# Cap Executive Pay **URL:** \ **Category:** Great Debates\ **Created:** [April 3, 2009, 5:10pm UTC](https://boards.straightdope.com/t/cap-executive-pay/491888 "2009-04-03T17:10:29Z")\ **Posts on this page:** 20\ **Page:** 4
**Author:** ![Evil\_Economist](https://avatars.discourse-cdn.com/v4/letter/e/c89c15/32.png) [@Evil\_Economist](https://boards.straightdope.com/u/Evil_Economist)\ **Post date:** [April 5, 2009, 8:42am UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/61 "2009-04-05T08:42:56Z")
> [@Sam\_Stone](#): > > I would think that a company that can dominate the competition simply by being better at supplying what people want is going to be the result of natural monopoly, or there would always be competition. A natural monopoly is one in which the structure of the market prevents competitors. It can be due to entry costs or economies of scale, or other things. Due to the lack of competition, plenty of natural monopolies have been infamous for their mistreatment of their customers. There’s a reason for regulation of monopolies, and it isn’t due to their ability to supply what people want. ---
**Author:** ![Grumman](https://avatars.discourse-cdn.com/v4/letter/g/43a26b/32.png) [@Grumman](https://boards.straightdope.com/u/Grumman)\ **Post date:** [April 5, 2009, 8:46am UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/62 "2009-04-05T08:46:54Z")
> [@Evil\_Economist](#): > > Sounds good. So, what percentage of markets/industries will require regulation? Once again, you are missing the point. The goal is not to decide that certain industries require absolutely no regulation, it’s to decide that certain _types_ of regulation are not required, for _any_ industry. ---
**Author:** ![Evil\_Economist](https://avatars.discourse-cdn.com/v4/letter/e/c89c15/32.png) [@Evil\_Economist](https://boards.straightdope.com/u/Evil_Economist)\ **Post date:** [April 5, 2009, 9:05am UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/63 "2009-04-05T09:05:58Z")
> [@Evil\_Economist](#): > > Sounds good. So, what percentage of markets/industries will require regulation? > > I know, lets play a game; we’ll list some industries and you explain how well they will function in the absence of regulation. Here, I’ll start: > > Foodstuffs > Insurance > Banking > Automobile > Medicine > > Sounds utopian. Do we have any examples of countries that function this way? If not, why not? If so, how’s life there compared to the comparitively more heavily regulated northern European countries. For fun, compare the quality of life in your utopia to the quality of life in, say, the Netherlands. Where would you rather live? Why? Ignore this, I was responding to what I thought you said, not what you actually said. ---
**Author:** ![Ocean\_Annie](https://avatars.discourse-cdn.com/v4/letter/o/8797f3/32.png) [@Ocean\_Annie](https://boards.straightdope.com/u/Ocean_Annie)\ **Post date:** [April 5, 2009, 9:07am UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/64 "2009-04-05T09:07:41Z")
> [@Sam\_Stone](#): > > There is simply no evidence that this is true, either for a free market economy OR for a natural ecosystem. You continually make assertions like this with no substantiation whatsoever. If you want to make this claim, it’s up to you to back it up. It is clear today. Thirty years of a philosophy based on market freedom brought us a catastrophic financial collapse. It was clear in the 1929 crash. Perhaps you need to provide an example of this great free market system you pontificate. Show me a successful laissez-faire economy. Support your ecosystem comparison. I can immediately point to two recent economic disasters in American history. Where is your example? > [@Sam\_Stone](#): > > Really? It should be easy to provide some examples, then. Without just hand-waving about ‘robber barons’. > > Also, you need to distinguish between coercive monopolies and natural monopolies. . I am not waving robber barons, In fact, I have never used the term. It’s not a term I would use to describe the situation today. I would call it perverse crony capitalism --corruption, not robber baron. I didn’t realize it was necessary to define the terms but I will from now on to avoid confusion. > [@](#): > > I would like examples of capitalist systems that, without government interference, devolved into a state of monopoly or oligarchy such that prices were maintained higher than what the market would otherwise determine. Since you claim that this happens all the time, there must be many such examples. The economy today is a clear example of the culmination of thirty years of a neoliberal, free market, economic philosophy. The nineteenth century unregulated market gave rise to the industrialists and massive inequality and enormous wealth defined by the Gilded Age. This is another laissez-faire economy. There was an initial market scare in the late nineteenth century but speculation, leverage, and an unregulated financial market finally came to a crashing halt in 1929. There is no free market today. It doesn’t exist. Why? The government subsidizes industry (Cabela’s, Wal-Mart, pharmaceuticals, Health Insurance, CSX). The market is dominated by oligopolies (media, telecom), monopolistic competition (cereal), abuse of eminent domain (Kelo v. City of New London), government influence (Jack Abramoff), cronyism (Halliburton), corporate corruption (Enron, World Com, financial industry,) etc. This is how the unregulated market and fiscal policy advocated by free market, small government capitalists ended. This is precisely the free market without laws and rules to govern behavior. A few people got astronomically rich and gained access to power, dictated policy, gambled and lost, and now spend the treasury. How can the unregulated free market possibly be defended? I know You have indicated support for regulation that helps eliminate fraud, provides transparency and consumer information. > [@Sam\_Stone](#): > > This is a silly argument. You could just as easily say, “If