I’m gettin’ kind of tired of this one, and anyway Evil Captor has pretty much covered all the points I would make. I would add that such things as the recent changes in the bankruptcy laws and the Supreme Court’s recent ruling that local governments can appropriate private property for private developers leave me with little doubt that Big Biz is firmly in charge and aggressively promoting its own interests at the expense of just about everyone else’s.
It takes tremendous naivete to believe that eventually everything will work out for the best if we just sit tight and wait for the Market to do its thing. Sorry if that offends anyone, but I calls 'em like I sees 'em.
Its not BUSINESS’s responsibility, it is government’s responsibility. I guess part of the criticism is that this particular government is a government of the wealthy, by the wealthy and for the wealthy.
There are very few CEO salaries that I am offended by, it is the incentive bonus and stock option structures that offend me, they reward mediocre performance at the expense of the employees, and society as a whole. They encourage risky behaviour by large corporations, they encourage fraud, they encourage avarice.
I used to be a management consultant before going to grad school and I mostly did scut work but I was around when consulting firms were peddling the idea of stock options to “align the intersts of the managers with the owners” Sounds great right? Well we get hired by the managers not the owners, we propose a theoretically sound program but management looks at it and says “WHOA, wait a minute, you want to decrease my salary and replace them with stock options? No way, I’ll find a consultant that will recommend that we maintain my salary and give me stock options” Then those stock options expire worthless after 3 or 4 years and then we get hired by these managers and get paid a lot of money to say that the expiring stock options need to be reset and even more options need to be handed out for the program to work (oh yeah and since these guys didn’t get a bonus these last few years we need to pay a bonus to maintain morale). My conversations with some of the more rambling older consultants ran something like this:
Me: Wow, Mr. Old Timer, these executive compensation packages are really getting high.
Old Timer: Yep, we now have an entire practice devoted to executive compensation and we make gobs from it.
Me: well, how come this all happened, are the CEOs suddenly a lot better than they were 20 yearas ago? Do they work harder?
Old Timer: Nope.
Me: Then what explains this rise?
Old Timer: Marginal tax rates are at historical lows so people want more money because they can keep more of it for doing exactly what they have been doing for the last 20 years.
Me: So what would happen if we went back to a more graduated tax schedule?
Old Timer: CEOs would not really want 100 million dollar compensation packages; they would focus more on long term profitability (because they don’t have a 3 year time horizon for the expiration of their options); they would be more judicious in taking risks (stock options encourage risky behaviour); they would be more likely to act as good corporate citizens and exercise enlightened self interest; the employees of the corporation would be paid more because the money saved on their salaries would no longer translate into money in the pockets of the managers. On the other hand, we are engaging in a globalizing marketplace and maybe we WANT the most ruthless soulless moneygrubbing muthafukkas running our companies because we still have to worry about the Japanese eating our lunch (the Japanese were emerging as the new world power at the time), of course the Japanese have lifetime employment, universal healthcare and a highly managed economy but we have never been hired by a union so that is not the perspective we take.
At the time this Old Timer never imagined that things would get as out of control as they have these days. He would never have imagined that stock options would play a role in companies like Enron engineering their financial statements and end up bankrupt.
I disagree, when a business fails the employees get left holding the bag as well. Since you like to use the Auto industry example (and I can make a lot of arguments for unions despite (and in some cases, because of) the auto industry example) I will used the Enron example, Ken Lay was still rich when he died, many Enron workers have no pension or retirement funds.
I get your point about why labor does not necessarily deserve ownership profits (although I would posit that it is good management practice to gice every employee a sense of ownership in their employer but that’s a different conversation entirely). We are talking about how the wealthy are getting richer in leaps and bounds and the rest of us are slowly drifting down into lower levels of prosperity. We are talking about equitable distribution of production. You tend to cite the free market as the answer to many of the questions, there are more than a few problems with free markets and with economic theory in general especially when it comes to justice and equity. You call people labor and treat them as fungible units of production in a conversation where we are talking about equitable allocation of resources not efficient allocation of resources. You say that free market determines what is equitable because those who are worth more get more and those that cannot extract value from the free market process get less.
