Yes, the Wealthy Can Be Deserving(nytimes.com)
nytimes.com
Yes, the Wealthy Can Be Deserving
http://www.nytimes.com/2014/02/16/business/yes-the-wealthy-can-be-deserving.html
19 comments
The thing about CEOs is they have enormous leverage over the future of their companies. The classic example is, of course, Apple, which has had numerous CEOs and one can compare their effects. Jobs took the company from near bankruptcy to the largest (by market cap) company in the world.
For another, Microsoft is in transition to a new CEO. Isn't it obvious what an absolutely enormous risk this is to MS shareholders, employees, stakeholders? A good decision here, a bad decision there, has very visible and costly effects, affecting an awful lot of people.
Their CEO pay is almost meaningless next to this kind of leverage. Any business is going to want the best CEO they can get, and that of course bids up the compensation packages.
I'm a Microsoft and Apple shareholder. Do I care what CEO they pick? You bet. Do I care what their compensation is? I care if they get a CEO that costs or makes the company billions far more than the pittance it will cost me in CEO compensation (as CEO compensation comes out of the shareholders' hide).
For another, Microsoft is in transition to a new CEO. Isn't it obvious what an absolutely enormous risk this is to MS shareholders, employees, stakeholders? A good decision here, a bad decision there, has very visible and costly effects, affecting an awful lot of people.
Their CEO pay is almost meaningless next to this kind of leverage. Any business is going to want the best CEO they can get, and that of course bids up the compensation packages.
I'm a Microsoft and Apple shareholder. Do I care what CEO they pick? You bet. Do I care what their compensation is? I care if they get a CEO that costs or makes the company billions far more than the pittance it will cost me in CEO compensation (as CEO compensation comes out of the shareholders' hide).
What you individually care about as a shareholder is really not as relevant as you may think. Unless you're holding onto your Apple and Microsoft shares over 30+ years you're not looking at the health of the company from the same perspective as the CEO and Board should be.
Their job is to look out for all shareholders, not just the ones that want to see their portfolio's value increase in the next 5 years.
It's true that the amount CEOs are paid is relatively unimportant, but you're absolutely wrong if you think how they're compensated isn't important. The difference between giving vested stock options vs cash (for example) gives you very a different incentive structure.
Their job is to look out for all shareholders, not just the ones that want to see their portfolio's value increase in the next 5 years.
It's true that the amount CEOs are paid is relatively unimportant, but you're absolutely wrong if you think how they're compensated isn't important. The difference between giving vested stock options vs cash (for example) gives you very a different incentive structure.
> What you individually care about as a shareholder is really not as relevant as you may think.
It's 100% relevant to my buy/sell decisions, and the market aggregate of that is what sets the share price, and that's a very strong signal to management.
It's 100% relevant to my buy/sell decisions, and the market aggregate of that is what sets the share price, and that's a very strong signal to management.
Absolutely. It starts off talking about Downey, who has been working as an actor since the age of five, studying, honing his craft, and then working for months on a project to make a 142 minute film of which he is on screen much of the time, a project that made $1.5 billion. He then does the bait-and-switch of comparing someone who works to idle class rentier parasite heirs who have never done a day of work in their lives, the kind of people you see in the documentary "Born Rich".
Exactly. And guess which of those groups is the larger one ?
I think the real problem with CEO positions is that of bad actors. A certain Nokia CEO would could be a good example. Took nokia from bad into disaster and then sold the company to the "real" people who hired him.
A CEO is something you must have and who is an enormous risk if he's a sellout. So one has to give them a lot of money to try to lessen that incentive. It's that simple. It's the same reason you don't underpay the people with their hands on the nuclear weapons triggers.
As Nokia demonstrated (and it's not the only one), even doing that does not yield guarantees.
The problem is the opposite. Coming from one of Europe's quasi-socialist states, rewarding the "deserving" doesn't work. Firstly because you don't know who is deserving and because government committees, well, are were the term "politics" got it's sour taste. All important positions in the EU, for example, are filled, just like congress, with very rich people. Having consulted from them I personally guarantee they are from the "born rich" variety. Coincidence ? No. And those are effectively the only 2 options.
It's far better to go with the option where (you try to make sure) the incentives for the CEO and the people that want to benefit of him are aligned.
I think the real problem with CEO positions is that of bad actors. A certain Nokia CEO would could be a good example. Took nokia from bad into disaster and then sold the company to the "real" people who hired him.
A CEO is something you must have and who is an enormous risk if he's a sellout. So one has to give them a lot of money to try to lessen that incentive. It's that simple. It's the same reason you don't underpay the people with their hands on the nuclear weapons triggers.
As Nokia demonstrated (and it's not the only one), even doing that does not yield guarantees.
The problem is the opposite. Coming from one of Europe's quasi-socialist states, rewarding the "deserving" doesn't work. Firstly because you don't know who is deserving and because government committees, well, are were the term "politics" got it's sour taste. All important positions in the EU, for example, are filled, just like congress, with very rich people. Having consulted from them I personally guarantee they are from the "born rich" variety. Coincidence ? No. And those are effectively the only 2 options.
It's far better to go with the option where (you try to make sure) the incentives for the CEO and the people that want to benefit of him are aligned.
> The problem is the opposite. Coming from one of Europe's quasi-socialist states, rewarding the "deserving" doesn't work.
Coming from another one of Europe's quasi-socialist states (Romania), not rewarding the brightest, most capable and hardworking is also bad. Many poor countries have significant brain drain towards the rich/developed ones.
Coming from another one of Europe's quasi-socialist states (Romania), not rewarding the brightest, most capable and hardworking is also bad. Many poor countries have significant brain drain towards the rich/developed ones.
He draws from evidence from privately owned corporations, and the pay they give their CEOs, as evidence that there is not something inherently broken in the boardroom which causes CEO pay to be high.
What a surprise that the first example given is someone who spends years honing his craft and then months on a movie set like Robert Downey Jr., as opposed to say, the Walton heirs.
Mankiw is arguing with a wall. I'd much prefer Downey get his cut of the wealth he worked to help create, than the heirs who lay about and collect dividend checks from Time-Warner, Disney and the others who take a cut from Downey's labors.
Mankiw erects a straw man and then tears it up.
The problem is with the heirs who expropriate surplus labor value from those of us who work. The problem is not doctors, or actors, or engineers, or people paid highly because they invested a long amount of time to train themselves. The problem is not that doctor's train for years and are then paid well, the problem is with heirs who never work, yet then live the high life off of those who do work, by expropriating their surplus labor time.