laws are a form of social control, and used to control almost every behavior, why can’t we have laws preventing people from leaving their homes without government approval? Why can’t we have laws preventing you from having more than one child? Why can’t we have laws telling you what kind of job you can have?” You think it is a silly argument, but I consider it a valid argument. Incidentally, there is a law that limits a person from leaving his home. It’s called house arrest. The government could easily enforce it arbitrarily. > [@](#): > > The answer is because we are not a tyranny, and therefore state power is supposed to be limited. The state being what it is, it will always push the boundaries of those limits, and it will have plenty of enablers in the populace who are willing to give up their rights or the rights of others for some supposed social benefits. But luckily so far, state power is not absolute. Laws intended to control behavior to protect the public are not tyrannical. Laws intended to suppress the public to protect government are tyrannical. > [@Sam\_Stone](#): > > It’s unpredictable, but that doesn’t means it’s chaotic or anarchistic. I never said or implied the unpredictable market is anarchism. I am referring to the notion that a free market with minimal government leads to shared power among groups --to paraphrase. > [@Sam\_Stone](#): > > See, then you go and throw around completely unsupported statements like that, and it’s hard to take your arguments seriously. Really? The threat of force is the best way to shape corporate culture? Have you even thought that statement through? God help me if I ever have to live in a world where the main force in shaping corporate culture is the law. > > You have it exactly backwards. The main force shaping corporate culture is the _market_. There is no question about it. I will agree that a highly competitive free market with multiple producers is a market force for behavior, but this isn’t the U.S. economy. You can scoff at my comment, but when you compare Japanese and American corporate culture something besides the market determines behavioral differences. Japanese auto competes and pays a high wage. Taxes to fund healthcare don’t impede on their economic freedom as defined in the U.S. ---
**Author:** ![Sam\_Stone](https://avatars.discourse-cdn.com/v4/letter/s/ecccb3/32.png) [@Sam\_Stone](https://boards.straightdope.com/u/Sam_Stone)\ **Post date:** [April 5, 2009, 9:10am UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/65 "2009-04-05T09:10:06Z")
> [@Evil\_Economist](#): > > A natural monopoly is one in which the structure of the market prevents competitors. It can be due to entry costs or economies of scale, or other things. Due to the lack of competition, plenty of natural monopolies have been infamous for their mistreatment of their customers. There’s a reason for regulation of monopolies, and it isn’t due to their ability to supply what people want. Yes, I know that. I just cited Microsoft Windows as an example, which for years was touted as a natural monopoly under the theory that there was only one room for an operating system, because compatibility was important. So it was a winner-take-all race, and Microsoft won. For a long time, this was used to claim that Microsoft should be broken up, that it was using its monopoly power to pad its profits and that no one else could compete because the market was already closed. But it’s not working out that way. Microsoft is under serious attack from not just Linux, but from dedicated devices, internet applications, and other means of computing. That’s why I was saying that many natural monopolies really are only ‘natural’ because they provide something so well no one else can compete. But I also said it’s probably a poor use for the term, because there are cases where I can see that it would be coercive. And I would consider it a valid use of government power to regulate or force competition in cases where there could be only one winner, such as a railroad going through a town. ---
**Author:** ![Stratocaster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/stratocaster/32/16393_2.png) [@Stratocaster](https://boards.straightdope.com/u/Stratocaster)\ **Post date:** [April 5, 2009, 9:35am UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/66 "2009-04-05T09:35:43Z")
> [@Evil\_Economist](#): > > Yes, I do think it said something different. I think it said that the relationship was statistically significant but the absolute value of the coefficient was small. That’s my reading of the words _confirm_ and _weak_. If they meant that the realtionship was statistically insignificant, don’t you think they would have said so? That finding would directly contradict fifty years of economics studies, and would probably be worth mentioning. They said this: > [@](#): > > While the results confirm a negative link between initial income inequality and subsequent growth, they suggest that this relationship is not very strong. Your cite’s words. I’m no economist, but this doesn’t seem ambiguous. > [@](#): > > 1. Exactly. This is my point. It is, if your point is that the difference is attributable to something other than economic inequality. > [@](#): > > 1. This doesn’t hurt my point. Of course it does. It says their stats don’t support your thesis, though they believe they can explain why. > [@](#): > > 1. This strengthens my point. Perhaps. Their plug of a “democracy effect” seemed one of the more egregious examples of attempting to explain stats that don’t support their contention, but it was mind-numbingly dull and reading it again might cause me to go insane. > [@](#): > > 1. But the coefficient is still statistically significant, so my point stands. Their words, in plain English, do not say what you want it to. Sorry. > [@](#): > > The proper way to put me in my place would be to get on Google Scholar yourself and pull out all those papers that list all the positive effects of income inequality, and