I have been tangenetially involved in the selection process (as a grunt) of hiring a new CEO. THere is no marketplace for CEOs where a bunch of companies come to bid up the prices of CEOs. CEOs are either groomed internally or they have to find someone from outside (and that person is not usually considerin multiple offers for CEo positions). CEOs do not susually start off with what I would consider an offensive pay package, this doesn’t happen until the CEO gets entrenched enough to be able to determine his own pay package, then the sky is the limit.
Enron is a pretty bad example, IMHO. First off, its not an indication of how the market works…its an indication that something went wrong. Secondly, its pretty much an isolated incident. Oh, these things happen from time to time…but they are notable because they happen so infrequently. Thirdly, it was a crime.
A better example might be had I said Unions are bad because the mob is involved in rackettering and such…and then countering that industry has examples of illegal things too, like Enron. See?
I understand your point and I don’t want to quibble but taxes get regressive as soon as you hit the social security cap (although this corrects itself as the phaseouts and the accumulated effect of higher tax rates kick in), all sales taxes are regressive but I guess this was not really my point (although I do think we should get rid of the social security cap), my point is that we are not progressive enough. We should be MUCH more progressive.
The USA taxes all citizens and greencard holder on their income no matter where they live. We had marginal tax rates above 80% for most of the post WWII era and people weren’t renouncing their citizenship as far as i know. Besides, where would they go? We also tax capital gains on all assets you owned while a US citizen or resident if you sell it within 10 years.
Relatively speaking? Why else would it matter at all what historical tax rates were? In an absolute sense, we have not had a regressive income tax EVER but reltively speaking, we are more regressive than we used to be. I know that’s not what I said, its what I meant to say.
OK, that’s a reasonable position that can be argued. I might disagree with you, but I wouldn’t call you “wrong”. The reason I responded to your earlier post as I did was because it was factually wrong. If you think your position is the correct one, you shouldn’t have to use factually incorrect arguments to support it.
Absolutely.
Not that you took this position, but I get tired of the lame stereotype of the evil manager who revels in the suffering of his employees. Good managers know that good employees are hard to find and do their best to motivate them. One of the best ways I’ve found to motivate employees is to give them a piece of the action. Out here in Silicon Valley that’s S.O.P. Many companies give all employees (not just managers) an equity position and/or profit sharing plans. As I said above, maybe we should look at a model that uses a Minimum Profit Sharing arrangement instead of a Minimum Wage (or some comination of the two). There are all kinds of creative solution one can come up with-- maybe after a few year’s employment, employees get to select how much of their raises they want in cash and how much they want in profit sharing. I’m no fan of trying to legislate higher wages, but if that must be done let’s not just mindlessly repeat what we’ve done in the past.
How did mob involvement in unions bring about the current situation with the auto industry?
Enron is not an isolated incident but my point in that particular post was not that whacked out executive compensation packages lead to fraud. My point was that when a company fails it is not only those who made the decisions that suffer. The employees have a stake in the success of the company. While I do not believe that employees should necessarily share in ownership returns (although I believe that there is a lot to be said for a broad based stock incentive plans), I do not believe it is accurate to say the owners deserve the most because they risk the most (this may be true in the case of small businesses but it is not as true for large businesses).
We need both for capitalism to work. With the invention of the corporation, we no longer need great individual wealth for capitalism to work but we still need labor. Capital is not a greater factor of production than labor, capital represents concentrated wealth, labor represents human beings. I would think that this fact alone (labor = human beings) argues for any policy that helps labor without negatively impacting the economy. This includes tax brackets up to 50% marginal rates (there are some legitimate arguments for marginal tax brackets in excess of 50%), greater oversight of corporate controls and some SEC rules about reporting executive compensation clearly in the annual report (not in some separately filed addendum report incorporated by reference to the annual report).
My bad I meant to make some reference to relativite regressivity.
I don’t think managers are evil or even that managers are any more heartless and selfish than anyone else, my rant is mostly against executive compensation being totally out of whack compared to the line worker compensation and this makes executive do some evil things that they wouldn’t do if their pay package was more in line with historical norms. I don’t think this thread is supposed to be about MW, it should be higher but if we are talking about the middle class, then, its not really relevant.