Mankiw is arguing with a wall. I'd much prefer Downey get his cut of the wealth he worked to help create, than the heirs who lay about and collect dividend checks from Time-Warner, Disney and the others who take a cut from Downey's labors.
Mankiw erects a straw man and then tears it up.
The problem is with the heirs who expropriate surplus labor value from those of us who work. The problem is not doctors, or actors, or engineers, or people paid highly because they invested a long amount of time to train themselves. The problem is not that doctor's train for years and are then paid well, the problem is with heirs who never work, yet then live the high life off of those who do work, by expropriating their surplus labor time.
Do we know how many of the rich are "legitimate" (under your definition, like Mr Robert Downey Jr.), vs "illegitimate" (like the Walton heirs)? In other words, if its highly skewed towards "new money", then does it matter worrying about the old? I don't know the answer to this, I'm genuinely curious, because the opposite argument can be made that bringing up rich heirs is a straw man if most people with money earned it on their own. Similarly, with things like the giving pledge, where literally the richest people on earth have pledged to give most of their wealth to charity, is the problem of "leaching" heirs going to be even less of a concern in the next generation?
The last major study on US inheritance that I know of was done in conjunction with the US Bureau of Labor Statistics ( http://www.bls.gov/ore/pdf/ec110030.pdf ).
That study considers inheritance for all Americans, with some notes on the wealthy. It can be complemented by other government studies, such as the Survey of Consumer Finances, which shows wealth distribution, of what sort (stocks, bonds, home equity) etc.
That study considers inheritance for all Americans, with some notes on the wealthy. It can be complemented by other government studies, such as the Survey of Consumer Finances, which shows wealth distribution, of what sort (stocks, bonds, home equity) etc.
According to "The Millionaire Next Door" 85% of American millionaires are self-made.
That doesn't answer the question "how much wealth is earned vs. inherited", however. For the Forbes 400, 40% of members inherited a "sizeable asset from a spouse or family member."
http://www.cnbc.com/id/49167533
http://www.cnbc.com/id/49167533
"sizeable" could mean anything - the statistic is meaningless.
But sure, many successful people had help getting started. And many others did not.
I read some years back that Microsoft had created around 10,000 millionaires just in the Seattle area. I'm curious what you think of that.
But sure, many successful people had help getting started. And many others did not.
I read some years back that Microsoft had created around 10,000 millionaires just in the Seattle area. I'm curious what you think of that.
It's precisely as meaningless as yours have been.
How about instead of throwing additional red herrings and strawmen at the debate you consider substantiating (or debunking) either your or my statements with more data.
As for my 40% and "sizeable", there's a research paper IIRC behind that stat, and if I get a chance to clear some tabs to the point I can look it up, I may just do that.
As for Microsoft: a criminal monopoly syndicate turned out to be highly profitable for those who were employed by it. That's not particularly surprising.
At a deeper level: what aspect of Microsoft's contribution to the net economy consisted of rent-seeking (effectively and by design forcing all PC computer vendors into shipping a license per CPU, destroying competing OS, office suite, and browser vendors), and how much served to unleash additional real economic activity by way of reducing the frictions in managing, processing, and utilizing information, and how would that have compared with a conceivable alternative universe: say, one in which the BSD unices had been widely and freely available on PCs in the 1980s rather than the mid/late 1990s as eventually happened with Linux. Yes, I'm aware that Linux was released in 1991, but it really only started reaching useful potential and use by 1995-1997 or so.
That's a deeper question, but it gets at the root of the matter: what is mere reallocation and/or creation of wealth tokens ("making money" and "moving it around" contra-respectively) and what is real wealth generation?
How about instead of throwing additional red herrings and strawmen at the debate you consider substantiating (or debunking) either your or my statements with more data.
As for my 40% and "sizeable", there's a research paper IIRC behind that stat, and if I get a chance to clear some tabs to the point I can look it up, I may just do that.
As for Microsoft: a criminal monopoly syndicate turned out to be highly profitable for those who were employed by it. That's not particularly surprising.
At a deeper level: what aspect of Microsoft's contribution to the net economy consisted of rent-seeking (effectively and by design forcing all PC computer vendors into shipping a license per CPU, destroying competing OS, office suite, and browser vendors), and how much served to unleash additional real economic activity by way of reducing the frictions in managing, processing, and utilizing information, and how would that have compared with a conceivable alternative universe: say, one in which the BSD unices had been widely and freely available on PCs in the 1980s rather than the mid/late 1990s as eventually happened with Linux. Yes, I'm aware that Linux was released in 1991, but it really only started reaching useful potential and use by 1995-1997 or so.
That's a deeper question, but it gets at the root of the matter: what is mere reallocation and/or creation of wealth tokens ("making money" and "moving it around" contra-respectively) and what is real wealth generation?
I'd define "real wealth generation" as purchasing inputs and doing something with those inputs that enables one to charge a higher price for the output, where both the input and output prices are set by free negotiation.
I'd argue that that fails to account for market externalities (by default).
I'm also increasingly convinced that market prices fail to take into account highly salient characteristics.
Your requirement for "free negotiation" is also a condition that's very rarely met: unilateral contracts, exercise of monopoly power (Microsoft would cut off vendors who allowed bundling of competing software, as an example), and other power / pressure / control points ensure that the ideals of a free market transaction are very often not met. It's an ideal, not a particularly frequently achieved reality.
The usual Libertarian counter at this point is to define any interaction between non-government entities as "free negotiation", a premise I soundly reject.
I'm also increasingly convinced that market prices fail to take into account highly salient characteristics.
Your requirement for "free negotiation" is also a condition that's very rarely met: unilateral contracts, exercise of monopoly power (Microsoft would cut off vendors who allowed bundling of competing software, as an example), and other power / pressure / control points ensure that the ideals of a free market transaction are very often not met. It's an ideal, not a particularly frequently achieved reality.
The usual Libertarian counter at this point is to define any interaction between non-government entities as "free negotiation", a premise I soundly reject.
if you accept the "spend money to make money" philosophy, the despite 85% being new money, the Huber wealthy still decide who joins their club.
If Robert Downey junior pissed off someone super rich on his way to the top, he would not see the light of day.
If Robert Downey junior pissed off someone super rich on his way to the top, he would not see the light of day.
Any supermodel or footballer or actor "inherited" their wealth too... In their DNA. Should we punitively tax them back into equality too?
The author is confused why "we" are OK with Robert Downey Jr. and LeBron James making millions of dollars. He proposes that is because we can see how they make their money, so we are OK with it.
