Americanly Yours

Promoting Free Markets, Free Trade, and Freedom!

Why CEO’s Earn More Than Janitors

May 12, 2011 By: Phred Category: Uncategorized

You might wonder exactly why it is that janitors earn much less money than CEO’s. After all, in most circumstances, janitors engage in much more physical labor than do CEO’s, executives and managers, and even the average “white collar” worker.

Are the working class laborers being systematically exploited by managers and white collar workers? Is it the case that white collar workers are making money at the expense of blue collar workers, or is there a better explanation?


Value Does Not Come From Labor

If labor created value, then society (and all of its members) could get rich by having everyone use their bare hands to dig large holes in the desert and then fill them back up. After all, this would be extremely hard work of a very physical nature. However, this would create no wealth for society—in fact, it would represent a destruction of wealth (imagine what the laborers could have actually produced if they were not hired to complete this task).  Generally, this destruction of wealth takes place in the form of an absence of economic activity which would have otherwise occurred.

The value of a product does not come solely from the labor of the workers. The value of a product is measured subjectively; a product is essentially worth what people are willing to pay for it.

A laborer in turn receives payment for his services based on the value that his work adds to the product or service. A janitor in a shoe factory adds relatively little value to the shoes that are being created. There is likely more value being added by the designer who designs the shoes, by the worker who sews the shoes together, and by the person who manages the distribution network which allows for the shoes to be sold in thousands of stores around the world. These workers add more value to the product, despite the fact that the janitor undoubtedly exerts more physical effort to do his job.


While value added by workers is an important reason for the existence of disparities in income, scarcity tells much more of the story.

As Thomas Sowell put it, economics is the allocation of scarce resources which have alternative uses. With the exception of air, just about all resources are scarce. Similarly, nearly all resources have alternative uses (should this rubber be used to make tires or shoes?, should this glass be used to make a window or a beer bottle?, should my time be spent watching a movie or cleaning the house?).

Scarcity doesnt just mean that there isnt a lot of a certain good. Scarcity means that the good is limited. Even in America, bread is a scarce resource.

Diamonds and Water

Think of diamonds and water. Which of the two resources is absolutely essential to life, and which could we live without? Water is infinitely important: without water we will all die very quickly. Diamonds are nice and sparkly and women love them, but they are hardly essential to our lives. However, water is very cheap and diamonds are very expensive. This phenomenon is known as the “diamond/water” paradox. The reason for the differences in the costs of these goods is scarcity; water is abundant, while diamonds are scarce.

For example, I live in unincorporated DeKalb County [in Georgia] where my water is provided by a government monopoly (and hence is likely more expensive than would be the case under a free market system). Yet, the monthly bill for my 3 bedroom house has averaged $61.17 per month since April of 2007. In other words, over the past 4 years, it has cost about two dollars per day to provide the 2-3 people living in my house at various times with the most important resource that we need for survival. In fact, water is so cheap that I can do more than just use it for survival needs—I use it for showering, cooking, watering my plants, and even brewing beer.

What does this have to do with janitors and CEO’s?

Well, the same principles which lead to the diamond/water paradox also apply to compensation for labor. Please keep in mind that my intent is not to belittle the work that janitors do. I know that this type of work is physically demanding and dirty work. However, there is little skill involved and little intelligence required. The fact of the matter is that nearly every able-bodied person above the age of 13 or so is probably qualified to be a janitor. In contrast, there are only a very limited number of people who have the intelligence, experience, and ability necessary to be a successful CEO of Coca-Cola. Janitors are replaceable and easily trained. High-level executives are not. In other words, the pool of available janitors is relatively unscarce when compared to the pool of available CEO’s of Fortune 100 companies.

Bringing it all together

Disparities in income are hardly the result of exploitation by the white collar class against blue collar workers or the working poor. Compensation results from several factors including the value added by the worker, as well as the relative scarcity of the pool of workers available to fill that position.