then cite them right back at me. P.s. If you can’t find any, that might be meaningful. No, the proper way is for the person making the contention–that would be you–to support something they are offering as a given. I am not obliged to cite anything since I’m not making any assertion. I’m just reading your delightful cites and reporting on what I read. > [@](#): > > Two academic papers say similar things, cite similar sources, and even cite each other? There’s probably a conspiracy here. No, it means that you’re retreading the same paper in different forms. > [@](#): > > Only if you assume that weak means statistically insignificant. But that raises the question of why they didn’t just say statistically insignificant in the first place. It’s probably meaningful that they didn’t. What are you, an econ undergrad? Good for you. Let’s not get tied up in semantical confusion. Significance means that the statistic is reliable, weak means it’s not terribly important. How’s that? > [@](#): > > No one will ever read my third cite. I know I’m going to wait for the movie. ---
**Author:** ![Evil\_Economist](https://avatars.discourse-cdn.com/v4/letter/e/c89c15/32.png) [@Evil\_Economist](https://boards.straightdope.com/u/Evil_Economist)\ **Post date:** [April 5, 2009, 10:27am UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/67 "2009-04-05T10:27:48Z")
> [@Stratocaster](#): > > I’m no economist, but this doesn’t seem ambiguous. It must be ambiguous, or there wouldn’t be disagreement on what they meant. > [@](#): > > It is, if your point is that the difference is attributable to something other than economic inequality. Wrong. Read the quote (which _you_ posted): “There is a positive association between equality and growth.” Now\* that’s\* unambiguous! > [@](#): > > Of course it does. It says their stats don’t support your thesis, though they believe they can explain why. Wrong again. Unless we _are_ talking about Somalia. Or is the U.S. a poor country now? > [@](#): > > No, the proper way is for the person making the contention–that would be you–to support something they are offering as a given. […]I am not obliged to cite anything since I’m not making any assertion. I’m just reading your delightful cites and reporting on what I read. I have more than supported my contention, which is that there is a negative relationship between income inequality and economic growth. I have provided peer-reviewed cites which state explicitly that there is a statistically significant negative relationship between income inequality and economic growth. Despite your nitpicks, you have not countered this point. You are now the one making a positive assertion, that my cites do not apply to the U.S. Seems like that’s the sort of thing economists could make a career demonstrating, so why don’t you go find some cites. No, wait, I bet you’ll find some excuse not to do this. I’m preparing my surprised face in anticipation. > [@](#): > > No, it means that you’re retreading the same paper in different forms. No, it means that experts in the field have reached consensus on the issue. That consensus directly contradicts your opinion. If you feel like making a positive assertion to the contrary, well, see above re: cites. > [@](#): > > What are you, an econ undergrad? Ah, an _ad hominem_. Does this mean you’ve conceded the point? > [@](#): > > Significance means that the statistic is reliable, weak means it’s not terribly important. How’s that? Significant is all I care about, so if you’ve conceded that then you’ve conceded the point. See for example [my earlier post](http://boards.straightdope.com/sdmb/showpost.php?p=11005897&postcount=45). > [@](#): > > I know I’m going to wait for the movie. I was making the point that there was no third cite in my post, and was gently chiding you for your reading comprehension. Perhaps I was being too subtle. P.s., how the hell do I get my reply to include nested quotes? ---
**Author:** ![Stratocaster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/stratocaster/32/16393_2.png) [@Stratocaster](https://boards.straightdope.com/u/Stratocaster)\ **Post date:** [April 5, 2009, 10:47am UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/68 "2009-04-05T10:47:51Z")
> [@Evil\_Economist](#): > > I have more than supported my contention, which is that there is a negative relationship between income inequality and economic growth. I have provided peer-reviewed cites which state explicitly that there is a statistically significant negative relationship between income inequality and economic growth. Despite your nitpicks, you have not countered this point. But I have, since my only contention is that the significance is not “incredibly powerful,” as you’re implying. It is WEAK, which your own cite documented. That’s not my opinion, that’s your cite. And it’s not a nitpick, it deflates your whole point. > [@](#): > > Does this mean you’ve conceded the point?Significant is all I care about, so if you’ve conceded that then you’ve conceded the point. See for example [my earlier post](http://boards.straightdope.com/sdmb/showpost.php?p=11005897&postcount=45). Concede what? Here’s here [a cite](http://www.statpac.com/surveys/statistical-significance.htm) that may explain better my point: > [@](#): > > What does “statistical significance” really mean? > > Many researchers get very excited when they have discovered a “statistically significant” finding, without really understanding what it means. When a statistic is significant, it simply means that you are very sure that the statistic is reliable. It doesn’t mean the finding is important or that it has any decision-making utility. > > For example, suppose we give 1,000 people an IQ test, and we ask if there is a significant difference between male and female scores. The mean score for males is 98 and the mean score for females is 100. We use an independent groups t-test and find that the difference is significant at the .001 level. The big question is, “So what?”