Wednesday, December 28, 2011

Is Peter Schiff a Parasite?

Peter Schiff is one of Ron Paul's economic advisers, and I've been listening to his radio show lately. On his December 22 show he talked about an appearance he'd made on Cenk Uygur's show. He was ultimately cut off by Cenk. On his radio show he explains that he was having trouble with his ear piece, so he didn't realize Cenk was trying to break in. Cenk probably thought Peter was ignoring him so he cut him off. More of a misunderstanding than anything.

On the show Peter was essentially defending the 1%. They create the jobs, they write the checks, they pay the taxes. He read an email from someone that saw him on Cenk's show and the email called him a parasite. Peter laughs and says no, the writer has it backwards. He's the host. He's paying all the taxes. Do the poor want him to leave? If so who's going to pay for the welfare that all the poor people want? Who's going to employ everyone? You are sucking off his tit. He's not sucking off yours.

I was thinking about how I would react to Peter as I listened and I was a bit stymied. I had to think about it. This is the value of listening to those I disagree with. Something's not right about what he's saying, but formulating that into words takes effort. Putting myself through that effort is a good thing because I think it prepares me to explain it to those that might want to know.

In a capitalist system there are two ways to make money. You can work and get paid a salary. Or you can own a business. If you are paid a salary you aren't a parasite. You are compensated for what you are doing. And if you own a business you aren't necessarily a parasite. Suppose you work really hard to create a business that provides a product people value. Let's just use a janitorial service as an example. Someone is willing to pay you to clean their home or building. That's not parasitic.

Let's suppose your business expands and you can employee one person. You delegate this person to do 75% of the cleaning. You are the owner and you do 25% of the cleaning and also run the books, try to find new business, etc. Your employee is better off having the job opportunity. And you are providing a service to consumers. That's all fine. But there is just a tiny bit of a parasitical relationship here. Your employee is obviously doing something productive and your company gets a check for it. You take a portion of that check and pay him a salary. You keep the rest. That's fine. There's nothing wrong with it. You took a risk and started a business, made an employee better off, provided a service for your customers. I don't think anybody has a big problem with this arrangement. But the work he does provides more value then the amount of compensation he is given. If it didn't he wouldn't have been hired.

As this arrangement continues and the business expands that parasitical arrangement becomes more and more pronounced. Maybe a right winger would still not object if the owner had expanded to 1000 employees, including management that permits the owner to do nothing at all, including dealing with books, advertising, and marketing. The owner just stays home, pays salaries with revenue generated, and then retains the surplus revenue. You can call that good or bad. Maybe that's his just reward for taking that initial risk. But it is parasitical. Right now the productive efforts are entirely the work of others and he collects the money.

And let's take it a step further. Let's suppose we're not dealing with a person that worked hard in starting a business. Let's suppose a man has $1 million for whatever reason. Maybe he inherited it. Maybe he won a lottery. Maybe he stole it. He decides one day he's going to start a janitorial service, but he isn't going to do any work. He's going to pay someone a salary to initiate it. This person needs to hire workers, manage the books, and perhaps do some cleaning if necessary. Let's suppose this service succeeds. The owner doesn't do anything productive. He wrote an initial check, and that was it. Now he sits back. The service employs 350 people. It generates $1 million/month in revenue. With that revenue he pays his employees an average of $1500/month, or $18K/yr. The balance is $475K/mo. He spends $100K/mo on materials/tools, etc. He retains $375K/mo. He never breaks a sweat. He does pretty much nothing except writing checks (most check writing is delegated to someone else, but he writes the one check to the manager). He is in fact generating his revenue based on the sweat of others. He is a parasite.

This is really close to what Peter Schiff is. Peter Schiff runs an investment firm. He makes money from owning things. Suppose he just buys all the stock in this janitorial service. His income could be in the form of dividends. Payouts based on the profit of the company. If he owns all the stock he gets the $375K/mo.

If you think Schiff is contributing to the service, consider what would happen if the employees were to decide that they simply weren't going to respect the ownership title that he waves in their face. Suppose they said sure, you own the brand and you own the mops. But we don't care. We're going to use them to clean buildings, and we're going to take the revenue and distribute it amongst the workers as well as keep the business running. Would the work cease? Would it no longer be possible to clean the buildings? No. Work would go on as before. We don't need Peter Schiff to clean the buildings and make a good living. He's doing nothing but collecting the revenue that is generated due to the work we do.