There is no Federally mandated wage scale requiring certain salaries for certain types of workers. Decisions on how to pay employees—be they janitors, CEO’s, or something in between—are generally made on a company by company basis. Those in the position to hire janitors will pay them according to the value that they believe will be added to the firm. They will likely tend to pay the janitor at levels similar to that of other janitors in related fields. This is because a janitor is likely to add similar levels of value at which ever company he works. The range of compensation for CEO’s is very large, with CEO’s of smaller companies earning drastically less than do CEO’s at large multi-national firms. This is because of the differences in the amount of value that can be added by different CEO’s in different fields at different companies. The CEO of Wal-Mart is responsible for running a worldwide distribution network, ensuring that over a million employees get paid, and in a broader sense—ensuring that society is fed and clothed. In contrast, the CEO of a small but delicious pizza chain has responsibilities which are much greater than his employees, but which do not compare to that of the CEO of Wal-Mart.

Ceteris Peribus

This article does not deal with things like corporate welfare or other special privileges which are often received by corporations from the State. While special privileges will likely skew the distribution of income away from the bottom of the and towards the top, the principles at hand do not change. In a truly free society with no governmental grants of limited liability, no business licensing requirements, corporate welfare, and private control of the currency, income is likely to be somewhat more evenly distributed among the productive members of society. However, as long as there is any level of freedom of choice, there will always be disparities in income.  Income disparities are not always bad–in fact, they are very important.  Differences in income give us something to strive for.  If we all earned the same wages, no matter how hard we worked, no matter how much value we added to society, and no matter what type of work we did, no matter our ages, or no matter how much experience we had, there would be little reason for people to put much effort into their jobs.  There would be little incentive for anyone to be productive beyond the subsistence level–after all, any additional effort that they did would have to be shared equally with all of society.  If we were all the exact same, there would be no reason for trade, or even for society to exist.  It is our differences which encourage people to interact and trade with each other.  No society larger than a small tribe could survive for long if wages were distributed equally.

As long as there are people with different skills, levels of intelligence, backgrounds, lifestyles, and so on, there will be differences in income. People are different from each other, and as such, will seek out different goods and services. They will also find themselves qualified for different types of employment than their friends and neighbors. Typically, those who are employed in positions that create a lot of value and are relatively scarce will earn higher incomes than those who are employed in positions that create little value and are relatively common.

Americanly Yours,

Phred Barnet

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Taxation Is Theft

June 09, 2010 By: Phred Category: Uncategorized

Even most children know that taking things without permission is known as stealing.

There are three methods of acquiring property: homesteading, voluntary exchange, and theft.   The first two methods are just, while theft is inherently unjust.  Taxation involves taking things without permission and must be classified as theft.

However, before deciding on whether or not taxation should be considered theft, the term “taxation” must be defined. I will define taxation as “a government mandated extraction of resources from individuals and/or groups, paid to support the aims of the government.”

The phrase, “mandatory extraction” is the key to understanding why taxation is theft. A mandatory extraction, by nature, is taken through the use of force or coercion, and not paid voluntarily.

Theft is always theft, regardless of who does the theft, how the theft occurs, and what excuses the thief makes to “justify” the theft.  The ONLY exception to this statement is when things are taken as restitution for a prior wrong (for example, if you stole $100 from a person, a court would be justified in taking $100 from you without your permission to repay the victim).

Before I go on, I must address a question that I will surely be asked by many readers: arent taxes special because they are taken by the government in order to provide people with their basic needs?

The answer to this question is a flat NO!

People have certain inalienable rights which should never be violated. It would be wrong of me to kill you, rob you, or physically harm you. Governments are made up of people, and are often created by people to secure their rights. Because governments are made up only of people, governments cannot have any rights that people themselves do not have. It simply does not make sense for this to be untrue. Rights are rights, people are people. Any claims that the government has more rights than anyone else is arguing that some people (the populace) should be considered inferior and subordinate to others (the government).

Taxation involves taking property from people without their consent; taxation is theft.

