Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

“It is a truism that almost any sect, cult, or religion will legislate its creed into law if it acquires the political power to do so, and will follow it by suppressing opposition, subverting all education to seize early the minds of the young, and by killing, locking up, or driving underground all heretics.”     Robert A. Heinlein

June 2, 2009

Working Harder Or Working Smarter?

by Brad Warbiany

Is workplace compensation associated with intelligence? Tangentially, yes. But it’s by no means a clear link. Compensation is based on one critical factor which Ezra Klein leaves out of the below analysis (and for which intelligence plays an important, but not necessary, role):

And that, I’d submit, is the real reason that people assume the physical trades stupid. We associate compensation with intelligence. Indeed, I’d go a step further: It’s important to us to associate compensation with intelligence. Our society wants to believe the economy relatively just. People can accept that the hand is invisible, but they don’t want to believe it capricious. There should be a “reason” that bankers make more money than construction workers. Something more virtuous than the economy happens to prefer people who move money to people who move plywood. And there are generally two acceptable candidates: They work harder or they’re smarter. Hanging drywall isn’t an air conditioned endeavor, so relative toil doesn’t obviously favor the finance people. That leaves intelligence.

The economy is relatively just. Compensation is based on a pretty simple metric: supply and demand.

I’ll repeat that, because it’s important. Compensation is based on a pretty simple metric: supply and demand.

Intelligence has something to do with it, but not everything. Some skills, whether brainpower-based or not, are in more demand than others. Think, for example, of a garbage collector. Garbage collectors can earn a pretty decent living, but I don’t think many would suggest that their earnings are based on their intelligence. Then think, for example, of the guy with the BA in English Literature — sorry, the technical term is barista — who served you your coffee at Starbucks this morning. To get a university degree in literature takes at least a respectable amount of brainpower, but English Lit majors are roughly unemployable in their degree area.

My own career, engineering, is a happy mix between the two. The math and science curricula that must be completed tends to self-select people who are inclined to such pursuits*. But the relative high pay of an engineering grad coming out of school isn’t based necessarily on their brainpower, but on the relative scarcity of people entering the profession. In college, I majored in Electrical Engineering and minored in Philosophy. The employability of each degree was a critical factor in choosing AGAINST philosophy as a major, even though I did (and do) enjoy it.

Why do NBA players get paid so much money, while elementary school teachers get paid far less — even though it’s pretty clear that the latter are far more “important” to our society? Because the demand for NBA players is very high but the supply is very small. The demand for elementary school teachers is high, but the supply is also very high.

Perhaps this is one of Ezra Klein’s biases, but I personally don’t “assume the physical trades stupid”. I’ve worked on construction sites during summers back in college, and there was a pretty wide variance of intelligence between the group of people I worked with. It’s not as if their jobs were devoid of brainpower, though. If you can’t read a plan and you build it wrong, you need to build it again (and account for the materials and time you wasted in the process). While I’m sure many of those folks might have hit an IQ wall when it came to multivariate calculus, we could discuss politics, the economy, world events, and most of them were as clear or cogent as Ezra Klein or I on the subject — or had the aptitude to be so. And you know what? They were no-bullshit people and a hell of a lot more pleasurable to be around than many of the self-absorbed materialistic douchebags I knew making big bucks in the mortgage industry here in SoCal during the boom.

I’d suppose that this is a long post devoted to the idea that if Americans understood basic economics, we could dispense with the idea that making a lot of money proves that you’re smarter than people who make less. There are cases where that’s true, but it really comes down to a question of marketable skills, the demand for those skills, and the number of people willing and able to supply them. Intelligence is an enabler of certain marketable skills, but it is not the skill itself.

* I’d point out that design engineering is a very brainpower-dependent field — but that it also self-selects people who can solve differential equations but can’t hold a productive conversation that doesn’t involve World of Warcraft. Many engineers I know would fail miserably if you tried to shoehorn them into a different intelligence-based field — like a professorship of History. It is for that reason that I suggest more that it is supply-and-demand rather than brainpower, because brainpower is not necessarily fungible across all disciplines.

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10 Comments

  1. I agree on supply and demand just not on labor supply defining why physical laborers are seeing their real earnings decline while professionals have been insulated. It is about who is first in line demanding your supply of money.

