What's being missed in the sub-thread about management salaries versus skilled worker salaries contrasted with athlete's and entertainer's salaries is that all salaries are set in a marketplace. No company pays anyone more than is necessary to get them to sign up, participate in the first place, or stay in the face of competition. It's not a matter of true intrinsic value, it's a matter of availability at a price.

I did a lot of consulting work years ago for a company that made printing presses (average price then $6M). Their star salesman worked on straight commission and made well over $1M/year. The CEO wasn't paid that much, and rather than give him a raise (or he would leave), the Board decided to pay the salesman on a sliding scale to limit his income. He left when he was informed of that - on the spot - moving from the "Hertz" of that crowd to the "Avis" of that crowd whose market share promptly increased.

Still timely after almost 16 years. It was only last year that I had come across it, being referred to in an article in our local newspaper.

I agree, the Macintosh reference was probably alliteration. Close, but no cigar.

Over the past 16 years, world events appear to have gone in the direction he was postulating.

Although I think that there is a resurgence of nationalism, regarding China on the international stage. China is emerging as the next economic world leader, and may be poised to over take the US. They would be an example of the exception to McWorld as Barber phrased it. China is outside the major corporate globalism and is a major threat to it.

I believe that's one of the most significant reasons behind the corporate world's attempts at gaining footholds in China. If corporations can make inroads there, then over the long term, China might be "brought into the fold." The trouble is, China's economy doesn't resemble the corporate world, with its mix of central direction and entrepreneurship. If there can be enough privatisation of China's economy, then the McWorld scenario of Barber's may continue.

As well, this may tie in to the other article I linked. Should petroleum be untied from the US dollar, and then be tied to the yen, the western world is sunk.

That is only true in a purely Capitalistic society. With the laissez fare government we've had over the last 30 years or so, we've devolved towards Feudalism, with the first step being the large oligopolies we see today. As examples, the CEOs of the large music companies cannot possibly be worth what they're being paid, and no one here can justify the income of Ray Irani vs the people who do the important work at Occidental. I remember the golden parachute of Aetna's CEO about 10 years ago was enormous at a time when the company had huge layoffs and lost much of its value. These are only three examples of highly overpaid executives, but it's far too easy to find many more.

I didn't say they weren't overpaid, CWT, I said that in the current marketplace they are able to get those deals as terms of employment. Once they are in place, however, then your comment works -- the Board and CEO can, and obviously do, cut deals that don't make economic or marketplace sense.

Quite the contrary. I was restating your point from a statistical perspective. I didn't disagree with your point at all.

Sorry,
Now that I reread it, I see what you mean. It's highly unlikely that only 1% of them could do the CEO's job. They probably know more about the business than he/she does because of their education, training, and much more intimate day to day dealings with critical aspects of the business!

I was going to post a similar article. Since it was written by a current US presidential candidate, I decided against it.

The "petrodollar" still isn't a backed currency, per se, since the relative values fluctuate. It does, however, keep international demand for the dollar propped up, so long as the dollars used to purchase oil are not immediately sold back to the market, which is less likely when the dollar is weak.

With the relatively recent trend of foreign state owned businesses investing heavily in US companies (e.g. Citibank) long term stability of the dollar seems even more uncertain. Without getting into politics, I'll just say such investments offer potential benefits and/or potential detriments in the long term.

Now is a good time for foreign investors to invest in the US dollar, while the exchange rate is so favorable. Barring the collapse of the US government, the dollar's value will eventually rise again. Buy low and sell high is applicable as ever.

I don't recall seeing this link here, but it certainly ties in with CWT's take on Capitalism from a different viewpoint:

The Rise of Disaster Capitalism by Naomi Klein in The Nation.

Not directly on subject, but certainly related and a good read.

One day mainstream economists will give up on their pie in the sky viewpoints and recognize that John Nash highlighted a major failing of Adam Smith's theory. Game theory has demonstrated the fact time and again, yet there is still irrational belief in the US that capitalism is the single greatest economic strategy.

China can work out the maths, why can't the US? It's not that complicated.