. The difference between 98 and 100 on an IQ test is a very small difference…so small, in fact, that its not even important… To say that a significant difference or relationship exists only tells half the story. We might be very sure that a relationship exists, but is it a strong, moderate, or weak relationship? After finding a significant relationship, it is important to evaluate its strength. So, your cite indicating a weak relationship is not, per se, “incredibly powerful.” In fact, if we are to infer anything on its face, it would be exactly the opposite. You want “statistically significant” to mean “significant.” It doesn’t. > [@](#): > > I was making the point that there was no third cite in my post, and was gently chiding you for your reading comprehension. Perhaps I was being too subtle. Very subtle indeed. Third cite in this thread, not in that post. > [@](#): > > P.s., how the hell do I get my reply to include nested quotes? Think about the tags as opening and closing parentheses, that helps me. If you establish a start tag, that “loop” stays open until there are an equal number of end tags. ---
**Author:** ![Evil\_Economist](https://avatars.discourse-cdn.com/v4/letter/e/c89c15/32.png) [@Evil\_Economist](https://boards.straightdope.com/u/Evil_Economist)\ **Post date:** [April 5, 2009, 10:55am UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/69 "2009-04-05T10:55:29Z")
> [@Evil\_Economist](#): > > Significant is all I care about, so if you’ve conceded that then you’ve conceded the point. To reply to myself, actually, this isn’t true. Income inequality is associated with a whole host of social ills. The traditional layman’s argument in favor of income inequality is that it is either the result of or the cause of faster economic growth. If it is the case that inequality drives growth, then an argument can be made that the social ills are worth tolerating because the economic benefit justifies them (the “you’ve got to break some eggs to make an omlet” argument). The only way this argument has any force at all is if there is a strong positive relationship between inequality and growth. If there isn’t a strong relationship, then you’re bearing all the associated social evils of inequality for no benefit. Given this, my opinion is that any analysis that doesn’t find a strong positive relationship between inequality and growth is an argument in favor of reducing inequality. Now, if you can show a weak positive relationship between the two, then there’s some room for argument. We can have a reasoned discussion over how much human misery we should trade for an additional 0.1% of GDP growth. But all the available evidence says that there’s no positive relationship, and that by increasing inequality we’re actually slowing down economic growth. So you’re left with nothing. Income inequality is a pure economic bad. It has no positive effects at all. ---
**Author:** ![Evil\_Economist](https://avatars.discourse-cdn.com/v4/letter/e/c89c15/32.png) [@Evil\_Economist](https://boards.straightdope.com/u/Evil_Economist)\ **Post date:** [April 5, 2009, 11:38am UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/70 "2009-04-05T11:38:02Z")
> [@Stratocaster](#): > > But I have, since my only contention is that the significance is not “incredibly powerful,” as you’re implying. It is WEAK, which your own cite documented. That’s not my opinion, that’s your cite. And it’s not a nitpick, it deflates your whole point. OK, now you’re just misrepresenting my words. Go back and re-read my post. Also read [this post](http://boards.straightdope.com/sdmb/showpost.php?p=11007484&postcount=69). At no point did I say that it was the statistical significance that was “incredibly powerful.” As I thought I made clear, what’s incredibly powerful is the _idea_ that _inequality doesn’t drive economic growth_. Notice the complete absence of the words statistical or significant in the preceding sentence. There’s an idea that income inequality should be tolerated because it speeds economic growth. That idea has driven some incredibly destructive policies in a number of countries. By destroying the idea that inequality drives growth, you are destroying the justification for the policies. It’s the destruction of that idea that’s powerful. Now, the economic studies that test whether income inequality is negatively related to growth–there statistical significance is important. But whether it’s weak or strong, so long as the relationship is negative, my point stands. To be honest, if the relationship is weak my opinion is that point stands whether the relationship is positive or negative; only a strong positive relationship could justify enduring the problems associated with high income inequality. > [@](#): > > Concede what? Here’s here [a cite](http://www.statpac.com/surveys/statistical-significance.htm) that may explain better my point: This is odd; you were the one who brought the idea of testing statistical significance into this discussion, and now that that’s working against you, you’re trying to bring it right back out. > [@](#): > > You want “statistically significant” to mean “significant.” It doesn’t. Again, you were the one who wanted to test statistical significance, and now you’re saying that that’s not enough? Is that what they call moving the goalpost? As I think I’ve made clear, significance isn’t important. The only counter to my argument that I can see is to show that the relationship is significant _and_ positive. Any other outcome supports my point. (You could also show that there’s some other benefit to income inequality that I’ve overlooked, and then we can weigh that against the negatives, but you haven’t done that) Also, I noticed that you didn’t bring any cites to the discussion. Weren’t you going to prove that income inequality drives growth in the U.S.? Try searching titles in Google Scholar; I hear that works. > [@](#): > > Think about the tags as opening and closing parentheses, that helps me. If you establish a start tag, that “loop” stays open until there are an equal number of end tags. When I press Reply to Post it only brings up the last person’s post, not the quotes that they were responding to. Any way to bring them both up? ---
