I often hear about profit and wage complainers. People who think companies are not entitled to any increase in profits and that workers are entitled to wage increases due to a non-casual productivity increase; By this I mean that productivity has outpaced real wages not because the workers got more skillful, but because workers required less skills and abilities due to an efficiency in the technology used by workers.

So how do we raise worker wages? To raise work wages, we need to increase the demand for skilled labour or lower the supply of labour assuming constant immigration. That is, immigration does not increase to meet the demand for skilled labour. To increase demand for labour, more competition is required; An increase in the number of businesses or an increase in innovation. I won’t be proposing a policy designed solely on increasing innovation but I will propose a policy where the side effect is an increase in innovation.

We need to allow people to work on innovation without requiring much initial capital as well as not becoming homeless. An optimal situation is a person who only has to worry about food and utilities. Since these days, people need to pay for shelter, then the country needs to subsidize the cost of shelter at the minimum. Many places offer grants of $10,000, but this does not even cover a whole year’s rent in many cities. The only way it could cover rent is if a person shared their shelter with roommates which can be disastrous to someone’s mental health.

To allow for such a scenario, we need to provide a strong social net that would let people do their own thing without worrying about homelessness. The entire point of working is to provide money to spend on leisure. Leisure is a very broad term, but that is essentially the point of work. We need to maximize working to live and minimize living to work. Living to work is when there is little to no leisure in someone’s life. They are essentially living their life to work and the only distinction to slavery is that you are choosing not to be homeless…Which is pathetic since if money didn’t exist, no one would be homeless.

A better social net would increase competition, lower homelessness, but would need funding. I liked what this one guy said; Only one social safety policy for everyone. No exceptions. No pension plan, no disability, only a monthly stipend that can cover housing in the 10th affordable city to live in. I also suggest that anyone who would receive this stipend be barred from investing in securities such as publicly traded shares and fixed income securities.

Innovation

To achieve innovation, we need research and development; plain and simple. We can go about it two ways. Incentivize R&D and reward successful R&D. R&D is already an expense, so only a tax credit would actually incentivize performing more R&D. That’s alright for societies that don’t depend on tax revenues. Rewarding successful R&D is done via patents. However, patents themselves can stifle innovation. Therefore, we need to rework patent laws. As in patents can only be valid for 5 years or if we wanted to make it 20 years, that after 5 years they can only be enforced by owners if the patent’s tech could be actively purchased for a year. This defeats patent trolls first and foremost, ensures that innovations can be chained quickly (software has proven innovation can chain in short periods of time, so any hindrance/reward for innovation should take into account this concept of chaining). The thing with patents is that the holder gets an effective monopoly so we need to be careful in their profits. If the patent is truly an innovation, then the free market would price it accordingly. No good or service can simultaneously be out of reach and make the substitute obsolete. To make something obsolete, one would have to price goods fairly until competitors are unable to make profits, but that 5 years period exists for a reason. If we take shorter expiry dates, then by the time the patent expires, competitors are able to also make profits. The original company has to be constantly innovating to stay ahead of the game. If we take the longer patent expiry scenario, competitors may go bankrupt, so would most likely merge and form their own monopoly to lower costs further of their obsolete good (economies of scale) or can now have the means to pursue R&D initiatives.

Suppose though that the substitute good has gone obsolete. How will consumers be protected for the next 15 years? Well now we really need to think hard. I forget what the concept is called in contract law, but essentially, if one party has been paying more than the required amount to the other party, that new amount becomes the defacto terms of the agreement. Governments can apply the same concept to price increase of goods (max price increase % = average price increase minus inflation for the past 5 years + current inflation). This is a good policy in my opinion, since revenue and profits are not capped, only same product price increase is capped higher than inflation. Which means that a company that successfully innovates, can make profits for 20 years without worry about inflation and without severely hurting consumers.

A possible rebuttal is what if consumer real wages aren’t increasing high enough? Well consumer real wages have been increasing on average of 2%. Considering that patented goods are not a considerable chunk of a consumers expenditures, it’s not really a point since life necessities arne’t really patented. Another rebuttal someone might bring up is drug pricing. Well, unless the drug is new, I don’t know why companies that innovate drugs/medicine shouldn’t be allowed to make a profit. If pharmaceutical companies are basically making so much money off their innovations that they are monopolizing the entire industry, then the patent law can obviously be modified. And if we see a reduction in drug innovation, then obviously we need to go about this the other way.

Pharmaceutical

In terms of price gouging of innovation, we really need to decide if society needs to innovate further, with relation to drugs. I believe that most drugs being developed and sold at high prices affects those with serious diseases they were probably born with and are extremely rare. Since the number of beneficiaries are low, the company has to price accordingly. If a drug costed $50m to make and there are only 400 people that need it, yeah $125,000/person on only the R&D cost and not continued operations. Governments really need to decide who’s health to prioritize, and since governments are a democracy, there will always be someone left out. Considering that companies still pursue the development of these drugs without government subsidies is crazy.

If the goal of the government is to maximize the lives of its own residents, then the budget for these rare scenarios will have to small enough that the main point of the tax benefits the most tax payers. People don’t pay taxes to benefit people, they pay it as a collective so that everyone benefits collectively as some things are much easier to acquire in bulk or as a collective than individually; fire departments, insurance, police, roads.

Real Life

In the real world, we can look at the USA. The USA has done a lot with regard to “UBI” by letting the free markets do it themselves. For example, Stanford gives its phd students a free ride. This was instrumental in forming Google. The USA is merit based UBI. Only those with merit are allowed to get funding by those already in power. Another notable example is Nikola Tesla. He came to USA with nothing, but people like Thomas Edison and George Westinghouse helped him out to survive and continue his focus on innovations.

We also see this all the time in terms of generational scaling. Bill Gates and Jeff Bezos.

A country can either rely on pure luck for competition to grow their country’s wages or can take proactive steps to ensure that resources are being allocated as best as they can.