I'd argue that it's because we can see where the money comes from, and not that we can see their skills on display. If you think "hmm, LeBron makes 10% of what his Jerseys sell, 10% of the Heat ticket revenue, and whatever he gets in endorsements" then most people are OK with that. I've paid to see a basketball game and if 100% of my ticket went to the players on the court I'd be very pleased. We can understand that all Americans who enjoy entertainment pay for it, and that some fraction of the money we pay goes to the entertainers themselves.
When you talk about a high-paid finance executive, I'm not mad at their comp because I don't understand what they do, I'm mad because I don't see where they money came from. To the general public, what a hedge fund manager does is take a lot of money from rich people, play stocks all year, turn $X into $Y, and then take a cut of $Y. All of this money is in a pool that Joe the Plumber has no access to, and likely never will.
The most true statement about wealth is "it takes money to make money" which has the corollary "it's very expensive to be poor". Once you have $10M, it's not too hard to turn it into $15M if you play your cards right. The rich have access to so many profitable endeavors (that are taxed at low capital gains rates) that most of us will never get near. Meanwhile the guy with $50 in his checking account pays a $15 fee for being too poor.
I'd argue that it's because we can see where the money comes from, and not that we can see their skills on display. If you think "hmm, LeBron makes 10% of what his Jerseys sell, 10% of the Heat ticket revenue, and whatever he gets in endorsements" then most people are OK with that. I've paid to see a basketball game and if 100% of my ticket went to the players on the court I'd be very pleased. We can understand that all Americans who enjoy entertainment pay for it, and that some fraction of the money we pay goes to the entertainers themselves.
When you talk about a high-paid finance executive, I'm not mad at their comp because I don't understand what they do, I'm mad because I don't see where they money came from. To the general public, what a hedge fund manager does is take a lot of money from rich people, play stocks all year, turn $X into $Y, and then take a cut of $Y. All of this money is in a pool that Joe the Plumber has no access to, and likely never will.
The most true statement about wealth is "it takes money to make money" which has the corollary "it's very expensive to be poor". Once you have $10M, it's not too hard to turn it into $15M if you play your cards right. The rich have access to so many profitable endeavors (that are taxed at low capital gains rates) that most of us will never get near. Meanwhile the guy with $50 in his checking account pays a $15 fee for being too poor.
> Once you have $10M, it's not too hard to turn it into $15M if you play your cards right.
It's even easier to turn $10M into $1M. Happens all the time. I'd like to hear how to make 50% without a commensurate risk of losing all/most of it.
> that are taxed at low capital gains rates
Capital gains tax rates are much lower for low income brackets, in fact they are 0%. You can open a brokerage account and start investing in stocks for less than $100.
> The rich have access to so many profitable endeavors (that are taxed at low capital gains rates) that most of us will never get near. Meanwhile the guy with $50 in his checking account pays a $15 fee for being too poor.
BTW, my bank has free checking, even if you've only got $50 in it.
It's even easier to turn $10M into $1M. Happens all the time. I'd like to hear how to make 50% without a commensurate risk of losing all/most of it.
> that are taxed at low capital gains rates
Capital gains tax rates are much lower for low income brackets, in fact they are 0%. You can open a brokerage account and start investing in stocks for less than $100.
> The rich have access to so many profitable endeavors (that are taxed at low capital gains rates) that most of us will never get near. Meanwhile the guy with $50 in his checking account pays a $15 fee for being too poor.
BTW, my bank has free checking, even if you've only got $50 in it.
At current rates you can do it in under 20 years with just US debt; of course that's not taxed as capital gains.
Also, I think most people that are outraged at CEO paychecks are usually outraged at the CEOS that outsourced a bunch of jobs over seas with lower environmental standards and worker safety standards and then stuffed huge profits in their pockets. or that ones that sank companies or bankrupted banks and still walked off with millions instead of going to jail for investor fraud and all kinds of other shady dealings.
More generally, there is the feeling that those top earning CEO (and top managers) are seen as outsider of the company.
They are like chess player, moving the pieces but not affected by their decisions and there is no real way for one of the piece to make it to the top and become the player. Unlike chess players, it does not seems that the outcome of their game affect CEO reputation or income - it's a gentleman club where socializing matters more than performance.
They are like chess player, moving the pieces but not affected by their decisions and there is no real way for one of the piece to make it to the top and become the player. Unlike chess players, it does not seems that the outcome of their game affect CEO reputation or income - it's a gentleman club where socializing matters more than performance.
>The Tax Policy Center estimates that in 2013, the top one-tenth of 1 percent of the income distribution, those earning more than $2.7 million, paid 33.8 percent of their income in federal taxes. By contrast, the middle class, defined as the middle fifth of the income distribution, paid just 12.4 percent.
Boom goes the dynamite.
(edit: For the comment below me, YES, payroll taxes are included.)
Boom goes the dynamite.
(edit: For the comment below me, YES, payroll taxes are included.)
Sigh, why do these articles always conveniently ignore payroll taxes?
Or that the extremely wealthy make most of their money via capital gains.
The capital gains rate is 23.8% for those with high income.
That's just federal capital gains tax. You also need to consider state taxes. In California you pay ordinary income tax rates on capital gains of up to 13.3% for people with incomes over a million dollars. So the total tax on a capital gain in California can be as high as 37.1%.
And likewise with income taxes. The paper cited I the source article accounts only for fed taxes. Cali income tax would toss another 8-10% on top of that 33.x% number.
Low tax America!
Well, I guess it is low tax it you're not rich, haha.
Low tax America!
Well, I guess it is low tax it you're not rich, haha.
In California the highest marginal total income tax rate is 56.7%. While this is for incomes over a million dollars, if you make around $100,000, you face a marginal tax rate of 52.6%.
I'm sure there are places with even higher marginal taxes but these don't seem low.
BTW - What is really fucked up is the way very poor people face the very highest marginal tax rates due to means testing of various programs (often over 100%) but that's another story.
I'm sure there are places with even higher marginal taxes but these don't seem low.
BTW - What is really fucked up is the way very poor people face the very highest marginal tax rates due to means testing of various programs (often over 100%) but that's another story.
It has been as high as around 90%:
http://en.wikipedia.org/wiki/File:Historical_Mariginal_Tax_R...
http://en.wikipedia.org/wiki/File:Historical_Mariginal_Tax_R...
There were loads of loopholes back then.
And before someone responds with, "there are loopholes now too, har har!": No, there really aren't those kinds of loopholes anymore. The 90% income tax existed in name only, whereas today there actually are people paying ~50% income tax in the US.
