That’s a strawman. People seldom call the rich cheaters by default. It is the execs who get tens of millions of dollars in severance packages after a year of failure, it is big raises when market cap is stagnant or declining, it is bonuses for nearly wrecking the economy, it is big salaries for running a corrupt organization.
If we didn’t have so many examples of these things, the cheating reputation would be much reduced.
Always trotting this out. People get it. People don’t hate that Gates made money, they don’t hate that Jobs made money. They do hate CEOs who screw up getting fired with severance packages more than they and their families would make in several life times, while if they get fired they get nothing - even if they get fired because the big guy screwed up.
Not a 1% rich guy. Especially not GPs, not in the US at least. People don’t hate those making $200K a year that much - more like those making $10 million a year.
While the rich work hard, so do the poor. As we all know, those with great ideas who made money bomb their second time - it is luck to a large extent, not skill. More money than average - sure, even lots more. This much more? Nope.
Do you consider the old mortgage business a scam or not? There is a difference between a company doing work that merits massive payments, and the massive payments coming from skimming off a bit of a really massive deal.
Those who steal $1,000 go to prison. Those who steal $10 million get a slap on the wrist if that and in the very worst of cases get sentenced to spend their unemployment with their severance pay.
Huh?
I’m a partner of an LLC and am paid distributions that are reported on a K1 form. Those distributions are taxed as capital gains with no SS tax or self employment tax. Another portion of my income is declared as “guaranteed payment to partner” and taxed as earned income. I’d love to know how I could pay less tax on my declared earned income!
I perhaps should have said private equity fund, rather than hedge fund, if we want to be technical. From here:
That of course, doesn’t even get into the unfairness of having unearned income taxed at a lower rate than earned income. You can make the case that dividends should have a lower tax rate because a C-Corp is paying income tax. And you can make the case that long-term capital gains need to be taxed differently than short term capital gains, to account for inflation.
But other than that, it’s simply not fair that I have to pay high marginal rates when I work and people who get most or all of their income from unearned income get to pay lower rates (although the ACA put in a surtax which makes it a little less unfair).
It depends on what the goal is. The theory behind lower rates for capital gains is that in general, people can avoid capital gains taxes more easily than taxes on wages. In other words, on the margin, investors can respond to higher rates by choosing to delay selling an investment more easily than wage earners can decide to delay earning their income. setting tax rates on capital gains lower than ordinary income thus sacrifices individual equity in the interest of attempting to maximize overall revenue.
If there’s an upcoming, defined rate change in capital gains tax, then sure, investors will alter their behavior around that. But nobody holds onto capital forever, particularly trading firms, because of market fluctuations or an individual’s investors income needs. I suppose you can circumvent capital gains partially if you hold it forever and then your inheritors get the step-up basis at estate time, but I also question the fairness of the step-up basis.
I will grant that because there are ways to move money off-shore or use certain types of tax shelters to circumvent capital gains taxes, that people would be more likely to do these things if the rate is higher. But, to me, that’s just another level of unfairness. That is, we can’t tax capital gains fairly because of the unfair ways that people can avoid the capital gains tax.
And, all this doesn’t apply to interest payments.
I kind of feel this is starting to be a hijack, so I’ll let the OP weigh in on whether or not it is before I comment further.
I haven’t yet watched the newest episode of Wormhole, but it sounds like the experiment is very similar to the Prisoners dilemma, where everyone is better off if no one cheats, but any individual is better off if he does cheat. The interesting thing with the prisoner’s dilemma is that, for a single instance, it’s always best to cheat, because you’re always better off regardless of what your opponent does. But if you play multiple games, you want to cooperate because if the other player thinks you’re going to cheat, you end up worse off.
The fundamental difference with this experiment is that it seems to get away from that incentive and go toward shaming, but at the end. The problem is, I don’t know how analogous it is to the real world economy because there is no end-state. And now that he’s got more, if you replay more times, there’s no way to ever force him to contribute and not just keep getting richer and richer. In that regard, you can shame him between rounds, and hope that’s enough to get him to contribute or potentially risk getting kicked out of the game if no one wants to play.
The problem I see here, though, is that while some, perhaps even most, people will care about their social standing in shaming, not all will. Ironically, this sort of rule changing could have the opposite effect of making the shameless even richer. For instance, imagine without shaming, half the people contribute nothing, half contribute all, so now all the cooperators get back their $20 and the cheaters get $40. Now we add shaming and the cheaters drop to a quarter, sure the cooperators get $30, but the cheaters get $50. Sure, the cheaters are shamed, but if they don’t care, or at least value that shame less than $20, they end up better off.
