Rather Than Rely On Economists, Just Use Common Sense

Carolyn Rafaelian is the billionaire founder of the accessories and jewelry retailer, Alex and Ani. She’s also the owner of several multi-million dollar houses around the U.S.

The Wall Street Journal recently reported that in 2012, Rafaelian spent $3 million on a four-bedroom Mediterranean in Palm Beach. Four years later she upgraded to a $6.7 million house in neighboring Manalapan, but held on to her initial purchase.  According to the Journal, she “kept the first Palm Beach home for employees on work trips” because “I want my team to…be excited to come” down for work in south Florida. 

Rafaelian wants employees to similarly be excited about trips to the west coast.  With her company presently working to open ten new stores out there, she’s purchased a $9.4 million house in Venice Beach that will be used by her pampered staff when they’re working in California.

Alex and Ani strives mightily to meet the fashion needs of its customers, and also to influence them.  Conde Nast is a prominent magazine company (Vanity Fair, Vogue, Glamour, among others) that frequently chronicles and critiques the doings of those in fashion.  Interesting there is what the perks were like for magazine editors back in more prosperous times for the print industry.  A recent article in the New York Post indicated that in addition to handsome salaries, the late Si Newhouse (owner of Conde Nast) made sure editors enjoyed benefits that included weekly flower deliveries, a large clothing allowance, a 24/7 driver, and interest-free home loans. 

The Post’s story about Conde Nast is a window into the past.  With magazines not nearly as profitable as they used to be, the perks described are for the most part in the rearview mirror as it were.  As for Alex and Ani, it’s apparent that they’re getting better and better.  But that’s not the point.

For now, the point about Alex and Ani in the present, and Conde Nast in the past, is that prosperous businesses generally overpay for talent.  And while it’s possible they do so because the owners and/or CEOs are generous, compensation likely wouldn't be very different if they were miserly.  They would overpay as a necessity even if they were sociopaths simply because a failure to retain top talent is incredibly expensive. 

Like Newhouse before her, Rafaelian wants to win.  And she knows that in order to win she must have the best players.  Arguably the best way to understand this simple truth is to consider professional sports.  Winning is an effect of putting the best players possible on the field or court, and it costs money.  What’s true in sports is just as true in commercial pursuits that don’t require the players to put on a uniform. 

Which brings us to the increasingly popular narrative promoted by economists and their media lackeys that wage growth in the United States has stagnated.  According to their models, wages in the U.S. haven’t kept up with economic growth.  Economists are mystified.  They’re writing reports and op-eds to express their wonderment.  Back in the real world, it might be wise to ask why we bother listening to the credentialed in the first place.  It’s a safe bet that the profession which is near unanimous in the belief that stable money values are economically harmful, that economic growth causes inflation, and that the maiming, killing and wealth destruction that was World War II ended the Great Depression, has constructed the wrong models.

Indeed, to believe the stagnant wage narrative is to believe that the country populated by the world’s most voracious consumers is also populated by a workforce that’s seeing no improvement in its pay.  Sorry, but the two don’t go together.  Not even close. We’re increasingly acquisitive stateside precisely because our pay enables the acquiring.  And for those who say we’re consuming a lot because we’re going heavily into debt, try again.  Individuals who possess the means to borrow are logically seen by market actors as having the income (or future income) to pay the monies borrowed back.  Whatever the cause of our ability to vacuum up the world’s plenty, none of it correlates with wage stagnation.

And just as rampant consumerism in the U.S. doesn’t correlate with wage stagnation, neither does the basic truth that the U.S. is populated by the world’s most valuable companies.  To understand this point better, it’s worthwhile to once again contemplate Alex and Ani founder Rafaelian’s purchase of multi-million dollar houses in order to “excite” her employees, and the perks at Conde Nast in the past.  While the examples are anecdotal, there’s broad truth in anecdote.  Rafaelian understands what corporations have long understood, that success springs from the people showing up for work each day.  The latter correlates with handsome pay, not worker exploitation.  So unless readers really want to believe that Alex and Ani and Conde Nast were and are the exception to the stingy corporation rule, it’s a safe bet that the country with the most valuable corporations also has the highest paid workers.  Stated simply, when companies are doing well, so are their workers. 

The on-the-ground reality of American economic dynamism that has led to world-leading valuations of American businesses in no way confirms the pessimism within economists about U.S. wage stagnation.  Companies become valuable precisely because they figure out ways to pay their best people, and U.S. companies are once again the most valuable.  So rather than rely on economists for bad information, it may be wiser for readers to simply rely on their common sense.