The House Committee on Oversight and Investigations hauled a bunch of finance CEOs up today to scold them about their high salaries. When this happens, it always makes me sad, because it’s such disingenuous cover for Democrats, like NAFTA-baiting. Doubtless it is huge fun to be a fulminating, publicly outraged Congressman, but trying to shame corporations is an empty gesture that I suspect they know is empty.
The financial establishment believes that CEOs are worth their pay, and it’s hard to get in the way of that. By scolding/asking them to moderate their own behavior, our reps are furthering the mistaken anthropomorphization of corporations, wagging their fingers as if a corporate boardroom would – or should – take into account values other than the bottom line, such as equality, charity, or even reasonableness. You know, human values.
I think this is particularly damaging cover, because it not only gets Dems off the hook, but it co-opts real attempts to address inequality. Ultimately, the only thing we could do about CEO pay, if we ever do anything, is to tax it a lot. Would this result in a huge withdrawal of CEO labor? Well, at the rate they're paid, a CEO’s supply of “talent” is probably pretty inelastic – which makes sense, since the marginal effort to get your 400 millionth dollar is so low. Greg Mankiw, certainly no pitchfork-wielding prole, walks us through how this inelasticity might work in this old blog post.
And if it did result in the kind of withdrawal that Mankiw describes, well, there’s not exactly a shortage of people who want to be CEOs. Now, a CEO justifying his (was about to use his/her! good one!) salary would cite his rare talent for increasing market capitalization. You couldn’t just switch him out for someone else, right? But the very paper Mankiw’s talking about offers this:
If we rank CEOs by talent, and
2 comments:
My uneducated, and no doubt simplistic, opinion on how to deal with executive pay would be to have stricter requirements for minimum pay and benefits for all employees and then let corporations pay their CEOs whatever the hell they want to. I'm sure it's more complicated than that but in general it would seem to make sense to focus on certain things that corporations must do rather than certain things that they can't (i.e., pay their executives only a given amount).
BTW, Luvh, I watched another hearing by this committee a few weeks and found myself just as infuriated. That Waxman guy is a real blowhard. I found myself in the surprising position of rooting for a Republican, who seemed to be the only reasonable person in the room.
Whoa whoa whoa - you're talking about my ex-congressman. I was excited to move into Waxman's district a couple years ago and now I'm sad to have moved out.
Re: wage floors etc, sadly we can barely get minimum wage to work as an economic policy. In general I think it's hard to mess with economic processes - I'd rather mess with the results. Of course, some people adjust their behavior during what I'm calling the process if they know the results will be messed with. But we're starting to learn that some of the rationality assumptions of economics don't always work (e.g., the rational equivalence of opt-in vs opt-out). I think it's more effective and easier to do tax policy instead of price controls.
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