Where I work the janitorial service has been outsourced, perhaps with a company like Peter would own. They drive up in their rickety cars. They try to hide their smiles so we don't see their crooked teeth. I've befriended one lady. Her name is Kathy. She goes to work at her first job at the shock absorber plant and works about 10 hours. Then she comes in to our office building and puts in another 3 or 4. She works in our office 5 days a week and at the plant 6 or 7. But that's not enough for her to afford a home, so she lives with her brother. Yeah, she drinks and smokes. Not wise. But it's a tough life and it's hard to cope. She really could use some health care coverage. She obviously can't afford it.

Peter Schiff says we should be grateful to him because he pays all the taxes. He takes his $350K/mo or whatever it is he makes which comes from the productive efforts of people like Kathy and he's outraged that he's expected to pay taxes. "Do you want all us rich people to leave?" he asks.

I say sure, let him go, but with a caveat. If he doesn't stay we aren't going to send him the surplus revenue generated by the janitorial service. We aren't going to respect the piece of paper that says he owns it. He doesn't do anything that is needed for productive output. He doesn't really contribute. He wouldn't even be paid in the first place if people didn't respect his property rights.

This is of course not how all the rich became rich. Many of the rich did it the way the hypothetical man that started the janitorial service in my example did. Everyone respects that. Everybody knows that in cases like this, where a person is taking a lot of risk and working really hard, harder then most others, that this guy should be rich. That is just and good for the economy. But that's just not what has been going on in the US over the last 30 years. Those that are getting rich these days are overwhelmingly hedge fund managers and CEO's. The belief that people like this are actually compensated due to their productive value is highly dubious, and certainly not necessarily true.

The janitors, factory workers, tomato pickers, and garbage men aren't parasites, leeching off the benevolent capitalist that owns Waste Management and gave the garbage man a job as a gift. The garbage man is keeping only a portion of his productive effort and giving the rest to the stock holder, who for all we know is sitting in a mansion doing absolutely nothing. Schiff says the worker is the parasite and the rich man sipping piƱa coladas by the pool is the host. That's twisted and wrong.


HispanicPundit said...

You write, Let's suppose your business expands and you can employee one person. You delegate this person to do 75% of the cleaning....Your employee is better off having the job opportunity. And you are providing a service to consumers. That's all fine. But there is just a tiny bit of a parasitical relationship here.

This is the heart of your argument and it's just wrong. Even if the employee did 100% of the work, it still wouldn't be parasitic. That employee - as the employer - are both better off because of this arrangement (else they could quit). So on the margin, this is a GAIN for both.

What you have here is a symbiotic relationship.

HispanicPundit said...

Btw, you make more errors, like ignoring the role of competition and the difficulties of running a business...but the error above is the fundamental one. Without it, your whole house of cards falls. So I'll just leave it at that.

Jon said...

That's just a semantic quibble that I think ignores the meat of the post here. In the example with one employee I said there's a tiny bit of a parasitical relationship here in the sense that the employee generates more value then the amount of value that is his compensation and the owner keeps that excess value. This is merely to illustrate how through a slow progression we can logically evaluate the later scenario, where the millionaire owner is wholly parasitic in the sense he does virtually nothing and reaps the bulk of the compensation. He is clearly a parasite. Peter Schiff is more like this guy then like the owner that built a business from the ground up. We don't need him to fully function. If he died and his ownership titles remained assigned to his corpse, so you just throw the excess money generated into his coffin, this wouldn't even slow down the productive efforts. He's not contributing to cleaner homes. He's just retaining the bulk of the revenue.

He turns around and says we need him. What if he moved? I say what if he died and brought his titles to the grave. Nothing would change. We don't need him. That makes him a parasite.

HispanicPundit said...

I read what you wrote. You merely repeated it again in your comments. I still disagree.

Let's start with baby steps. Please answer the following questions:

1. Do you agree that the employee - regardless of his overall contribution - is better off having that job?

2. Do you agree that what sets the employee's wage is not (primarily) the value the employee brings, but what a close substitute would cost to employee?