And before someone responds with, "there are loopholes now too, har har!": No, there really aren't those kinds of loopholes anymore. The 90% income tax existed in name only, whereas today there actually are people paying ~50% income tax in the US.
which is the elephant in the room when income tax rates are discussed particularity in the uk where the line is "on noes entrepreneurs will flee if the highest rate income tax goes from 45 to 50".
NO real entrepreneur cares about his salary after a certain point its all about capital gain - the fantasists and Muppets on dragons den are not real entrepreneurs.
That is the trouble thease days where the political class go from uni straight into the political machine with no out side job (until they get a few director ships or quangos)
NO real entrepreneur cares about his salary after a certain point its all about capital gain - the fantasists and Muppets on dragons den are not real entrepreneurs.
That is the trouble thease days where the political class go from uni straight into the political machine with no out side job (until they get a few director ships or quangos)
Did they do that? That sounds like a pretty elementary mistake, and since it's the NYT it isn't in the direction I'd expect.
Payroll taxes are of course included.
Payroll taxes are included!
The Economist responded to Mankiw last year:
http://www.economist.com/blogs/democracyinamerica/2013/06/in...
Re: the claim that the rich take on greater risk (hence "Greater risk requires greater reward."), here's the graph:
http://i.imgur.com/llLrSZe.png
from http://scholar.princeton.edu/gkaplan/files/guvenen_kaplan_ae...
http://www.economist.com/blogs/democracyinamerica/2013/06/in...
Re: the claim that the rich take on greater risk (hence "Greater risk requires greater reward."), here's the graph:
http://i.imgur.com/llLrSZe.png
from http://scholar.princeton.edu/gkaplan/files/guvenen_kaplan_ae...
The line about the rich taking on greater risk is particularly absurd. The rich risk making less money in a recession relative to their baseline income, sure, but that graph doesn't seem to suggest they face destitution, which a factory worker would face by losing his job, or, until recently, many middle class Americans faced by getting sick for an extended period of time.
It depends on your definition of "risk". In economics, as well as business, it is usually defined as the standard deviation of the percentage change and is usually annualized. There are a whole bunch do sensible reasons for this (basically it makes various risks comparable).
By this measure the rich face much higher risk than the poor when you look at either income or wealth. In the case of wealth the poor have little if any while the rich have much of their wealth in the very risky stock market (e.g. down 50% in last recession). Incomes are generally less volatile for both the rich and poor but more volatile for the rich.
You are right it does not capture the impact on individuals. As far as I know there is no such measure but it would be something along the lines of the standard deviation of utility. Unfortunately any such measure would be subjective and hard to understand across more than a few individuals.
By this measure the rich face much higher risk than the poor when you look at either income or wealth. In the case of wealth the poor have little if any while the rich have much of their wealth in the very risky stock market (e.g. down 50% in last recession). Incomes are generally less volatile for both the rich and poor but more volatile for the rich.
You are right it does not capture the impact on individuals. As far as I know there is no such measure but it would be something along the lines of the standard deviation of utility. Unfortunately any such measure would be subjective and hard to understand across more than a few individuals.
The "Greater risk requires greater reward" is BS anyway. Someone making $400k/year would have to be unemployed for 9 years straight to be brought down to $40k/year. I don't need a graph to know that even in finance, the risks aren't that bad.
It's an aspect of income which is highlighted by Adam Smith. His argument is somewhat more believable than the yarn usually sold by plutocrat apologists:
The probability that any particular person shall ever be qualified for the employments to which he is educated, is very different in different occupations. In the greatest part of mechanic trades success is almost certain; but very uncertain in the liberal professions. ...[S]end [your son] to study the law, it as at least twenty to one if he ever makes such proficiency as will enable him to live by the business. In a perfectly fair lottery, those who draw the prizes ought to gain all that is lost by those who draw the blanks. In a profession, where twenty fail for one that succeeds, that one ought to gain all that should have been gained by the unsuccessful twenty.
Wealth Of Nations, Book I, Chapter X
http://www.gutenberg.org/files/3300/3300-h/3300-h.htm#link2H...
The probability that any particular person shall ever be qualified for the employments to which he is educated, is very different in different occupations. In the greatest part of mechanic trades success is almost certain; but very uncertain in the liberal professions. ...[S]end [your son] to study the law, it as at least twenty to one if he ever makes such proficiency as will enable him to live by the business. In a perfectly fair lottery, those who draw the prizes ought to gain all that is lost by those who draw the blanks. In a profession, where twenty fail for one that succeeds, that one ought to gain all that should have been gained by the unsuccessful twenty.
Wealth Of Nations, Book I, Chapter X
http://www.gutenberg.org/files/3300/3300-h/3300-h.htm#link2H...
It's certainly more believable, but I think the average Ivy-League graduate who doesn't make it in the financial industry is still doing fairly well.
I propose that the preparation for the majority of of high-pay fields yields an acceptable payoff even without winning the lottery, with perhaps professional athletes and entertainers being notable exceptions.
I propose that the preparation for the majority of of high-pay fields yields an acceptable payoff even without winning the lottery, with perhaps professional athletes and entertainers being notable exceptions.
I think the average Ivy-League graduate who doesn't make it in the financial industry is still doing fairly well.
No argument. Just noting a much earlier (if not the original form) of this argument. Smith is very much worth reading, mostly on the basis that he's not much of what he's been presented as at all.
No argument. Just noting a much earlier (if not the original form) of this argument. Smith is very much worth reading, mostly on the basis that he's not much of what he's been presented as at all.
its not greater risks..
Its placing bets on those risks that you have better information on or informed about.
Its placing bets on those risks that you have better information on or informed about.
IMO, you should look at overall tax burden, not federal.
Yes, Agreed.
I'd like to see numbers after city, state, sales, gas, cigarette, lotto, alcohol taxes taken into account.
The funniest(read saddest) part about wealthy people complaining about their taxes. It's the government propping up their incomes in the first place: hedge fund managers that pay 15%( now 20%) tax rates because of the government or what about movie stars and sports stars that would make a fraction of their income without copyright laws. software copy right. Even doctors incomes are propped up because of licencing laws.
They might all make a fraction of their income, but wouldn't it still be a lot even without government? I keep thinking about medical doctors: if licensing laws wouldn't exist, wouldn't they still be in high demand and scarce? For an analogy, we can look at the market for programmers, which is practically unregulated: because of high demand and naturally restricted supply (it takes talent and education to become a good programmer), they command a high salary (assuming that the labor market for programmers right now is a free one, which I think is mostly the case). Wouldn't a doctor working in a free market also make a six figures salary?
but a lot of software money is propped by copyright, patents, etc. also what if software companies could fly in any one they wanted to work on code. education is also pretty regulated by government.