To quote myself: “If a man with a gun were to demand that unless you pay him 1/3 of your income he would lock you in a cage, he would be guilty of initiating the use of force with the intent of committing theft. It would not matter if the man promised to use this money to pay for a school for your children, for a new highway, or for a missile defense program. Taking things from a person without their permission is, by definition, theft.  Silver-tongued rhetoric may be employed to obscure this fact, but it cannot change it.

Taking something from another person without their permission is always theft and should be condemned as theft. It does not matter what the “reason” or “justification” for this action is.  It does not matter who committed this theft, what was stolen, or how many people told the aggressor to act.”

Examples of taxation as theft

Some of the taxes described below are not traditionally thought of as taxes, but they are taxes—they all meet the above definition of being a government mandated extractions for the purposess of supporting the aims of the government.

A government imposed minimum wage law prevents a person (a sovereign owner of him or herself) from selling their labor to a potential buyer at a mutually agreed upon price. This is theft of a laborer’s future earnings.

A government imposed ban on the sale of alcohol on Sunday prevents a person from selling their justly acquired resources to an individual willing to purchase them. This is theft of profits.

A government imposed business regulation prevents a business from using its justly acquired resources in the manner that it sees fit.  This is theft as well.

A mandatory income tax, imposed under penalty of imprisonment, enforced by men with guns is theft of the fruits of one’s labor. Stealing one’s labor is called slavery. A mandatory income tax makes the government a middle man in all labor transactions, and allows them to claim ownership of property that they did not justly acquire.

A mandatory property tax, imposed under penalty of imprisonment, enforced by men with guns is, by definition, a violation of property rights, and therefore is theft—no explanation should be necessary to prove this. But… property taxes are fees on products that have already been paid for. They are levied on the owner of a property. A mandatory fee on residents for the continued use of their own house is no different than the government charging a person rent to stay on their own property. Remember, a person who justly acquires property becomes the owner of that property, but if a person has to pay the government rent to occupy their own property, who is the real owner of the property, the homeowner, or the government?

A mandatory sales tax, imposed under penalty of imprisonment, enforced by men with guns is theft as well. A mandatory sales tax makes the government a middle man in all retail transactions, and allows them to claim ownership of property that they did not justly acquire. Sure, they can argue that sales taxes are imposed in order to pay for police, but this does not change the fact that this money was acquired through theft, and not through voluntary means. The mafia also forces businesses to pay a protection fee.

I would love to hear your comments on this article, but please dont post a comment or send me an email that says “taxes are necessary because without them, the government could not provide services.” I have addressed this above: taking money from someone without their persmission and then using that money to buy they something that they may or may not want is still taking something without permission [theft].

Please do not send me a message or post a comment telling me that taxation is “voluntary” and not theft because if I disagree with the taxes, I can move somewhere else. When it comes to taxes, we have three choices: paying a tax, or refusing to pay the tax and being arrested by men with guns and then locked in a cage, or leaving one’s family, friends, and property behind to search for a society that does not employ mandatory taxation. This fact should make it clear that taxation is not voluntary. A person who uses coercion to force another person to give up some of their property under threat of violence is guilty of extortion. Governments can have no rights that people do not have, and are therefore just as guilty of extortion as would be a person who acted in this manner.

Furthermore, the argument that if a person does not want to pay taxes, they can renounce their citizenship and leave the US to avoid taxes is false.  The US government does levy a tax on people who give up citizenship:

Expatriation on or after June 17, 2008, may cause an expatriate to be subject to IRC § 877A, which was enacted as part of the Heroes Earnings Assistance and Relief Tax Act (HEART) Act of 2008. Generally, IRC § 877A imposes income tax on the net unrealized gain on property held by certain U.S. citizens or green card holders who terminate their US residency as if their worldwide property had been sold for its fair market value on the day before the expatriation or residency termination (mark-to-market tax). The Treasury Department and IRS have authority to issue regulations under IRC § 877A so further guidance is expected soon, though it has not been released yet.”

Finally, please do not send me a message or post a comment asking how things like schools, roads, or even national defense could be paid for without mandatory taxation. There exists a long history of voluntary provision of all these goods and services (check out this book for more information).

