Calling for Higher Wages, Bryce Covert Resorts to Force Over Freedom

New York Times contributing opinion writer Bryce Covert wants higher wages.  Seemingly missed by Covert is that businesses want higher wages too.  Yes, you read that right.  Businesses actually want much higher wages.  Low-wage labor is very expensive for obvious reasons: it’s less productive as the low wages associated with it suggest, plus the turnover is high. That’s why Henry Ford paid so well in the early 20th century, and it’s why Amazon pays so well in the 21st.  The poorly paid frequently quit, and turnover is very expensive. 

Seemingly also missed by Covert is where investment is most concentrated.  If investors truly pursued the cheapest labor, this would show up through voluminous investment into Detroit, Flint and Jackson, MS, and massive investment outflows from high-wage locales like Boston, New York and San Francisco.  Except that the vast majority of VC investment is directed toward concepts in California, Massachusetts and New York.  Readers should keep this in mind as this column progresses.

Covert laments the uptick in mergers in 2018 with wages in mind.  As she sees it, “All this activity means fewer companies” such that “workers have fewer options when they look for jobs.” Covert believes the latter reduces worker “bargaining power and, in turn, is part of why wages have stagnated.” Covert is incorrect, but what makes her most incorrect is her disdain for freedom. 

Totally ignored by Covert is that companies have owners.  They’re individual shareholders.  Whatever one thinks of mergers, it can’t be forgotten that they take place at the pleasure of shareholders.  When Covert trash-talks merger activity, she’s trash-talking the freedom of shareholders to do with their shares what they wish to. 

Covert might say, and in fact does say in so many words, tough on shareholders.  As she sees it, low wages today are an effect of “the power of a few consolidated employers to hold down pay.” According Covert, productivity has “continued ever upward” since the 1970s, but “pay has muddled along.” She sees a correlation between big corporations and stagnant pay.  Except that there isn’t one.  Nor is there stagnant pay.  

If anyone doubts this, they need only consider the ten most valuable companies in the world.  Nine of them are U.S. based.  Does any reader seriously think these large companies employ a wage-stagnated work force? The very notion is silly.  Figure that Amazon is one of the world’s top ten, and as part of its HQ2 announcement it indicated that the employees in its second city would be extraordinarily well paid.  This isn't Amazon blowing smoke.  We know it's not in consideration of all the jockeying among progressive cities for HQ2; cities that a progressive like Covert would feel most comfortable in.  In short, it’s the biggest, most “consolidated employers” that can generally pay the most. 

After that, this notion of compensation in the U.S. that “has only muddled along” since the 1970s is belied by human migration patterns.  If wages in the U.S. had been flat all this time, foreign workers of all stripes wouldn’t have been entering the U.S. (legally and illegally) in such large numbers since.  Covert likely supports liberalized immigration rules (as does this writer), but the fact that she likely wants more open immigration is a certain sign that her assertion about U.S. wage stagnation is an utter falsehood.  If true, as in if American workers had actually been exploited since the ‘70s, this would reveal itself through very slim human inflows into the U.S. In short, immigration wouldn’t even be a political issue.  Except that it is, and the fact that it is should remind readers of just how poor is Covert’s analysis. 

Back to shareholders, Covert would seemingly like to limit their freedom to sell their shares to whomever they want.  If so, there would be fewer mergers and higher wages. 

Except that Covert forgets the obvious: companies wouldn’t exist without the shareholders whose freedom she would like to limit.  Investors frequently buy company shares in the hope that another corporation will come in and buy the shares at a premium.  It should be obvious, but in case it isn’t, the shareholders without whom there would be no companies and no jobs want a return on their investment.  As a reward for delaying consumption in favor of investment, they’d like to get more money back than the initial amount invested.

Covert wants courts to more aggressively challenge mergers, but the act of doing so would be anti-investor.  Covert misses that what is anti-investor is necessarily anti worker.  Indeed, wages are an effect of investment, which means that without investors there are quite simply no wages.  By extension, Covert’s desire to limit shareholder freedom on the merger front would reveal itself through less intrepid investment, and as a consequence, lower wages. 

Covert is plainly anti-freedom, but her heart is presumably in the right place.  There’s nothing wrong with desiring a better outcome for workers.  Covert’s problem is that she’s clearly convinced good economic outcomes must be dictated by government. Except that they can’t be.   

And since they can't be, Covert might at least consider freedom.  Rather than seeking government force to limit the rights of shareholders, she might remember that happy shareholders mean happy workers.  With happy shareholders very much top of her mind, Covert might contemplate ways to please these job creators whose savings enable rising wages.  She might consider the value of zeroing out the corporate tax always and everywhere paid by shareholders.  She might consider zeroing out the capital gains tax, which penalizes investment success.  And she might think about the good of a stable dollar that holds its value over time.  If so, the investors necessary for rising wages wouldn’t face currency risk with each capital commitment.

It should ultimately be said that force generally doesn’t work, particularly when it’s imposed on those whose savings make companies and jobs possible in the first place. Covert would be wise to undersand that her way doesn’t work for the worker precisely because it fails the investor.