**Author:** ![Stratocaster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/stratocaster/32/16393_2.png) [@Stratocaster](https://boards.straightdope.com/u/Stratocaster)\ **Post date:** [April 5, 2009, 11:55am UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/71 "2009-04-05T11:55:53Z")
Your position is clearer now since your prior post. You believe the disadvantages of economic inequality are so self-evident and so severe, that only a positive relationship (one significantly strong) with economic growth could support such a circumstance. I took your position to mean that the relationship between income equality and growth implied that equality would lead to greater growth. What I believe you’re saying is that the absence of growth means we should move toward equality, and this is simply axiomatic for you. Is that right? A couple of things. First, this has nothing, really, to do with the OP’s proposal, which is that executive compensation, by itself, somehow is associated with the current economic meltdown, that a cap would produce some economic benefit. Your contention, I assume, would have been the same last April, before the meltdown, since the inequality existed then, offended your sensibilities I’m sure, and possessed the same statistical relationship with economic growth (nothing strong). My position is different. I don’t believe economic inequality is good or bad–it is merely the result of free markets and individual contributions. Since there is no strong relationship with economic growth and either the existence or absence of income equality, it remains irrelevant to the discussion for me. If income equality does not produce an economic benefit–it does not appear to, not in the form of growth–then it’s not relevant in a discussion regarding exec comp caps and the effect it will have on economic growth or collapses. It appears it will have none, whatever ancillary benefits you seem to think it will produce. Second, why do you believe that only economic growth could be argument enough for the sort of economic inequality that exists in this country, particularly when you have made it an argument broader than economic effects? What if inequality does not lead to economic growth (similar to how equality does not) but it maximizes individual freedom? > [@](#): > > When I press Reply to Post it only brings up the last person’s post, not the quotes that they were responding to. Any way to bring them both up? Not that I’m aware of. I just do a lot of messy copying and pasting. ---
**Author:** ![Ocean\_Annie](https://avatars.discourse-cdn.com/v4/letter/o/8797f3/32.png) [@Ocean\_Annie](https://boards.straightdope.com/u/Ocean_Annie)\ **Post date:** [April 6, 2009, 12:10am UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/72 "2009-04-06T00:10:00Z")
> [@Sam\_Stone](#): > > Perhaps you could explain Hong Kong then? At the end of WWII, Hong Kong was dirt poor. Its population wasn’t well educated, and it had an open borders policy where poor immigrants were allowed to come and work wherever they could. The British governor of Hong Kong established an explicit laissez-faire policy towards the Hong Kong economy. Taxes were capped at 15%, businesses could be formed by filling out a one-page form There were no tariffs, no subsidies, and no government borrowing was allowed. > > Hong Kong has the highest per-capita income in the world today. It has its share of monopolies - all of them state sanctioned. In its wide-ranging laissez-faire economy, monopoly power did not take over. Hong Kong is not a free market. It is notorious for a market controlled by oligopolies and monopolies. In fact, Hong Kong is considered one of the worst rigged markets in the world ( [Link](http://tbm.thebigmoney.com/articles/judgments/2008/10/22/fantasy-island)[Link](http://www.thestandard.com.hk/news_detail.asp?we_cat=5&art_id=53674&sid=15430552&con_type=3&d_str=20070919&fc=8)). Hong Kong has an autocratic government and never had a democracy. To Hong Kong, you, and the Heritage Foundation since it rated Hong Kong the most economically free, laissez-faire means there are no real labor laws, no minimum wage standard, and with the exception of civil servants, no limit on work hours. There is no state pension or unemployment insurance. Hong Kong has the worst inequality in Asia with a [Gini Coefficient Index](https://www.cia.gov/library/publications/the-world-factbook/fields/2172.html) on par with Chili and Brazil. On the bright side, no one was tied to rail tracks and dropped from airplanes in Hong Kong. Since 1986, the poverty rate has doubled in Hong Kong. The working poor have doubled in the last ten years. Fifty-five percent of children live in families receiving meager assistance. The elderly, women and children have the the largest poverty rates. Schools are privatized with state subsidized vouchers that don’t always cover the entire tuition and never cover supplies. Not surprisingly, Hong Kong ranks 67th in the world for literacy. It is easy to praise Hong Kong as a great success when you live in a democracy with universal public education, labor laws, and quality health care. You don’t have to live with this[reality](http://www.reuters.com/news/pictures/rpSlideshows?articleId=USRTXD0W6#a=1). But, hey, maybe you feel it is perfectly acceptable for poor people to live in cages. [Link](http://www.forbes.com/feeds/afx/2007/09/16/afx4121687.html) [Link](http://en.wikipedia.org/wiki/List_of_countries_by_literacy_rate) [Link](http://povertynewsblog.blogspot.com/2007/09/one-fifth-of-hong-kong-people-live-in.html) ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [April 6, 2009, 3:27am UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/73 "2009-04-06T03:27:45Z")