    We are no longer an economy based on production but rather rent extraction and that is why financiers built fortunes during the housing boom while drywall hangers saw their real earning decline. That had nothing to do with fewer bankers and an overabundance of drywall hangers but rather a high demand for credit and little left over after the rent for tradesman.

    Like people, societies in a crisis protect that which is important to them and it is more than a little disturbing to me that, while there is justifiable dissatisfaction with the Obama stimulus the numbers pail in comparison to the trillions of dollars the Fed is funneling to finance and insurance and there is far less grumbling over that.

    Maybe if as a society we understood the importance high quality teachers in education we would have been taught at an early age that debt is not wealth. That this nation doesn’t yet understand that will mean that over the next generation even professionals will begin to lower their earnings requirements as less cash is available for their salaries after the rent is covered.

    Comment by SWilliams — June 3, 2009 @ 2:55 am
  2. SW – glad to see you over here from BoilerD. (Assuming you’re the same guy).

    What you said. I agree 100% and you said it better than I could.

    And what Brad said, with this one: “They were no-bullshit people and a hell of a lot more pleasurable to be around than many of the self-absorbed materialistic douchebags I knew making big bucks in the mortgage industry here in SoCal during the boom.”

    A bachelors degree is not ANY sort of measure of intelligence, IMO. One of the smartest guys I have ever known is my cousin’s husband. His sister became a doctor, but he barely graduated from high school – and probably only managed to because it was the 70′s and they still had “trade school” type stuff available then -”metal shop” etc., classes. Nowadays, he’d be one of those drop-outs who would have to get a GED. Just had ZERO interest in school/acadamia. He went into construction – and over the years, got into buying and fixing up (himself, on evenings/weekends) old homes and then re-selling or keeping as rental properties. He became entirely self taught on real estate finance issues, and could discuss things like amortization/depreciation, etc. as well as an MBA-possessing bank loan officer. Over time, he also became self-educated in other areas and can intelligently (from a basic common sense, regular guy standpoint) discuss economics, politics, religion, etc. This from a guy who once proudly bragged back when we were all in our late teens that the only book he had ever read cover to cover was his motorcyle owner’s manual.

    I prefer being around people like that, than with the sanctimonious, self-absorbed, and “educated” yet still ignorant douchebags who I would estimate comprise roughly 95% of my profession. (I suppose that is why I loathe being forced to go to stuff like Firm “retreats” and local Bar functions……What do lawyers use for birth control? Answer – their personalities) :)

    Comment by southernjames — June 3, 2009 @ 4:48 am
  3. Yep Dr. J it’s me, I always enjoy reading what you and Brad have to write so I took his advise and shuffled on over.

    I agree on the “no bullshit” aspect and these guys I deal with (not being sexist but construction is still dominated by men) are invaluable in that they take input from engineers, architects, customers and me and blend all of it together to create something of value. When I started in this business in college I liked the fact that most understood the importance of tradesman, they were more “equal” then, today the engineer feels that the project could not have gone off with out him, the architect feels that it would not be aesthetically appealing if it were not for him, the contractor feels it wouldn’t have been profitable if not for him and the customer feels they did it all, but in actuality without the tradesman putting all of the individual personalities and pieces together it would have been a giant cluster… and they are the least appreciated.

    Comment by SWilliams — June 3, 2009 @ 5:28 am
  4. I would like to add that, on a macro level; people working in the same field are not rewarded on their productivity or ingenuity, but are paid to shut up….the squeaky wheel gets the grease. If you are content with your pay or you are not outgoing and aggressive enough to demand more pay and benefits you will likely be passed over. Meanwhile someone who may be less valuable, but whines enough, gets more pay, benefits, and promotions. I know this from experience. Early in my working career I assumed my employer would pay me what he could/what I was worth/what the market would bear. After 10 years I told him I had to move on to better opportunities…..suddenly he was able to offer me some benefits. I don’t want to be just another squeaky wheel, but the load bearing wheels need to be greased before they squeak.

    Comment by Steve — June 3, 2009 @ 7:26 am
  5. SWilliams,

    You bring up a good point, one that I overlooked in this post and that definitely bears mention:

    I agree on supply and demand just not on labor supply defining why physical laborers are seeing their real earnings decline while professionals have been insulated. It is about who is first in line demanding your supply of money.