Furthermore, these items could be provided for through taxation in a purely voluntary manner if people were allowed to exercise their natural right to free association and choose their own government. Under voluntary government, taxation could no longer be considered theft, as those who did not wish to pay a tax could simply drop out of one government and sign a contract with another government.

Economist Walter Block argues that under voluntary government, one would have “the right to stay put, on one’s own property, and either to shift alliance to another political entity, or to set up shop as a sovereign on one’s own account.”

Governmental services can be provided on the free market as can any other service; a government would agree to provide certain services (possibly protection, roads, health care, or whatever) in exchange for a fee from a citizen. Thus, the citizen would be paying a purely voluntary tax.

In contrast to voluntary, contractual government, our government does not allow citizens to withdraw their support from the State.  It levies taxes on people without their consent.  These non-consensual taxes must be recognized and exposed for what they are: THEFT.

Americanly Yours,

Phred Barnet

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Random Thoughts

May 04, 2009 By: Phred Category: Uncategorized

When people like something you write, its called an article or an editorial. When they dont, its called a rant.

When people call someone divisive, they are really expressing their dismay with the fact that that person is influential and does not agree with them.

Many people who did not attend last months “Tea Parties” ridiculed the parties and those who attended. Hundreds of thousands of your fellow citizens engaged in a peaceful protest. I think its safe to say that this was the largest set of demonstrations not directed against a war since the Civil Rights rallies of the 1960’s. You can agree or disagree with the message of those protesting, but you have to admit that the Tea Parties were a very well coordinated series of hundreds of protests across the Nation attended by those with legitimate concerns about the state of affairs. Writing off the Tea Partiers as rednecks or extremists is only going to make them feel more alienated.

Big government liberals and conservatives have gradually expanded the size, scope, and powers of government for decades. When people like me advocate reducing the size, scope, and powers of the government back down to its Constitutional principles, we are told that its “too drastic” of a change to make. It was much more drastic to change our government from a small, limited, Constitutional Republic to a massive, bloated, wasteful, Byzantine bureaucracy.

Many people who love to start political arguments will immediately shut down when a counterargument is made. They tend to do one of three things: change the subject, end the conversation, or launch a personal attack.

More people seem to pay attention to the newest reality tv show, the latest single, the personal lives of celebrities, or whatever sport or sports are being played at the moment than pay attention to the news and politics. With all of the news and information that is readily available these days, you really have to make an effort in order to be ignorant of what is going on. Sure, sports are great (I could care less about the rest of that stuff though), but in 10 years this stuff really wont matter to most people who werent directly involved in them. In 10 years, trillion dollar bailouts, the economy, individual rights, and government spending will continue to be extremely important.

Americanly Yours,

Phred Barnet

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More On Income Taxes

April 20, 2009 By: Phred Category: Uncategorized

I got quite a lot of comments on last weeks article on income taxes.  It may have even gotten me banned from Facebook.  I stand by my views, including the view that income taxes (especially when used for redistributive social programs) represent a form of slavery.

I am going to try and answer the questions posed by my readers below, with the exception of Young Conservative’s question on the definitions of morality.  This will have to be saved for a separate article.

Yes, Kristen, I was tossed off of Facebook.  I hope to be back soon.  In the meantime, dont forget to click the “share” button to help me out.

Jeffrey Bowman asked if I would favor a consumption tax like the FairTax.  Yes, I would.  I believe that taxation is a necessary evil, but that it is necessary.  As I said in my article, I am not an anarchist.  I believe that a limited government is necessary to protect the rights of its citizens.  In order to fund the government, taxes of some form must be levied.

I prefer the FairTax because it essentially makes taxation voluntary.  Under the FairTax, every family in the country would be sent a check at the start of every month for the amount of money that their family would spend on taxes if they lived at the poverty line.  Additionally, used goods (ie, used cars and used clothing) would not be taxed.  Every individual would essentially pay the taxes that they wanted.

Wealthy individuals would be encouraged to save and invest, as savings and investment would no longer be subjected to taxation.

Under this system, even illegal forms of business could benefit the economy, as drug dealers and other criminals would be able to put their money into bank accounts, rather than under their mattresses.