First Japan, then China, have beaten the West at its own game.
(And by that I certainly mean Europe as much as the USA.)
Result: Howling cries of foul play! :eek:

Fact of the matter is that the USA is the most debt-ridden country in the world, and that China is one its most important creditors -- i.e bankrolling the continued budget deficit.

As far as I am aware, this Third Gulf War (the first was Iraq–Iran) is the first instance where the American government has not raising taxes to bankroll a war effort (an astonishing part of which has been outsourced to Blackwater* Worldwide Inc and the like, but that’s a separate issue). Instead, future generations are being mortgaged. The only other option is corresponding cuts on social expenditures, now or in the future, and foreclosing on the nation’s Social Security obligations, by "privatising" it.

Is that not a correct understanding of the economic side of things?
(never mind the political)

-- ArcticStones



The name Blackwater seems particularly well chosen, especially when we keep in mind these alternate meanings:

1) Blackwater: "a term used for sewage containing fecal matter."
2) Blackwater fever: "an acute kidney disease characterised by the leakage of blood from the kidneys into the urine, where it has a dark appearance when voided."
.

I blame that on our failed educational system. Specifically, the "New Math" they taught in the 60s and 70s. How else could grown adults not see that it's more expensive to borrow and spend than it is to tax and spend? I guess it's too difficult a word problem to expect them to incorporate interest into their calculations.

Legendary Tom Lehrer
 

Anyone else here a fan of Tom Lehrer?
Well, folks, I present you "New Math".

Quite frankly, I am unable to judge relative worth of many of today's CEOs with those of the past, so I can't give you an answer to your question.

My belief that many CEOs are worth what they receive in compensation is based on a feeling that if, during their tenure and due to specific executive decisions that they make, the net worth (or book value, or whatever specific measure one chooses to use) of the company is increased, awarding them some fraction of the increased value is justified. Even if the value of the increase is in the hundreds of millions, I can't find fault with rewarding the management team responsible with a few percent of this increase in company value.

You may have noticed that, in an earlier post, I expressed my disgust with corporate strategies that increase near-term benefits at the expense of the "big picture" or long-term best interests of the company.

Perhaps I wasn't clear enough in my first post in this thread. I, too, find the "undeserved" overcompensation of corporate executives reprehensible. I, too, believe that a large fraction of corporate executive compensation is unconscionable. I just don't find a problem with what I consider "deserved" compensation being any number of multiples higher than anyone else's.

This is where you and I part company. While I would never make the claim that the US system is a capitalistic free market, I do not believe that any legislated rules specifically designed to influence relative wage levels is the way to go. I do believe that a consistently applied tax policy, coupled with the "clean-up" of the rules of fiduciary responsibility of corporate boards to shareholders and a "clean-up" of the "corporate personhood" issues (currently being discussed in another thread) would serve to restore sanity to a broken (or at least severely damaged) system.

This justification is used frequently, and it is what leads to the kind of short term thinking that gets qualified people laid off to increase profits just long enough to increase CEO bonuses. When the inevitable losses occur, the CEO takes his golden parachute and leaves.

Honestly, I don't believe that on average, CEOs in the 50s, 60s, and 70s were worth the pay they were receiving. I only find it acceptable because during that time, an average wage earner could potentially support a family. Today it takes two incomes to do that, and most Americans are still struggling to maintain a decent standard of living.

Without legislated rules, any semblance of Capitalism would disappear almost instantly, leaving behind a new Feudalism where the workers are serfs and the CEOs are the Lords.

It's virtually impossible to make tax policy consistent without changing the current pay inequities in large corporations. The fact is that when it comes to pay, it is a zero sum game. A company has only so much that it can pay out, and when the CEO takes tens of millions, there is that much less available to pay the people that do the real work of the company.

While I don't disagree with you, that is not what I was referring to.

John Nash received a (shared) Nobel prize in Economics in 1994 for his "pioneering analysis of equilibria in the theory of non-cooperative games." He proposed what is now known as a Nash Equilibrium, which is essentially when, during a game involving two or more players, without a known ending, there can exist an equilibrium, at which time it is in no single player's best interest to change their strategy, but it is in every players' best interest for everyone to change their strategy.

