
Yes, the Wealthy Can Be Deserving - beefman
http://www.nytimes.com/2014/02/16/business/yes-the-wealthy-can-be-deserving.html
======
sbenj
These arguments always seem to make the bait-and-switch of "Steve Jobs is
worth this much money therefore CEO _ is as well", conflating people who's
financial value we can see (it would be hard to argue with the financial value
to Apple of Job's vision) with people who are simply in an advantageous
position to skim money off the top.

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.

~~~
WalterBright
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).

~~~
staunch
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.

~~~
WalterBright
> 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.

------
firstOrder
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.

~~~
tolmasky
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?

~~~
WalterBright
According to "The Millionaire Next Door" 85% of American millionaires are
self-made.

~~~
dredmorbius
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)

~~~
WalterBright
"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.

~~~
dredmorbius
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?

~~~
WalterBright
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.

~~~
dredmorbius
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.

------
habosa
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.

~~~
WalterBright
> 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.

~~~
aidenn0
At current rates you can do it in under 20 years with just US debt; of course
that's not taxed as capital gains.

------
sharemywin
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.

~~~
gutnor
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.

------
alexeisadeski3
>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.)

~~~
fortes
Sigh, why do these articles always conveniently ignore payroll taxes?

~~~
farrel
Or that the extremely wealthy make most of their money via capital gains.

~~~
alexeisadeski3
The capital gains rate is 23.8% for those with high income.

~~~
spikels
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%.

~~~
alexeisadeski3
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.

~~~
spikels
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.

~~~
aidenn0
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_Rate_for_Highest_and_Lowest_Income_Earners.jpg)

~~~
alexeisadeski3
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.

------
nerfhammer
The Economist responded to Mankiw last year:

[http://www.economist.com/blogs/democracyinamerica/2013/06/in...](http://www.economist.com/blogs/democracyinamerica/2013/06/inequality)

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](http://i.imgur.com/llLrSZe.png)

from
[http://scholar.princeton.edu/gkaplan/files/guvenen_kaplan_ae...](http://scholar.princeton.edu/gkaplan/files/guvenen_kaplan_aerpp_2014.pdf)

~~~
rquantz
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.

~~~
spikels
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.

------
jamesaguilar
IMO, you should look at overall tax burden, not federal.

~~~
Aloha
Yes, Agreed.

~~~
sharemywin
I'd like to see numbers after city, state, sales, gas, cigarette, lotto,
alcohol taxes taken into account.

------
sharemywin
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.

~~~
ahomescu1
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?

~~~
sharemywin
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.

~~~
ahomescu1
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.

------
jgalt212
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...](http://dealbook.nytimes.com/2013/12/12/a-surprise-from-hilton-big-
profit-for-blackstone/)

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.

------
confluence
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

~~~
alexeisadeski3
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-factory-
worker_n_1327413.html)

------
neona
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.

~~~
Meekro
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.

~~~
neona
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.

~~~
dgreensp
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.

------
lotsofmangos
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.

~~~
dredmorbius
Citation required.

Though it would be interesting if true.

~~~
lotsofmangos
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...](http://www.bloomberg.com/news/2014-01-27/jpmorgan-seen-paying-
dimon-34-million-award-this-year.html)

------
spikels
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)

~~~
sharemywin
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](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

~~~
spikels
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)
    

If I was you I'd consider a job in California. We are always looking for
people to help pay for the underfunded pensions of state workers who retired
in the 1990s. And we never have cold weather.

------
fatjokes
$8 for a movie? The author is using his student's discount movie tickets.

------
habosa
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...](http://en.wikipedia.org/wiki/Anarchy,_State,_and_Utopia#Distributive_justice)

------
brownbat
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)](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.

------
joesmo
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.

------
ACow_Adonis
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.

~~~
hugofirth
"...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.

~~~
ACow_Adonis
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.

------
squirejons
deserving of the guillotine