Businesses would no longer have to match contributions to social security and medicare.  These programs would be funded through consumer spending.

In fact, the abolition of corporate income taxes could lead to foreign companies relocating to America.

American workers industry would benefit as well.  Because the employers would no longer have to match employee contributions, and because they would no longer have to pay corporate income taxes, American made goods could be sold to foreign consumers at a cheaper–and more competitive price.

Several years ago I read an amazing book on the FairTax called .  Check it out.  It breaks down the FairTax and tells of its effects on every group in society, as well as the effects on many different types of industries.  It answers questions and concerns on the tax that you may have.

Hawk–I wrote about property taxes here.  If that doesnt answer your questions, lemme know.  Yes, a tax on consumption would decrease consumption.  However, the increased income due to larger paychecks and the monthly “prebate” could offset this drop in consumption.  Additionally, greater profit margins for businesses inevitably leads to entry of new firms into business, which in turn leads to lower prices, thereby giving another incentive to consume.

However, maybe consumption should drop.  After all, the typical American family is deeply in debt.  Furthermore, many of the consumer goods that Americans buy with debt are purchased from foreign nations, leading to an increase in our negative trade balance (trade deficit).  I dont think it would be the worst thing in the world if consumption did drop, however, I still think that it would not do so due to the facts that I mentioned above.

The argument that CPA’s would lose their jobs doesnt bother me.  So what?  Let them use their financial skills to find work in other areas.  We shouldnt have to live with an unjust and complicated tax system just to keep CPA’s employed–at the expense of the rest of society.  Just as we shouldnt forgo sentencing reform to keep prison guards employed.  In fact foregoing either tax reform or sentencing reform will keep many people employed, but it does so while keeping others in chains.

I had another thought on the nature of income taxes in this nation.  A [so called] progressive income tax is a violation of the 14th Amendment to our Constitution.  Section 1 of this Amendment states that the government may not “deny to any person within its jurisdiction the equal protection of the laws.”  This doesnt just apply to giving preferential or discriminatory treatment to people of different races or religions.  The Amendment prevents denying equal protection of the laws to all people.  This includes the rich as well as the poor.

Hawk, you are right that a debate is needed on taxes at this point.  This is exactly why FairTax supporters are proposing a Constitutional Amendment to repeal the 16th Amendment and allow for a tax on consumption.  The Constitutional Amendment process is a long and cumbersome one which would force this proposed change to be debated in the halls of Congress, the halls of State Legislatures, and most importantly among the citizenry itself.

Americanly Yours,

Phred Barnet

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Tea Parties Across The Nation Tomorrow

April 14, 2009 By: Phred Category: Uncategorized

Tomorrow is the big day!  There will be Tea Parties across the whole country.  I am excited.  You need to go and show your opposition to bailouts and so called stimulus bills.  Or you can go protest income taxes themselves.

This is going to be huge.  I think that there could be a million people nationwide who participate in these Tea Parties.

I will be going to the one in Atlanta.  There is really no excuse not to attend one of these protests.  It doesnt matter if you are on a business trip in Chattanooga, Winston-Salem, or Houston.  There are protests in all of those cities.

People have told me via Facebook which Tea Parties they will be attending tomorrow.  It really is all over the country.  Here is that list:

Erie, PA

Sacramento, CA

Lodi, CA

Santa Monica Pier, CA

Morristown, NJ

Virginia Beach, VA

Washington, D.C.

Missoula, Montana

Pheonix, AZ

Viera, CA

Chicago, IL

Houston, TX

Thousand Oaks, CA

Livonia, MI

Toldeo, OH

Springdale, AR

Kansas City, MO

Bel Air, CA

Havere De Grace, CA

Pittsburgh, PA

Myrtle Beach, SC

There are hundreds more locations.  If you are tired of these bailoiuts and stimulus, then you need to attend a Tea Party.  If you are tired of the government spending TRILLIONS of dollars and mortgaging your future, then you need to attend a Tea Party.


Americanly Yours,

Phred Barnet

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