Relying on Supply and Demand to dictate the market will lead to just such an equilibrium, non-optimal as it is.

Game theory has demonstrated experimentally that a cooperative/competitive hybrid strategy (i.e. Tit for Tat) is superior to purely competitive strategies and purely cooperative strategies. China has implemented such a hybrid strategy, with their combination of entrepreneurship (competitive/capitalist) and central control (cooperative/socialist), and is doing quite well for themselves. That's not to say that their implementation of such a hybrid style economic strategy is the best implementation possible, just that a hybrid implementation is superior to a non-hybrid strategy.

Supply and demand certainly has a place in economic theory, but there are other important factors to consider. Its model does not always accurately predict consumer reaction to market changes. Specifically, it breaks down any time the consumer has no option to not buy a product.

For example, raising the price of fuel does little to decrease demand, since it is viewed as a necessity. In fact, I have often seen lines at gas stations when the price of fuel increases substantially, which exactly the opposite reaction as supply and demand predicts. A drastic increase in the cost of healthcare does not decrease the demand for healthcare, it merely shifts the demand from preventative healthcare, which can require immediate payment or guarantee thereof, to emergency healthcare, which, while much more expensive, generally does not allow providers to turn away patients in need due to inability to pay. This shift further increases the cost of healthcare, feeding a downward spiral of increased inefficiency.

The irony is that many of the most vocal supporters of a free market controlled exclusively by supply and demand ignore the work of Nash, and others like him, claiming that the market cannot be modeled mathematically. Yet, they have no problem relying on the mathematical model of the law of supply and demand.

The fact is, a free market approach is not the best strategy in every industry, although for some industries it can be. Likewise, increased taxation is not always a bad thing for the people of a nation, although sometimes it can be. Economics is not such a complex subject that it cannot be understood. However, when it is over simplified to the extent that there is a widely held belief that one practice is always good or one practice is always bad, the return on the investment of society's resources is sub-optimal, and everybody loses.

We can all agree, I think, that equilibrium is rarely achieved outside a perfect pure competition market, which does not exist.

In our system, the price is set by supply and demand. The price, in turn, is the mechanism that distributes scarce resources for which there is an unlimited demand. It is certainly not perfect and may not always provide for the most efficient allocation of investment resources.

However, if we should choose to dump the market system in favor of another system of resource allocation, then what would that system look like? Who would make the decisions as to who will get what? Will that system achieve the perfection that is lacking in the market system in terms of investment resource allocation?

That said, I agree with what I think your premise is... sometimes the market system does not achieve the optimal result. In my humble view, there really are some things that government does better than a free market driven only by the profit motive. I would suggest national defense, public transportation, and health care are some examples of this.

I would prefer that the government go back to maintaining a free market, which means strictly enforcing anti trust laws. As it is now, we have nothing resembling a free market.

Agreed. Far too often in the economic realm, we define "good" as that alternative that generates the most income.... which ignores where that income goes and what is best for the nation as a whole. I worry a lot about the demise of the middle class and the way of life a large middle income class makes possible.

A proper free market would seek to enlarge the middle class as much as possible, because a large middle class represents the most lucrative market into which you can sell products and services. Like when Henry Ford realized he'd better pay his employees more or none of them would be able to buy up the cars he was making. As it is, what we have now are people being too greedy and looking out for short-term self-interest instead of long-term self-interest.

What I like to think of as the MBA effect -- the myopic focus on immediate bottom line targets without regard for the "big picture", and the casual destruction of small business to increase profit.

Further, the middle class own virtually all the small businesses in an economy -- they really are the engine of the economy since most of the cash flow in an economy passes through their tills. If they have no profits, then they can't invest in themselves, and if they don't invest, they don't innovate and create new businesses.

Very few big corps, the big pharmas are a good example, do any of their own research any more -- they have to buy it from the little guys who have the ideas. Put the little guys out of business and lose the innovations they would have injected.