When I talk to what I assume are middle class people, they are often in two income households and feel more pressure to invest more in their kids (their local school system sucks so they send their kids to private schools or they send their kids to gymnastics etc.), they are concerned about child care; the cost of education (both pre-college and college); health care costs; funding their retirement. THESE are the things that I think government can do something about, I don’t want government to interfere with the marketplace to give the middle class more money, I want the government to interfere with the marketplace to alleviate these concerns. My impression is that once these concerns are met, the middle class will be better off and will feel that they are better off. The problem is that these things will cost money and when it comes to distributing the costs of governemnt generally, I think we ned far more progressivity than we have.
So move your money, move to a place with no extradition and denouce your citizenship. WWII was a different era, people didn’t put their friends on airplanes to visit them in other parts of the world. Transatlantic phone calls were expensive, and you couldn’t do business over the internet. Most of the rest of the world had poor infrastructure (or war torn infrastructure) that made the U.S. appealing. The global competition for citizens will be big in ten - twenty years.
Friend of mine just moved to the Philipines and declared his intent to be a citizen there.
No, they weren’t renouncing their citizenship, they were just sheltering their wealth from taxes (either offshore or by getting non-cash compensation). 80% tax rates are luicrous and no one these days thinks they are a good idea.
I don’t care so much about what the exact tax rate is (although my preference is for it to be low). What I want is to treat all income as equally as possible, and don’t keep fucking around with the tax code every year. IOW-- don’t use the tax code to try and manage the economy. So, go ahead and tax capital gains at the same rate as regular income, but you have to allow the basis to be adjusted for inflation. If I bought a stock 10 years ago and all it did was keep up with inflation, then it makes no sense to tax me on the gain-- there isn’t any. If everything is taxed at the same rate, there isn’t any motivation to try and shift money or compensation from one form to another except when there is a real reason to do so.
This is the fallacy at the heart of your reasoning. You cannot exclude cases like Enron from how the maket works. Unregulated, the market will inevitably produce Enrons and Triangle Shirtwaist Factory fires and Southeast Asia slave labor factories. In the long term things may work out for the best, but there are process excursions that hurt people. And regulations that try prevent the Lays from this kind of thing also affect those companies who would never do it.
As for Enron, remember the law breaking was done to delay the effects of a broken business model. People at Enron didn’t lose their jobs because the law was broken - many probably kept them longer. Now some investors lost money from buying in while the illegal acts were occuring.
If you consider the market to be this utopia, and the evils that come along with it not really part of the market, I see your devotion to it. But as a society we decided to try to prevent some of this stuff before it happens, and not be satisfied with prosecuting the perpetrators.
I’m sure I could find some correlation if I worked at it. That wasn’t my point though. Also, I never said that Unions were the ONLY problem with the US auto industry. I said that they are a factor…as they are.
We’ll have to agree to disagree then. Enron was, in my book, an anomoly. YMMV.
Having lost my own job (and something a bit over 7 figures in stock) when my company folded during the dot com bust you aren’t telling me anything I don’t know. Certainly employees as well as owners lose out when a company fails…I don’t dispute that. Owners however DO risk the most…as its their capital that makes the business in the first place. And when said business goes tits up, its their capital that is at greatest risk. Employees, at least in theory, can simply move on to another job…while the owners are left with the yard sale, legal actions and all the other messy stuff that goes on when a large business folds.
You don’t think Capital is important in todays business?? Have you ever tried to START a business?? I have. Let me just say…having capital is still kind of important.
Anyway, we are straying from my own point. All I’m saying (in this thread at least) is that this widening gap between rich and everyone else is not a problem that needs fixing IMHO. Workers aren’t entitled to more wages just because a business is doing better. As you pointed out (and as I pointed out earlier), good companies and good managers DO give valued employees incentives to stay, including profit sharing. I’m all for it…in fact, in my company (with all of 50 employees :)) I DO share profits when we have a good year. I DO try and give decent raises as long as things are working well and we are showing a profit. I think these are good things…and I think by and large most good companies do these things (at least most of the ones I worked for in the past). However, employees aren’t ENTITLED to raises, they aren’t ENTITLED to share a companies good fortune. They ARE free to shop their skills around, to take their labor to the highest bidder, to maximize their own return on their labor, etc etc. They ARE free to leave if they feel they are under appreciated, to seek out a company that will appreciate them in monetary or benifit terms, who will share the fruits of the companies success.