> [@Ocean\_Annie](#): > > Hong Kong is not a free market. It is notorious for a market controlled by oligopolies and monopolies. In fact, Hong Kong is considered one of the worst rigged markets in the world ( [Link](http://tbm.thebigmoney.com/articles/judgments/2008/10/22/fantasy-island)[Link](http://www.thestandard.com.hk/news_detail.asp?we_cat=5&art_id=53674&sid=15430552&con_type=3&d_str=20070919&fc=8)). > > Hong Kong has an autocratic government and never had a democracy. To Hong Kong, you, and the Heritage Foundation since it rated Hong Kong the most economically free, laissez-faire means there are no real labor laws, no minimum wage standard, and with the exception of civil servants, no limit on work hours. There is no state pension or unemployment insurance. Hong Kong has the worst inequality in Asia with a [Gini Coefficient Index](https://www.cia.gov/library/publications/the-world-factbook/fields/2172.html) on par with Chili and Brazil. On the bright side, no one was tied to rail tracks and dropped from airplanes in Hong Kong. > > Since 1986, the poverty rate has doubled in Hong Kong. The working poor have doubled in the last ten years. Fifty-five percent of children live in families receiving meager assistance. The elderly, women and children have the the largest poverty rates. > > Schools are privatized with state subsidized vouchers that don’t always cover the entire tuition and never cover supplies. Not surprisingly, Hong Kong ranks 67th in the world for literacy. > > It is easy to praise Hong Kong as a great success when you live in a democracy with universal public education, labor laws, and quality health care. You don’t have to live with this[reality](http://www.reuters.com/news/pictures/rpSlideshows?articleId=USRTXD0W6#a=1). But, hey, maybe you feel it is perfectly acceptable for poor people to live in cages. > > [Link](http://www.forbes.com/feeds/afx/2007/09/16/afx4121687.html) > [Link](http://en.wikipedia.org/wiki/List_of_countries_by_literacy_rate) > [Link](http://povertynewsblog.blogspot.com/2007/09/one-fifth-of-hong-kong-people-live-in.html) Libertarian paradise. ---
**Author:** ![Whack-a-Mole](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/whack-a-mole/32/141_2.png) [@Whack-a-Mole](https://boards.straightdope.com/u/Whack-a-Mole)\ **Post date:** [April 6, 2009, 3:35pm UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/74 "2009-04-06T15:35:25Z")
> [@Stratocaster](#): > > A couple of things. First, this has nothing, really, to do with the OP’s proposal, which is that executive compensation, by itself, somehow is associated with the current economic meltdown, that a cap would produce some economic benefit. My premise is not that merely getting paid a lot hurts the economy as such but that the incentives were improperly pointed to cause executives to make very bad decisions that were not healthy for the long-term, sustainable growth of their companies. Instead they had staggering sums of money offered to them which saw them make very short term decisions which would spike profits, and thus their compensation, but were unsustainable in the long run and collapsed. My proposal is a means to hitch executive salaries to the actual health of the company which, I believe, is most directly reflected in the number of workers they hire and those worker’s wages. > [@](#): > > I don’t believe economic inequality is good or bad–it is merely the result of free markets and individual contributions. Since there is no strong relationship with economic growth and either the existence or absence of income equality, it remains irrelevant to the discussion for me. If income equality does not produce an economic benefit–it does not appear to, not in the form of growth–then it’s not relevant in a discussion regarding exec comp caps and the effect it will have on economic growth or collapses. It appears it will have none, whatever ancillary benefits you seem to think it will produce. Well, try this: > [@](#): > > The stark contrast between the whiz-bang Clinton years and the dreary Bush years is familiar because it is so recent. But while it is extreme, it is not atypical. Data for the whole period from 1948 to 2007, during which Republicans occupied the White House for 34 years and Democrats for 26, show average annual growth of real gross national product of 1.64 percent per capita under Republican presidents versus 2.78 percent under Democrats. > > That 1.14-point difference, if maintained for eight years, would yield 9.33 percent more income per person, which is a lot more than almost anyone can expect from a tax cut. > > \ > > It is well known that income inequality in the United States has been on the rise for about 30 years now — an unsettling development that has finally touched the public consciousness. But Professor Bartels unearths a stunning statistical regularity: Over the entire 60-year period, income inequality trended substantially upward under Republican presidents but slightly downward under Democrats, thus accounting for the widening income gaps over all. > > \ > > The accompanying table, which is adapted from the book, tells a remarkably consistent story. It shows that when Democrats were in the White House, lower-income families experienced slightly faster income growth than higher-income families — which means that incomes were equalizing. In stark contrast, it also shows much faster income growth for the better-off when Republicans were in the White House — thus widening the gap in income. > > SOURCE: [http://www.nytimes.com/2008/08/31/business/31view.html?\_r=1](http://www.nytimes.com/2008/08/31/business/31view.html?_r=1) ---