    Supply and demand of money is key. And because of that, the people who have the best ability to supply new money are going to be the best off.

    People assume the supply of money is uniform and it’s simply traded. That’s like saying the supply of water is uniform because we irrigate without realizing that those who live closest to the stream tend to get the best use of it.

    It’s a wildly distorting force. Unfortunately, it’s bad to leave it out of this discussion because it’s actually an important factor, yet bringing it into this discussion will turn it into a post about supply/demand of money rather than a post about relative market value.

    So I thank you for mentioning it here… It definitely is something that can’t be left out of the equation. Inflation (and relative proximity to the source of such) tends to skew these numbers quite a bit.

    Comment by Brad Warbiany — June 3, 2009 @ 7:32 am
  6. It is supply and demand. Ever have a pipe break at 2am? You can get a plumber to come out for you but you’re gonna pay a lot for it.

    I work in IT. I remember when programmers were six figure jobs. Not any more. Programmers are a dime a dozen now. They are at the bottem end of the IT pay ladder now unless you’re highly specialized or have a clearence. You can get a two year associates degree in programming but it is not going to land you a high paying job. Sure, it’ll be better than making french fries, but the HVAC types around here make more. Why? Because there are so few of them. When my parents AC broke down last summer they wanted $300 just to come out and look at it.

    ps: I pulled two epics out of Wintergrasp last night. irl33t!!1!

    Comment by tkc — June 3, 2009 @ 9:24 am
  7. [...] tkc: It is supply and demand. Ever have a pipe break at 2am? You can get a plumber to come out for you but… [...]

    Pingback by The Liberty Papers »Blog Archive » The 31-Year Old “In Charge Of” Automakers? I’m More Qualified Than This Guy! — June 3, 2009 @ 10:18 am
  8. The amount of responsibility one has also goes into it a little, though this may just be a factor of supply and demand, such as there is a lower supply of people who can manage other people, while at the same time having a very good understanding of their chosen field. This is one reason why they may be managers and get paid more.

    Intelligence is somewhat relative. A person can be very intelligent in one field but dumber than a doornail in another. For example, this is a bit generalizing, but many teachers seem pretty bright but when it comes to economics many of them have absolutely no clue.

    Comment by TerryP — June 3, 2009 @ 11:01 am
  9. To follow-up on what TerryP said – I know engineers very well. I went to probably the biggest (well, certainly the best :)) engineering school in the world, and virtually all of my friends there were engineering majors; my own brother and two of my brothers-in-law are engineers.

    I say that as a precursor, because I don’t intend to offend any engineers. But I must say that in my experience, engineers make mediocre legal clients because they are rather thick-skulled (I’m too nice to say “stupid”) when it comes to understanding legal issues – yet they mostly view themselves as being quite smart, which can sometimes make them a pain in the ass to deal with.

    That is an example of brilliance in one field but dumb in another. I chalk it up to an engineer’s natural, inherent, and in-bred failure to understand the concept of “shades of grey.” It’s pretty damn black and white for that crowd. This density of this fluid flows this way through that pipe, at that velocity and at that temperature. This equation says so, right there. Period. “So what’s the correct answer to this legal question, and if it is X, how can a judge possibly choose Y?”

    Comment by southernjames — June 3, 2009 @ 11:22 am
  10. southernjames,

    I’m pretty decent when it comes to legal issues, I suspect from studying a little bit of philosophy.

    Where I tend to lose it is in anything either IRS/bureaucracy related or in health care stuff (which is pretty bureaucratic).

    At least with legal questions, there are arguments to be made and often when there are multiple versions of “reality”, i.e. prosecution & defense, he who is most able to present a plausible argument tends to win. It’s like a debate between a libertarian and a communist. Often the winner of the debate will be the better debater, not the “right side”.

    When it comes to bureaucracy, it just seems so mindless CYA and filling out of forms, and searching reams of data in order to get a non-answer that has no help for you whatsoever. It’s not a question of putting together arguments, it’s a question of referring to Document 134-2, subsection III, paragraph 4, which says nothing and refers you to three other documents.

    I like to think I’m a pretty smart guy, but when it comes to that stuff, my eyes glaze over and I just want to pay someone to do it for me.

    Comment by Brad Warbiany — June 3, 2009 @ 11:49 am

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