arguable that the power of women in America is against the "natural order" of the world, and it would be difficult for any materialist to disagree.

I expect that most people who are reading this believe that women's suffrage is a Good Thing. I hope that none of my female readers have taken offense to this topic. Even though I agree that women have God-given equality with men, I'm not convinced that giving them equal social power has resulted in a net gain for society -- or either men or women separately.

Please leave your opinion. Your concept of "gain" may be purely monetary (what we might normally call "standard of living"); it may include freedoms and liberties aside from the power to vote itself; it may encompass foreign policy; it may involve deep philisophical or religious issues. In any event, please define what you consider to be "gain", and then tell us if we made the right decision.

Update:
Continued in "The 'Right' to Vote, and Utility".

Steve Antler over at Econopundit posted a nifty little "sermon" (as he calls it) on Sunday about social justice as a good. I like his analysis, and it makes me feel better about myself as well!

Here's the idea. We can't avoid wanting more than we can afford, because that's part of our biological makeup. This means we can't avoid wanting more social justice than we can afford, because social justice is a good and we always want more goods than we can afford.

I love economics, but I'm not that interested in the numbers of any particular issue. If you're like me, I recommend that you check out the archives of The Angry Economist; from the article titles you can find some pretty fascinating topics, followed by clear and intuitive explanations. Good stuff.