My problem is that many in this thread seem to feel its a good thing to force companies to share their profits, that somehow the workers are entitled to more than they originally signed up for simply because a company is showing a profit…while ignoring the fact that companies usually don’t show continuous profits all the time. Yet employees don’t normally take pay cuts whenever a company has a bad quarter or two.
I don’t see the rich plundering the middle class or the poor. I think that this premise pre-supposes the idea that labor is entitled to something that more than they signed up for, or that companies/owners are obligated to share the wealth (without sharing the risks, or sharing the burden when there are downturns) above and beyond the contract agreed upon between an employee and the employer, for no other reason than because of some vague notion that this is ‘right’, and that its ‘wrong’ to make a profit.
I DIDN’T exclude Enron from how the market works. I SAID that Enron was an anomoly (which I might point out was corrected BY the market)…sort of like murder is an anomoly.
I ALSO didn’t say I wanted unregulated markets. Where are you guys getting all this stuff?
Yes? Whats your point? How does this show that the market was at fault? That the market failed? That Enron is indicitative of how most business’s operate? Because that was MY point. If you have a point though feel free to make it.
If you feel that socialism to be a utopia, and that all the evils that come along with it aren’t part of socialism, then I can see your devotion to it.
See? I can build men of straw too! And its SO fun!
Now it is you who are making unwarrented assumptions about me. I am a fan of their current arrangement. And I didn’t notice the US doing so well during the mid-70’s or 80’s and the American boom of the 90’s was partially hollow given that it was based on fraud- which was allowed only by insufficient regulation.
No, I’m the one that cares about people’s welfare. I admire those countries because they take care of their people. I would gladly cut economic growth in half in exchange for an equitable distribution of the benefits accrued.
To me it seems the entire world economy is unstable and I predict there will be recession in next year. Certainly those societies that don’t throw their weak and vulnerable to the wolves will have a tougher time dealing with such troubles but sometimes you just say, “He’s not heavy. He’s my brother.”
Again with the unwarrented assumptions. My concern was not that people participate in the market. Instead it was your assertion that labor was ONLY a market factor. I don’t like anything that dehumanizes people.
You complain about people making assumptions about you and then have the gall to produce this drek?
Rhetorician, heal thyself.
Historically governments have not had success with “planned economies” when competing with market based economies which are, by far, more efficient. Government is not perfect but it is, in theory and partly in practice, responsible to people. Corporations are responsible, in theory and in practice, only for making money and damn those who must pay the externalized costs. My preference for oversight by the former is hardly surprising.
Nope, we weren’t doing all that great in the 70’s either…for much the same reasons. Heavy regulation. I disagree that the pickup of the US economy from the 80’s through the 90’s was based on fraud, but I don’t want to get side tracked.
There is a lot to admire about the Euro’s and how they have picked themselves up from 2 world wars in the last century. They have done good things for their people, and I can certainly understand how folks could wish the US would do similar things wrt the care of the people.
Myself, I definitely would not cut half of our economic growth in exchange for an equitable distribution of the benifits, as I think this would be an economic disaster for the country as a whole. But I conceed that not everyone has the same priorities that I do.
I certainly see this possibility for Europe if they attempt to continue on as they have. France especially I think is very vulnerable to economic instability in the coming decades. I don’t think the US will have a MAJOR recession or economic downturn, but conceed that Bush and his merry men have done everything they can to fuck up the economy for some time to come.
Good point. Apologies. I DID make some assumptions about you there. The irony of me whining about people doing it about me and then me turning around to do it to you is not lost on me either. In my defense, I wasn’t all THAT serious, and as you rightfully pointed out it was mostly rhetoric.
Still, you have my apologies for trying to build your positions out of straw or paint you with an incorrect but broad brush.
I don’t think I would support marginal rates above 50% or so but my point was that even marginal rates above 80% for decades caused a flight of wealthy citizens. Much of the complexity of the tax code is aimed at preventing these sort of shenanigans. You can’t treat all income the same because it isn’t all the same.