Not all of the world's software is consumer-oriented. Programmers could still work on contract, writing software for business customers who wouldn't really bother with piracy. For a concrete example, there are plenty of companies right now paying developers to work on LLVM (which is UIUC-licensed, so practically free for everyone); those people still get paid well. As long as you write single-user software (or server-side software), you don't need copyright as much. Arguably, we're moving away from the shrink-wrapped copyrighted software model (with the exception of App Stores).
Education might be regulated by government, but does that really have a positive impact? A MIT degree isn't valuable because government says so, it's valuable because it's from MIT (which is a private university with a lot of great professors and students). The value of education is not granted by government.
Education might be regulated by government, but does that really have a positive impact? A MIT degree isn't valuable because government says so, it's valuable because it's from MIT (which is a private university with a lot of great professors and students). The value of education is not granted by government.
But the government was doing all the things you mentioned before we had anything near a $17 trillion dollar debt - so obviously things are way out of whack.
I would argue that no one who has built their fortune on the backs of the carried interest tax loophole (Hedge Fund and Private Equity crowd primarily) is deservingly wealthy.
And there is a large overlap with the HF crowd and those who caused the financial crisis and the resulting 0% interest rate policy. Who has gained from 0% interest rates and quantitative easing? The HF/PE crowd. So they drive the car over the cliff, but in the end they up with new and better cars, while every else is slowly trying repair their old busted car. F them, I say. They are deserving of a black eye, or worse, certainly not their wealth.
a simple example from the PE world: Blackstone defaults on its debt, and takes the proceeds to pay of the default itself. It's not exactly that simple, but pretty close
http://dealbook.nytimes.com/2013/12/12/a-surprise-from-hilto...
If you or I pulled that shit, we'd never be allowed to borrow money again, but Blackstone can borrow at interest rates and terms the average homeowner can only dream of.
And there is a large overlap with the HF crowd and those who caused the financial crisis and the resulting 0% interest rate policy. Who has gained from 0% interest rates and quantitative easing? The HF/PE crowd. So they drive the car over the cliff, but in the end they up with new and better cars, while every else is slowly trying repair their old busted car. F them, I say. They are deserving of a black eye, or worse, certainly not their wealth.
a simple example from the PE world: Blackstone defaults on its debt, and takes the proceeds to pay of the default itself. It's not exactly that simple, but pretty close
http://dealbook.nytimes.com/2013/12/12/a-surprise-from-hilto...
If you or I pulled that shit, we'd never be allowed to borrow money again, but Blackstone can borrow at interest rates and terms the average homeowner can only dream of.
This is a shit article. Most of the wealthy are not deserving, because according to their pay they need to be 30x a lower class worker. Most aren't. Indeed many of them get paid despite being actively bad for their companies. The title should be redone to: Bait and Switch; How a misunderstanding of reality and overall tax levels means that this writer is an idiot
Is an American 17x a Chinaman?
http://www.huffingtonpost.com/2012/03/08/average-cost-factor...
http://www.huffingtonpost.com/2012/03/08/average-cost-factor...
Nobody, and I mean NOBODY on this f'd up earth is worth 2000x more than another human being.
It's not 30x --for some CEO's it's 2000x more-- if they earn 50 Mill, and a lower class worker earns 25000. 50,000,000 / 25000 = 2000!
Personally I think there should be one big union of everyone earning under $21--what minimum wage SHOULD be w/ inflation - and do rolling strikes, monday all McDonald's employees, Tuesday - all Walmart employees.
Of course, I also think Google, Facebook, Netflix, et al --should all boycot D.C. and cut off access to D.C. ip addresses in support of Net Neutrality. -- Probably never happen, but it'd be cool if it did.
It's not 30x --for some CEO's it's 2000x more-- if they earn 50 Mill, and a lower class worker earns 25000. 50,000,000 / 25000 = 2000!
Personally I think there should be one big union of everyone earning under $21--what minimum wage SHOULD be w/ inflation - and do rolling strikes, monday all McDonald's employees, Tuesday - all Walmart employees.
Of course, I also think Google, Facebook, Netflix, et al --should all boycot D.C. and cut off access to D.C. ip addresses in support of Net Neutrality. -- Probably never happen, but it'd be cool if it did.
Honestly, while I think many out there have earned their money, this stops at a certain point. It's just not reasonable to think someone is 10,000x more valuable than someone else. That's just ridiculous.
Even beyond this, I see little proof that individuals having absurd amounts of money is in any way beneficial to society, at least on any consistent basis.
To be perfectly honest, I almost feel that there should be a legislated maximum income disparity within a company to reduce the insanity that can happen. Maybe something like no employee may make more than 100 times what another employee makes in terms of net hourly compensation. 100 times is still an absolutely massive disparity, and yet this would improve things. Want to pay your CEO more? Give your janitors a raise.
Even beyond this, I see little proof that individuals having absurd amounts of money is in any way beneficial to society, at least on any consistent basis.
To be perfectly honest, I almost feel that there should be a legislated maximum income disparity within a company to reduce the insanity that can happen. Maybe something like no employee may make more than 100 times what another employee makes in terms of net hourly compensation. 100 times is still an absolutely massive disparity, and yet this would improve things. Want to pay your CEO more? Give your janitors a raise.
For Joe to be 10000x more valuable than Frank, a given company must prefer to have one day of Joe's time, rather than 27 years of Frank's time. Is that possible? Absolutely. Maybe Joe can spend that day calling up an old friend from Harvard and get an extremely valuable deal going. Even if the deal doesn't close that day, the other execs can get it closed now that Joe got the ball rolling and made the right introductions. This can easily be worth hundreds of millions.
Maybe Frank has no useful skills, and is extremely lazy on top of that. He might be yours for 27 years, but he'll do his job badly, lower morale, and make lots of screw-ups that his co-workers have to fix.
Now, I'm not saying that every CEO is like Joe or every minimum-wage worker is like Frank, but you (the reader) know that there are definitely people out there like each of those. Hence, one person's time can be 10000x times more valuable than another's.
Maybe Frank has no useful skills, and is extremely lazy on top of that. He might be yours for 27 years, but he'll do his job badly, lower morale, and make lots of screw-ups that his co-workers have to fix.