3. If we had a socialist government, I would tend to more agree with your "CEO's are expungeable" argument. But what do you think the role of competition plays?

Andy said...

What about this idea? Bankers trade off of the labor of other people (money). They are using other peoples money to make money. Is that not the same as the slave traders in the past?

Parasite does mean interdependent and that is a good thing. If it means they are both benefiting. They way to test that is to see if the relationship is voluntary. Is there freedom to find a better opportunity?

On the owning property a great book that uses that as an example is called "Rich Dad Poor Dad". It is a contrast in the way of looking at how to be wealthy. Ownership is key to getting ahead, but it also has the benefit of encouraging people to take long term care for what they own.

Jon said...

Let's start with baby steps.

Yes professor, guide me with your wisdom.

1-Yes, in a capitalist society where you get nothing if you don't either have a job or own stuff and make money off that ownership you're obviously better off having a job and making money than starving to death. It's a good thing you enlightened me to this. I thought starving was better until I got your question.

2-Yes, I understand a supply and demand curve, though your comments here suggest that you don't.

3-I'm not aware that I made a "CEO's are expungeable" argument.

Jon said...

Is that not the same as the slave traders in the past?

I'm not sure what you mean. How are they the same?

They way to test that is to see if the relationship is voluntary. Is there freedom to find a better opportunity?

It's very important to focus on what I mean when I say parasitical. To produce goods you need labor and what is called "means of production". Tools, materials, etc. If one person uses the tools and thereby generates the revenue that pays for the replacement of the tools, pays his own salaray, and then has to forfeit the remainder to an owner that does zero work but is only paid based on his ownership claim, then who is the parasite?

Parasite may be the wrong word. I'm just using it because Peter Schiff claimed that the worker was the parasite and he was the host. If anybody is the parasite it's Peter Schiff, not the worker.

With my idea in mind you can see that an association can be voluntary and parasitical. A worker in our society may not have better alternatives. So he may go work for Peter Schiff in a janitorial service. But the fact remains that Peter Schiff gets to sit at home and collect the surplus revenue generated by the worker. Even though it's voluntary it's parasitical in the sense that the worker actually has to do something and Peter Schiff doesn't. He could die or move and it would make no difference in terms of the productivity generated.

Obviously in a capitalist society capitalist type ownership is key to getting rich. But does that change the fact that in a capitalist society the owner doesn't technically have to do anything?

HispanicPundit said...

Dude, I'm going to take a break from posting to your site. No matter what I write, it annoys you.

1. Can I ask questions? Depends on how many question marks I put!

2. If I ask a question, you assume I am accusing you of believing exactly what I ASKED.

3. Cant criticize you for using linguists and movie directors as your sources (which clearly tend to be).

4. Trying to break things down into very small steps - a process I thought was helping us get to a better understanding - now comes across as a tit for tat "im smarter than you".

I give up, for now. Maybe we just need a break. Only 24 hours in a day to be wasting it on something that is unproductive. We can both agree on that.

Jon said...

I just finished reading a book called "Made to Stick". It's about how to express yourself in ways that allow people to retain/accept what you are saying. They talked about a social experament that went like this. One person was to take a basic song and use their finger to tap a table in order to communicate to a listener what song it was. Here's what happened. They'd tap and prior to the listener guessing what song it was they'd ask the tapper if they thought the listener would know the answer. Like 75% of the time the tapper would say he expects the listener to get it. But in fact the listener only got it like 8% of the time.

It's due to what they call the curse of knowledge. When you tap the song out you hear the melody in your head, but of course the listener doesn't. You know what they don't and you forget that they don't have access to all that info.

What I think we have here is you know what's in your mind. You express yourself in this way and when I hear condescension you are surprised because maybe you don't feel condescending.

I've actually had 2 people come up to me recently and ask who you were. When I give them our background they express to me how they think it's pretty aggravating how condescending you are.

Maybe you don't mean it, but it's what you do. In isolation maybe a triple question mark or talk of baby steps wouldn't mean much, but in the context of our history, and your express talk about how you are an elitist, it comes across in this way. You say you don't mean it, but it still sounds like it.

