Does Value Maximization Theory Justify Non-Livable Wages for Lowest Paid Full Time Workers?

“we both have done as best as we could. This is the best we both can attain to without the other being unhappy. Why not let things rest so we both can focus on enjoying living of life.”

In presence of devotion to value maximization, some segments of society can be left behind. Pareto optimality is about value optimization, not value maximization.

It is not impossible that Labor Unions lost out in America because they attempted to turn a Nash Equilibrium game into a Power Game. But two wrongs do not make a right. It is equally wrong for employers or shareholders to turn what ought to be Nash Game interactions with workers into a Power Game.

Since some capacity for saving is a normal good in financial economics, a living wage ought to incorporate some capacity for saving.

Shareholders can be rationally behavioral in demand for value maximization in contexts within which full adherence to rationality implies commitment to value optimization.

A society which demands lowest paid full time workers accept non-livable wages because a 20% return for shareholders is more attractive than an 18% return, in contexts within which the cost of capital is much lower than 18%, lives on precipice of social upheaval.

But do these companies not deserve such an outcome?

It is not rational expectations for companies to set their hearts on a specific return on capital (a power move), then work backwards to pay non-living wages (application of power moves) for arrival at target returns.

Rational expectations equilibriums always are forward looking, never backward looking, never outcomes of backward induction. Never outcomes of power moves (specifications of desired returns) that induce violations of other agents’ rational expectations (minimum living wages).

Capitalism with a Human Face is not Socialism, is rooted in theories of best functioning capital markets.

Educator and Researcher, Believer in Spirituality, Life is serious business, but we all are pilgrims so I write about important stuff with empathy and ethos

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