Now, I'm not saying that every CEO is like Joe or every minimum-wage worker is like Frank, but you (the reader) know that there are definitely people out there like each of those. Hence, one person's time can be 10000x times more valuable than another's.
While I can certainly agree that people can have relative value, and even agree that a disparity of four orders of magnitude might just be possible on occasion (though overall i'm skeptical of that claim), I think we're confusing skill/value to society vs value in terms of money one can extract via their skills/etc.
Generally, at the high end of skill, skill increases linearly, but financial reward can sometimes increase exponentially with it.
While someone may be 100x more skilled than someone else, this can result in them making 10,000x as much money as them. Is that fair? I'm not sure. Certainly some amount of potential reward is helpful, as it may drive some to pursue skill and benefit society as a whole, but I think It's grown out of proportion.
Generally, at the high end of skill, skill increases linearly, but financial reward can sometimes increase exponentially with it.
While someone may be 100x more skilled than someone else, this can result in them making 10,000x as much money as them. Is that fair? I'm not sure. Certainly some amount of potential reward is helpful, as it may drive some to pursue skill and benefit society as a whole, but I think It's grown out of proportion.
If I save someone a million dollars and they give me $10k,
just to pick a random example, it doesn't matter how "skilled" I am. I created a whole ton of value that's easily measured in dollars (in this case), and I take home a piece of it. You could say I must be skilled at something; making money, if nothing else.
As long as an individual can own a company or part of a company (capitalism), and given that companies regularly create a huge amount of value out of thin air, some individuals will be entitled to a fraction of the value created. It's that simple.
As long as an individual can own a company or part of a company (capitalism), and given that companies regularly create a huge amount of value out of thin air, some individuals will be entitled to a fraction of the value created. It's that simple.
Executive pay is also about signalling to stock markets. Executive pay is part of what some traders use to gauge the health of a company, so sometimes you can actually artificially inflate your stock by more than it costs you, by increasing the pay of your CEO.
Citation required.
Though it would be interesting if true.
Though it would be interesting if true.
I haven't found the original study yet, but here's an interesting example of the kind of thing. Note the talk of signals, this guy isn't looking at this raise as something JP Morgan thought Dimon deserved, he talks it as JP Morgan wanting to signal to others through the pay that this is the guy, so, buy our shares. -
The board’s decision to boost Dimon’s annual pay despite mounting legal settlements shows he probably will get the full options award, said Alan Johnson, founder of compensation-consulting firm Johnson Associates Inc. “It’s obvious the board wanted to send a signal about what they think of him,” Johnson said. “It’d be very inconsistent to say, ‘You’re our guy, and we want to send an emphatic public message that we think very highly of you.’ And then, ‘Oh by the way, you didn’t earn this over the last five years.’” ...
... While Sorrentino and Johnson said another major legal setback or trading loss could threaten Dimon’s options, last week’s pay increase sends the message that the board is willing to give him the full amount. “I don’t think the bank performed at a $20 million level, but I think they were trying to send a signal that they think he’s the guy,” Johnson said. “Unless something happens in the next six months, he’s highly likely to get it.”
http://www.bloomberg.com/news/2014-01-27/jpmorgan-seen-payin...
The board’s decision to boost Dimon’s annual pay despite mounting legal settlements shows he probably will get the full options award, said Alan Johnson, founder of compensation-consulting firm Johnson Associates Inc. “It’s obvious the board wanted to send a signal about what they think of him,” Johnson said. “It’d be very inconsistent to say, ‘You’re our guy, and we want to send an emphatic public message that we think very highly of you.’ And then, ‘Oh by the way, you didn’t earn this over the last five years.’” ...
... While Sorrentino and Johnson said another major legal setback or trading loss could threaten Dimon’s options, last week’s pay increase sends the message that the board is willing to give him the full amount. “I don’t think the bank performed at a $20 million level, but I think they were trying to send a signal that they think he’s the guy,” Johnson said. “Unless something happens in the next six months, he’s highly likely to get it.”
http://www.bloomberg.com/news/2014-01-27/jpmorgan-seen-payin...
There was a study on this about why boardroom pay for public companies in the UK shot up after the laws came in forcing public disclosure of boardroom pay. I not got time right now, but I'll look it up when I get a chance.
That's probably the dumbest signal in history.
If you live in California and make around $100,000 you face a marginal tax rate of 52.6% (i.e on $1,000 of additional income you would pay $526 in tax and keep $474). Making $100,000 in San Francisco you are definitely not rich. Of course you also have to pay 7.5% sales tax, the new gross receipts tax, and various other taxes and fees.
Federal Income Tax 28.0% ($89,350-$186,350 bracket)
Self-Employment Tax 15.3% ($0-$117,000 bracket)
CA State Income Tax 9.3% ($49,774-$254,250 bracket)
----------------------------------------------------
Total Marginal Tax. 52.6% ($89,000-$117,000 bracket)You should come to Ohio. Here's a job listing for you. And you won't have to worry about most of those pesky taxes.
http://columbus.craigslist.org/mnu/4333315897.html The highlights: Must be available to work 7 days/week when necessary Must be able to lift 80 lbs. consistently, Must be able to work in cold temperatures
http://columbus.craigslist.org/mnu/4333315897.html The highlights: Must be available to work 7 days/week when necessary Must be able to lift 80 lbs. consistently, Must be able to work in cold temperatures
Not much better in Ohio:
Federal Income Tax 28.0% ($89,350-$186,350 bracket)
Self-Employment Tax 15.3% ($0-$117,000 bracket)
OH State Income Tax 4.7% ($83,350-$104,250 bracket)
----------------------------------------------------
Total Marginal Tax. 48.0% ($89,000-$104,250 bracket)
$8 for a movie? The author is using his student's discount movie tickets.
The example of Robert Downey Jr. is basically the Wilt Chamberlain example from Nozick's Distributive Justice Theory [1]. On its face it makes sense to most people who read it, but the world isn't as simple as Nozick makes it out to be and I don't think the same logic applies to CEOs and Hedge Fund Managers.
[1] - http://en.wikipedia.org/wiki/Anarchy,_State,_and_Utopia#Dist...
[1] - http://en.wikipedia.org/wiki/Anarchy,_State,_and_Utopia#Dist...
I can accept both that some people get just returns _and_ that weird market failures sometimes distort things. I'm untroubled by any contradiction there.