**Author:** ![Stratocaster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/stratocaster/32/16393_2.png) [@Stratocaster](https://boards.straightdope.com/u/Stratocaster)\ **Post date:** [April 6, 2009, 10:51pm UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/75 "2009-04-06T22:51:55Z")
> [@Whack-a-Mole](#): > > My premise is not that merely getting paid a lot hurts the economy as such but that the incentives were improperly pointed to cause executives to make very bad decisions that were not healthy for the long-term, sustainable growth of their companies. Instead they had staggering sums of money offered to them which saw them make very short term decisions which would spike profits, and thus their compensation, but were unsustainable in the long run and collapsed. My proposal is a means to hitch executive salaries to the actual health of the company which, I believe, is most directly reflected in the number of workers they hire and those worker’s wages. > > Well, try this: What leads you to conclude that executive comp led to the poor decisions that were made? The government has a legitimate interest in regulating self-evidently poor practices, meaning those decisions that _directly_ lead to significant public concerns. Why does the government get any say in how a corporation (who is governed by its stockholders) wants to pay its execs? Point to the direct action that needs to be regulated. Speculating as to what might trigger that decision is, well, speculative and not the province of the government of a free people. Someone is selling credit default swaps without sufficient reserves? Establish stricter reserve requirements. You think they did it only to pump up their personal wealth? Establish stricter reserve requirements. But the janitor in the home office only makes the minimum wage while the CEO makes millions, and you believe this is symptomatic of the philosophy that led to the CDS mess. Establish stricter reserve requirements. It is NOT the government’s role to decide what the best management philosophy is, except to the extent that they have a legitimate interest in regulating activity that directly results in a public concern. And as to your cite, I will readily concede that Dems, with their proclivity to tax the wealthy, have tended toward an artificial income equality. Why that is a good thing is where the real debate begins, however. ---
**Author:** ![Whack-a-Mole](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/whack-a-mole/32/141_2.png) [@Whack-a-Mole](https://boards.straightdope.com/u/Whack-a-Mole)\ **Post date:** [April 7, 2009, 1:38am UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/76 "2009-04-07T01:38:12Z")
> [@Stratocaster](#): > > What leads you to conclude that executive comp led to the poor decisions that were made? The government has a legitimate interest in regulating self-evidently poor practices, meaning those decisions that _directly_ lead to significant public concerns. Why does the government get any say in how a corporation (who is governed by its stockholders) wants to pay its execs? Point to the direct action that needs to be regulated. Speculating as to what might trigger that decision is, well, speculative and not the province of the government of a free people. This leads me to that conclusion: > [@](#): > > KB Home (KBH) had an abysmal year, losing $929 million on revenue of $6.4 billion. Shareholders also suffered from the home builder’s anemic performance, as the company’s share price dropped from $53 last February to the high teens by November. > > But CEO Jeffrey Mezger weathered the storm. In addition to his $1 million base salary, he was awarded a $6 million cash bonus for 2007. In explaining the bonus, the board of KB Home said Mezger exceeded the objectives set for him, which included strengthening the company’s balance sheet and rebuilding the senior management team. > > \ > > Two years ago, the pay packages that stirred the loudest outrage were the ones granted to Bob Nardelli, former CEO of Home Depot (HD), and Hank McKinnell, former CEO of Pfizer (PFE). > > Both men were ousted from their jobs in 2006 following mediocre performances, but both walked off into the sunset with nearly $200 million in severance packages. > > \ > > Shareholders paid dearly for the bad decisions and inadequate risk-management practices on Wall Street as bank stocks plummeted. How did the executives responsible for this mess fare? > > •At Citigroup (C), CEO Charles Prince was forced out in November, but on his way out the door, the board gave him a bonus of $10 million. He was also allowed to keep $28 million worth of unvested restricted stock and options, and was granted $1.5 million in annual perks. > > •At Merrill Lynch (MER), CEO E. Stanley O’Neal resigned in October. Although he didn’t receive any special bonus or severance, he walked away with a $161 million package, consisting mostly of stock and options that he had earned through the course of his career at Merrill. > > \ > > According to Mark Van Clieaf, who runs compensation consultancy MVC Associates, the 12-month pay period makes no sense. “In a one-year period, anyone can make the numbers look good,” he says. > > SOURCE: [http://www.usatoday.com/money/companies/management/2008-04-09-ceo-pay\_N.htm](http://www.usatoday.com/money/companies/management/2008-04-09-ceo-pay_N.htm) As noted in the OP Boards have _not_ restricted this horror show. That despite it being a subject of debate even years ago. Shareholders have _not_ reigned these whacked-out incentive plans. Now, you could well say that it is their own problem and if they allow poor CEOs at the helm and that CEO sinks the ship the shareholders feel the pain. I’d agree with that if it wasn’t MY tax money going to bail these guys out. IMO it becomes a matter of government interest when they start taking MY tax money to save these disasters. When incentives payout big time for short-term spikes then is it a surprise that the CEOs deliver short term spikes? > [@](#): > > And as to your cite, I will readily concede that Dems, with their proclivity to tax the wealthy, have tended toward an artificial income equality. Why that is a good thing is where the real debate begins, however. Read the cite more closely. The very wealthy actually did better under the democrats too. Perhaps they were taxed more but a healthier and more