Is it so hard for you to see the difference between these two statements:

1-I think statement A is mistaken and statement B is correct.

2-Do you seriously believe statement A???

You act like it's odd for me to take these differently. But it seems to me that other readers here take it the same way I do.

HispanicPundit said...

Oh, I agree. I in no doubt believe that to you I come across as condescending. Just as you probably have no doubt that to others, you come across as self assured and pompous. You have admitted as such. Other readers have said the same thing about you as well.

I am not questioning whether we each have shortcomings in how we communicate vs how we intend to communicate. I am here questioning if we can overcome that and still have a productive dialogue. I've tried to change my writing style - I would say, more than you have tried to change yours - but it doesn't work. It is resulting in more and more of you micromanaging how I write things. In misunderstanding me. In other words, things are getting worse, not better.

I find your writing style probably equally annoying. But I deal with it. You tell me that you don't intend to come across that way, and I take you for your word. Sure, I may get annoyed still and write accordingly, but I deal with it. With you, its more micromanging and finding more and more issues with what I write.

I was truly surprised at the possibility of you opposing mass immigration. How else should I have expressed that except with triple question marks??? Come to find out, you are not against mass immigration after all. So my surprise was justified: it was something that was contrary to what I had previously expected. There are more examples like that.

Truth be told, I do see you as an economic novice. Which probably comes through in my writing. Just as you probably see me as a foreign policy novice (which, btw, I have admitted myself). You probably do have more confidence in your "facts" than I would, under the same circumstances. So it comes across in your writings. Maybe our writing styles - molded by the same personality that leads us to our differing assumptions - probably amplifies that. And that is what you get here.  A collision of sorts. The question is: can we work around that? The forward progress trend seems to point to no. That's all I am saying.

Btw, I responded to your link showing my lack of understanding of a supply and demand curve above. I'll finish that discussion then take a break. You're still welcome on my blog though. :-)

jasa said...

This article ignores some very basic truths. Business owners take the risk of losing their entire initial capital. Employees have no such exposure. This is why the ongoing bankster bailout are so wrong.

Secondly it is abundantly clear that only certain individuals have the ability or propensity to run businesses. Imagining that workers or social collectives of some sort can operate successfully is to ignore recent history. Admittedly there may be the odd example of success but in the main socialist businesses fail as in the end they demand subjugation of individual desires for the benefit of the whole which is in direct opposition to free will.

You have no knowledge of how p. Schiff rewards or compensates employees and until you can provide such evidence your arguments are sophistry.

Jon said...

jasa, let me make a couple of points in reply.

First of all employees are taking risk. Peter Schiff is a multi millionaire, so if he risks some of his capital in a janitorial business he is risking some of his wealth. But if the business fails he's not going to be going hungry. The janitorial staff on the other hand risks going hungry if they lose their jobs. Schiff risks capital, but not really his livelihood. Poor janitors have no capital, so they can't risk it. But they still are at risk of the business failing. Their risk is actually greater because of the decreased marginal utility of money. They desperately need even their meager wages. Schiff can lose tens of thousands and he wouldn't even notice in terms of his lifestyle.

As far as ignoring history, I'd suggest you take a look at how rich countries got rich. A great book on this is Bad Samaritans by Ha Joon Chang. Just to take one example, the US a century ago was called "the mother country and bastion of protectionism." Tariff rates in the US were the highest in the world and the period of high tariffs corresponding with the highest growth that occurred in this country. This is what is called "infant industry protection." The richest countries in the world were not exactly socialist, but they also did not give capitalists total autonomy. They limit them in critical ways for the good of the whole.

I am assuming Schiff compensates his employees on a capitalistic basis. That is, he pays salaries to his staff and he retains the excess revenue. He's also in the business of helping clients own businesses. His business is capital. He's implementing ownership claims. He looks for profitable businesses to invest in so that the owners (his clients) can reap the excess revenue generated by various businesses that he might invest in. This is compensating people on the basis of ownership claims to the very core. So I think I'm describing his income stream accurately. The janitors are doing the work. Schiff is helping attach parasites on to the janitorial business. Helping find people that want to own the business and collect the excess revenue.