The best piano player in the world may capture 95% of the album sales for Schumann's Concerto in A minor, without being twenty times better than the sadly impoverished second best. Stuck with number two, the empire would hardly crumble. Some markets, including patent races, just funnel all returns to first place. Aside from first past the post effects, we also have a market containing inheritance, unregulated monopolies, and the swings of fortune to name a few others. Not all of wealth is luck, but some seem to insist it never plays any role. Thomas Gilcrease comes to mind. Great philanthropist and wonderful businessman, got his start by essentially winning an incredible lottery.
Progressive taxation can serve as a headwind to correct some of these excesses without scrutinizing desert[1] on a case by case basis (a monumental judicial task with suspect gains). The downside of a blanket solution is that you end up mixing the sheep of deserving rich in with your goats.
To protect the noble wealthy that end up unfairly persecuted by such a headwind, we should just fight to make sure that tax policy doesn't suddenly beggar anyone, make sure that the ranking of wealth isn't significantly shuffled, limit how much markets are distorted, ensure a simple code that's easy to comply with and difficult to cheat, and make sure government expenditures are constrained wherever feasible. These areas could use significantly more work even if our tax structure went largely unchanged.[2]
We can also take some comfort in the knowledge that a rich man in a progressive society is still, at the end of the day, a rich man, and may somehow muddle through. That's not to be too dismissive, I do think social justice is important for every individual. But I admittedly struggle to give equal weight to the problems of the rich when thinking of other social issues, like racial disparities in incarceration, or the treadmill to homelessness for those without access to mental health care. It's hard to rank "rich people don't have the tax rate they like" exactly among other problems we're confronting, but that's a bit of a separate discussion.
[1] http://en.wikipedia.org/wiki/Desert_(philosophy)
[2] While my ideal would include a postcard sized return with higher rates for those pulling in millions, I'd gladly take, even prefer work on these other areas first.
The best piano player in the world may capture 95% of the album sales for Schumann's Concerto in A minor, without being twenty times better than the sadly impoverished second best. Stuck with number two, the empire would hardly crumble. Some markets, including patent races, just funnel all returns to first place. Aside from first past the post effects, we also have a market containing inheritance, unregulated monopolies, and the swings of fortune to name a few others. Not all of wealth is luck, but some seem to insist it never plays any role. Thomas Gilcrease comes to mind. Great philanthropist and wonderful businessman, got his start by essentially winning an incredible lottery.
Progressive taxation can serve as a headwind to correct some of these excesses without scrutinizing desert[1] on a case by case basis (a monumental judicial task with suspect gains). The downside of a blanket solution is that you end up mixing the sheep of deserving rich in with your goats.
To protect the noble wealthy that end up unfairly persecuted by such a headwind, we should just fight to make sure that tax policy doesn't suddenly beggar anyone, make sure that the ranking of wealth isn't significantly shuffled, limit how much markets are distorted, ensure a simple code that's easy to comply with and difficult to cheat, and make sure government expenditures are constrained wherever feasible. These areas could use significantly more work even if our tax structure went largely unchanged.[2]
We can also take some comfort in the knowledge that a rich man in a progressive society is still, at the end of the day, a rich man, and may somehow muddle through. That's not to be too dismissive, I do think social justice is important for every individual. But I admittedly struggle to give equal weight to the problems of the rich when thinking of other social issues, like racial disparities in incarceration, or the treadmill to homelessness for those without access to mental health care. It's hard to rank "rich people don't have the tax rate they like" exactly among other problems we're confronting, but that's a bit of a separate discussion.
[1] http://en.wikipedia.org/wiki/Desert_(philosophy)
[2] While my ideal would include a postcard sized return with higher rates for those pulling in millions, I'd gladly take, even prefer work on these other areas first.
The job of a CEO is not that difficult and that of bankers and financial firms even less so. The argument is ludicrous. While CEOs are likely necessary, many of the banking and financial positions are not.
Personally, those amounts for the actors, authors, athletes seem pretty obscene to me, but lets ignore the philosophical issues over that, I'm aware the general populace isn't exactly into philosophy.
I can't speak for all the human race, but one of the issues is whether there actually IS some connection between pay and actions and renumeration. Some people get paid huge amounts of money not merely because of what they do, but because of who they are and manipulation of social power structures. Queens, kings, heirs, priests....CEO's?
We know that there have been relatively wealthy individuals throughout all of history, and we can also probably ascertain that many people would think that some actions should be socially more deserving of social remuneration/reward than others. There are rich people who are rich because of being rewarded due to doing great things for lots of others, and there are rich people who are rich because of nothing they did for the rest of society but because of current social structure or through random chance or through false beliefs and manipulation of those who sent money and social power their way, and there are rich people who are rich because they've done some pretty nasty shit. Some have probably done all three.
So which are the CEO's (if we must talk of them collectively)? Well, I would say to Mr Mankiw that if the easiest answer is that CEO's make millions because of merit, then their merit should be easy enough to measure. Because if its not easy enough to measure, then on what basis could the boards possibly be connecting merit to pay? They couldn't be. Perhaps it is merely a cargo cult or back scratching operation relative to the amounts of capital they have available to them? As I said, there's lots of classes that have received money through the social mechanisms that the general populace has accepted, but just because the pope sits on a throne of gold, doesn't mean he's actually communing with god or deserving of it.
Indeed, perhaps we could answer this empirically. We can take CEO pay of various public companies, and control against regular share-market index movements. Define a function to relate company size to CEO remuneration, and then define a function to relate this to company worth over time after that CEO has been hired. It should become pretty apparent, pretty quickly, that those that paid more for a CEO at a particular time had particularly better outcomes after paying high prices for said CEO after he came on board, on average, than those that paid less. If they didn't, then its pretty clear that of all the reasons people are getting paid so much money, relative merit isn't one of them and perhaps we need to look for other explanatory variables.
So out of curiosity...anyone on HN aware of any such studies?
/and by all means Mr Mankiw, people in your position bringing out the "but the rich pay more in taxes!" just reinforces my impression that harvard and higher education institutions are a complete sham.
I can't speak for all the human race, but one of the issues is whether there actually IS some connection between pay and actions and renumeration. Some people get paid huge amounts of money not merely because of what they do, but because of who they are and manipulation of social power structures. Queens, kings, heirs, priests....CEO's?
We know that there have been relatively wealthy individuals throughout all of history, and we can also probably ascertain that many people would think that some actions should be socially more deserving of social remuneration/reward than others. There are rich people who are rich because of being rewarded due to doing great things for lots of others, and there are rich people who are rich because of nothing they did for the rest of society but because of current social structure or through random chance or through false beliefs and manipulation of those who sent money and social power their way, and there are rich people who are rich because they've done some pretty nasty shit. Some have probably done all three.
