Although business/economics has become the foundation of western culture, its practitioners have circulated and tend to believe a number of myths and truisms, many of which are in fact half-truths.
You get what you pay for.
No. You can’t get what you don’t pay for, but between over-inflated prices of certain goods (ranging from luxury products to certain prescription drugs and other aspects of health care), counterfeits, and cheap knock-offs, you often don’t get what you pay for.
High pay is required to assure competence, especially in upper management.
High pay attracts people who are motivated by money, and higher than average pay is required for people with specialties that require long and expensive training, but there’s an upper limit, and this half-truth varies greatly in different segments of society. More than a few studies have shown that comparatively lower-paid CEOs who are not “personalities” in general out-perform the highest-paid CEOs. In addition, a significant percentage of the highest-paid money managers actually lose more money over time for their clients than gain it. Likewise, money-motivated competence varies tremendously across fields. A professional academic musician generally has more education than any MBA, but makes a fraction of the income of those MBAs in business and usually at least 30% less than a business professor with an MBA and more like 50% less than a law professor with a J.D. The same salary differentials apply to other academics teaching “humanities,” as well as most teachers.
Supply and demand always works better than regulation.
This is a half-truth because it’s true as far as it goes, but doesn’t consider the implications, or what is meant by “better.” Supply and demand is indeed the most “efficient” way to determine the allocation of goods and services, but that efficiency doesn’t take into account other values. In a total free-market economy, in a famine, those who have money will pay higher prices for food… and will survive. The poorest would not. In addition, in a high-tech society, as noted above, even the most sophisticated consumer cannot determine the quality of certain goods, such as drugs, some beverages, even some foods, and therefore may well pay more for goods than “true” supply and demand would require. We’ve seen a similar issue in health care, where the “supply” of certain health care services costs more than many people can afford, which is one [but not the only] reason why tens of millions of Americans cannot afford health care.
The greater the risk, the greater the reward.
It is often true, in the case of dividend-paying stocks and bonds, that higher-risk issues have to pay out more than less risky ones, but this analogy truism breaks down in society. Fire-fighters and police officers certainly face far greater risks than hedge fund managers, but they make a small fraction of the income that financial professionals do. In professional sports played by both genders, such as basketball or golf, the risks are the same, but the males make more. Now, this is justified historically by the argument that the demand for watching males is higher, and that can’t be disputed, but that points out that all of these myths/truisms are anything but absolute, even though they’re all too often dragged out as absolutes, especially by business people in pursuit of the bottom line and more of everyone else’s money.
The business model works better.
This half-truth has recently been promoted as the answer to virtually every ill in public institutions ranging from schools and universities, to municipalities, charities, public hospitals, and prisons. And, of course, the question is, again, what is meant by “better.” In education, the business model has been applied in terms of teacher-pupil ratios or in higher-education, what disciplines are most “cost-effective.” Unsurprisingly, the hard sciences and the performing arts are the least cost-effective educational disciplines, because the sciences require expensive equipment and additional laboratory sessions and the performing arts require intensive one-on-one training, especially in vocal music. While good financial management is clearly a necessity in any organization handling significant resources, the bottom line of the business model is to cut unnecessary expenses, and services/products which do not cover their costs, and to maximize revenues. The business imperative is to look out for the business, and only to look beyond the business as necessary to assure its profitability and survival.
Public institutions, by their nature, provide goods and services that society has deemed necessary, even if not “profitable” for the specific institution. That is why they are public institutions. Public hospitals are mandated to provide health care to people who will never pay their bills. Schools must handle problem students and disabled students whose education is anything but profitable or cost-effective from the business standpoint. Fire-fighters will often spend more time and effort putting out a fire than a structure is worth, even when no others are threatened.
So… the next time someone starts spouting these economic “truths,” it wouldn’t hurt to think about just how “true” they are in the case in point, especially if it’s a politician doing the spouting.