vibrant economy also saw them prosper more. On balance they are no worse off under Democratic leadership than Republican ones (economically) while the poor and middle class are decidedly better off under the Democrats. I am reasonably certain “trickle down” economics has been shown to be the Voodoo Economics George Bush called it. > [@](#): > > The past three decades have seen a momentous shift: The rich became vastly richer while working-class wages stagnated. Economists say 80 percent of net income gains since 1980 went to people in the top 1 percent of the income distribution, boosting their share of total income to levels unseen since before the Great Depression. > > SOURCE: [http://www.nytimes.com/2008/04/27/magazine/27wwln-idealab-t.html?ref=magazine](http://www.nytimes.com/2008/04/27/magazine/27wwln-idealab-t.html?ref=magazine) So, with that in mind look around and tell me, how is the economy going these days? ---
**Author:** ![Evil\_Economist](https://avatars.discourse-cdn.com/v4/letter/e/c89c15/32.png) [@Evil\_Economist](https://boards.straightdope.com/u/Evil_Economist)\ **Post date:** [April 7, 2009, 8:22am UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/77 "2009-04-07T08:22:05Z")
> [@Stratocaster](#): > > Second, why do you believe that only economic growth could be argument enough for the sort of economic inequality that exists in this country, particularly when you have made it an argument broader than economic effects? What if inequality does not lead to economic growth (similar to how equality does not) but it maximizes individual freedom? Could you define individual freedom for me in the context of income inequality? Is it the freedom of billionaires to pay a lower effective tax rate than the working poor? I’m not very smart; you’re going to have to explain to me how this is a good thing. Please use small words. ---
**Author:** ![Stratocaster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/stratocaster/32/16393_2.png) [@Stratocaster](https://boards.straightdope.com/u/Stratocaster)\ **Post date:** [April 7, 2009, 10:29am UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/78 "2009-04-07T10:29:04Z")
> [@Whack-a-Mole](#): > > This leads me to that conclusion: > > As noted in the OP Boards have _not_ restricted this horror show. That despite it being a subject of debate even years ago. Shareholders have _not_ reigned these whacked-out incentive plans. > > Now, you could well say that it is their own problem and if they allow poor CEOs at the helm and that CEO sinks the ship the shareholders feel the pain. I’d agree with that if it wasn’t MY tax money going to bail these guys out. > > IMO it becomes a matter of government interest when they start taking MY tax money to save these disasters. When incentives payout big time for short-term spikes then is it a surprise that the CEOs deliver short term spikes? Your tax money gives you the right to regulate the behavior that created the mess, not to install some speculative social experiment that you think will create some new paradigm that will motivate different behavior. I do indeed react that the board and the shareholders get what they deserve, in that they have the means to control it; and, that said, the government has an interest in limiting the activity that directly causes such havoc. I do NOT attribute the current mess to exec compensation. But that’s my opinion, which is not the issue. The issues are those unregulated acts that directly caused such harm. > [@](#): > > Read the cite more closely. The very wealthy actually did better under the democrats too. Perhaps they were taxed more but a healthier and more vibrant economy also saw them prosper more. On balance they are no worse off under Democratic leadership than Republican ones (economically) while the poor and middle class are decidedly better off under the Democrats. > > I am reasonably certain “trickle down” economics has been shown to be the Voodoo Economics George Bush called it. No, none of us can draw that conclusion. Because something occurred during an administration doesn’t make it attributable to that administration, a logical fallacy both parties have a great deal of affection for. And Clinton reduced the capital gains tax, which increased tax revenue as a result of the expanded investment–or so goes the theory. Economics is not the simple machine people would like it to be. > [@](#): > > So, with that in mind look around and tell me, how is the economy going these days? Is this supposed to be a gotcha? Am I singing the praises of the economy or saying that further regulation is not in order? :dubious: ---
**Author:** ![Stratocaster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/stratocaster/32/16393_2.png) [@Stratocaster](https://boards.straightdope.com/u/Stratocaster)\ **Post date:** [April 7, 2009, 10:31am UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/79 "2009-04-07T10:31:09Z")
> [@Evil\_Economist](#): > > Could you define individual freedom for me in the context of income inequality? Is it the freedom of billionaires to pay a lower effective tax rate than the working poor? I’m not very smart; you’re going to have to explain to me how this is a good thing. Please use small words. Do you believe the effective tax rate has created income inequality? And do you really want to argue from the basis of who carried the lion’s share of the tax burden in this country? (And who does not?) ---
**Author:** ![Stratocaster](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/stratocaster/32/16393_2.png) [@Stratocaster](https://boards.straightdope.com/u/Stratocaster)\ **Post date:** [April 7, 2009, 12:45pm UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/80 "2009-04-07T12:45:49Z")
FYI, traveling on business, back Saturday. Won’t be able to post back to any responses until then. [Previous page](https://boards.straightdope.com/t/cap-executive-pay/491888.md?page=3) [Next page](https://boards.straightdope.com/t/cap-executive-pay/491888.md?page=5)