So which are the CEO's (if we must talk of them collectively)? Well, I would say to Mr Mankiw that if the easiest answer is that CEO's make millions because of merit, then their merit should be easy enough to measure. Because if its not easy enough to measure, then on what basis could the boards possibly be connecting merit to pay? They couldn't be. Perhaps it is merely a cargo cult or back scratching operation relative to the amounts of capital they have available to them? As I said, there's lots of classes that have received money through the social mechanisms that the general populace has accepted, but just because the pope sits on a throne of gold, doesn't mean he's actually communing with god or deserving of it.
Indeed, perhaps we could answer this empirically. We can take CEO pay of various public companies, and control against regular share-market index movements. Define a function to relate company size to CEO remuneration, and then define a function to relate this to company worth over time after that CEO has been hired. It should become pretty apparent, pretty quickly, that those that paid more for a CEO at a particular time had particularly better outcomes after paying high prices for said CEO after he came on board, on average, than those that paid less. If they didn't, then its pretty clear that of all the reasons people are getting paid so much money, relative merit isn't one of them and perhaps we need to look for other explanatory variables.
So out of curiosity...anyone on HN aware of any such studies?
/and by all means Mr Mankiw, people in your position bringing out the "but the rich pay more in taxes!" just reinforces my impression that harvard and higher education institutions are a complete sham.
"...people in your position bringing out the "but the rich pay more in taxes!" just reinforces my impression that harvard and higher education institutions are a complete sham."
Can you qualify this line? I'm not entirely sure why his providing the verifiable statistics bears any connection to the merit of high quality higher education institutions?
Genuinely confused - not bating.
Can you qualify this line? I'm not entirely sure why his providing the verifiable statistics bears any connection to the merit of high quality higher education institutions?
Genuinely confused - not bating.
Sure. First of all some context. Mankiw wrote one of the main textbooks while I was doing economics at university. I was one of the few people who also took philosophy and the like, who came to economics because I found the area itself fascinating rather than wishes for employment/riches, and who discovered economics as a subject relatively late (after philosophy and IT) so you might say I contrast Mankiw, Marx and Megabytes :P (and don't worry, I'm not a communist :P)
My opinion of Mankiw, and the work of places that have hired him, is not particularly high. I don't think their work is intellectually very rigorous (not to be confused with "academically" rigorous via referencing lots of papers, using models and language the layman doesn't understand, and hiding behind institutional status). It doesn't deal with many of the questions and complexities and outcomes that people actually care about, and they clearly push an agenda behind a facade of legitimacy.
The "rich pay more taxes", specifically, is just such a juvenile, dumb, populist thought terminating cliche. "Queen Victoria" probably funded more parks than the average man, but what the hell does that mean? "The pope" built more churches. If you redistribute money from the rich to the poor, now the poor pay more taxes! And what does that mean now? NOTHING! Should we do it? I don't know! "The rich pay more taxes" is a regular throw-away line from those who generally wish to lobby for the wealthy, reliant upon the idea of "agency of money and those who hold it" in our current society rather than analysing money and its relationship to actual societal outcomes, beliefs, structures and social power. Queen victoria and the pope, of course, didn't actually build those parks or those churches (Viccy wasn't very good at bricklaying for a start), but they had the social power to get others to do it for them. But does that in itself legitimize their positions, power and actions?
So you read Mankiw's editorials, and they contain a whole bunch of cheap appeals that are easily dismissed, and not much content (and that goes for his work as well). Why did wages and the like suddenly take off in the financial sector compared to how it used to be historically in relative conservative banking? Is this because they weren't worth much or very competent before? How does debt, power imbalance, informational asymmetry, and turnover enter into all this? Why are remunerations so volatile if their wages are meritorious? What about when these golden-handshakes aren't connected to their actual performance? How do boards measure the worth of CEO's when everyone else can't? What about intercultural/temporal/national differences in pay/situations? Would we actually be better off if we took money from the rich, distributed it, and had a more even distribution of both wealth and taxes? What about heirs?
No one intellectually serious or competent would ever spout such lines if they genuinely wanted to discuss the issue. But Mankiw, and the institutions that hire him, generally don't want to seriously discuss the issue.
Hence, complete sham.
/my, that sounds really harsh.
My opinion of Mankiw, and the work of places that have hired him, is not particularly high. I don't think their work is intellectually very rigorous (not to be confused with "academically" rigorous via referencing lots of papers, using models and language the layman doesn't understand, and hiding behind institutional status). It doesn't deal with many of the questions and complexities and outcomes that people actually care about, and they clearly push an agenda behind a facade of legitimacy.
The "rich pay more taxes", specifically, is just such a juvenile, dumb, populist thought terminating cliche. "Queen Victoria" probably funded more parks than the average man, but what the hell does that mean? "The pope" built more churches. If you redistribute money from the rich to the poor, now the poor pay more taxes! And what does that mean now? NOTHING! Should we do it? I don't know! "The rich pay more taxes" is a regular throw-away line from those who generally wish to lobby for the wealthy, reliant upon the idea of "agency of money and those who hold it" in our current society rather than analysing money and its relationship to actual societal outcomes, beliefs, structures and social power. Queen victoria and the pope, of course, didn't actually build those parks or those churches (Viccy wasn't very good at bricklaying for a start), but they had the social power to get others to do it for them. But does that in itself legitimize their positions, power and actions?
So you read Mankiw's editorials, and they contain a whole bunch of cheap appeals that are easily dismissed, and not much content (and that goes for his work as well). Why did wages and the like suddenly take off in the financial sector compared to how it used to be historically in relative conservative banking? Is this because they weren't worth much or very competent before? How does debt, power imbalance, informational asymmetry, and turnover enter into all this? Why are remunerations so volatile if their wages are meritorious? What about when these golden-handshakes aren't connected to their actual performance? How do boards measure the worth of CEO's when everyone else can't? What about intercultural/temporal/national differences in pay/situations? Would we actually be better off if we took money from the rich, distributed it, and had a more even distribution of both wealth and taxes? What about heirs?
No one intellectually serious or competent would ever spout such lines if they genuinely wanted to discuss the issue. But Mankiw, and the institutions that hire him, generally don't want to seriously discuss the issue.
Hence, complete sham.
/my, that sounds really harsh.
deserving of the guillotine
This is so utterly clueless: "In light of this, the most natural explanation of high C.E.O. pay is that the value of a good C.E.O. is extraordinarily high.". Can't possibly imagine another reason why people in a position to influence how much money they're paid seem to end up with higher salaries. Nope, nothing comes to mind for me.