And then if you continue from there, everyone else is faced with a difficult dilemma. That is, let’s say we are going to play this game again, even with shaming. Okay, I’ve just seen the people who didn’t contribute, but now if we exclude them, we will make less money than if we include them and hope they contribute this time, or they might just screw us over again. And worse, now that others have seen them do it, might we not just get screwed over by some new people anyway? When we see the state the economy is in, we can’t just exclude the richest people because they’re shameless and have no problem screwing over the rest of us, because they also hold a huge chunk of the wealth. So I just don’t see how shaming would work in the real world. And, unfortunately, I don’t think tit-for-tat would work anymore either, because they are so well off they have no incentive to play the game by our rules if they’ll just keep losing.
In short, I think that’s the issue, sure shaming will work on most people, because most of us do have a utility value on social acceptance. But still some don’t, and most have some price on it.
Why should I get mad if a company wants to pay millions of dollars to a CEO that fails. It neither picks my pocket or breaks my leg. The only people who should be upset are the stockholders of that company. They should be mad because they are the ones paying millions of dollars for failure. Yet they are also the ones who had their representatives hire the CEO. Why would they promise all that money to a CEO if they know there is a possibility for failure, do they not like money? They do it because potential CEOs have a wide variety of options and you have to pay them the market rate to secure the best ones. Private companies with no shareholders pay the same rates as public ones so it is not a principal - agent problem. In a competitive market having a great CEO is a huge advantage it means the difference between Apple as a floundering computer company and Apple as the hugely profitable maker of shiny mobile phones and tablets.
Bernie Madoff stole hundreds of millions and he will be in jail the rest of his life. Who are these people that stole millions and walk away with a slap on the wrist. The operative word is stole, it is perfectly legal to be bad at your job and lose your company millions but who are the people who are stealing money and getting away with it?
FWIW, it probably is, but I think most of the folks answering the OP are done anyway, so feel free to take the discussion in any direction you like. I’m just following along in this one. I thought it would be an interesting topic to discuss when I was watching the show and figured I’d bring it here to see what came out of it.
But I think I’m pointing out a fundamental flaw that’s common in this type of analysis. People act as if the individuals in a system are not part of the system they’re in.
You can’t make a realistic analysis if you’re asking “How should one unique individual act in this situation?” because no individual is unique. You should take the approach “How should every individual act in this situation?” because all of the individuals are in the same situation
In game theory, the question shouldn’t be “Is it better for the individual to cheat or not?” It should be “Is the individual better off or worse off if there is cheating in the system?” They’re both rational approaches (neither is based on morality) but they reach different answers.
Analyze the dollar pool from the “Is it better for the individual to cheat or not?” approach. An individual who asks that question will reason “If I cheat then I keep my own money but I get a share of the money everyone else donates into the pool. So I’m better off if I cheat.” And of course all twenty individuals come up with the same answer to that question. So all of them conclude cheating is the rational response, they all cheat, and nobody gains any money.
Now analyze the dollar pool from the “Is the individual better off or worse off if there is cheating in the system?” approach. An individual who asks that question will reason “I’m better off in a system where dollars are being donated. So I’m better off in a system without cheating.” And again all twenty individuals come up with the same answer to that question. So all of them conclude cheating is not rational, they therefore don’t cheat, and everybody gains a dollar.
But I’m best off (in terms of money received) in a system where I cheat and no one else does. In fact if you knew exactly how everyone else was going to play the game (for a single turn), then your best (money maximizing) response is to cheat regardless of what all the other people are doing.
Not cheating is only a best action if it can influence how others act which it might be able to do in a multi-play situation. Of course some people might not be maximizing their monetary outcome, they might also consider how they feel about the correctness of their actions, and when you reveal who cheated, a third component of your utility might be what others feel about you.
This makes no sense at all
- For the sake of argument, there are 100 people
- Everyone starts with one dollar
- If everyone puts in (puts the dollar in a collective pot), then everyone has zero dollars and the pot has $100. (Your step two has a magic extra dollar per person appearing from nowhere)
3A) If one person cheats, he still has his dollar and the pot gets divided up among the other 99 who get their same dollar back.
3B) If one person cheats, he still has his dollar, and the pot gets divided up among all 100 people, so everyone gets .99c back and the cheater ends up with an extra 99c making him a tycoon with $1.99. Essentially, everyone paid him a penny. - The moral of this story is “Don’t put your money in a damn collective pot; keep it for yourself”, right?
This alludes to a point worth raising: Shaming is an appeal to social acceptance, and as such, it is primarily a tool for enforcing the status quo, and not for effecting social change.
I assume you own stock. When is the last time you voted for a CEO as anything but a director? When a company hires a CEO, do you as a stockholder get to vote on it?
Now stockholders can vote on CEO compensation - but the company is not obliged to change compensation based on the vote.
Theoretically stockholders do vote for directors, but when is the last time it was close. And, take a look at your ballot. See opposing candidates? Nope, they use the Communist model. Even worse - when a director by some miracle got voted out, the CEO appointed him to the now vacant seat. Fidel would be embarrassed if he followed corporate democracy.
Sure boards get voted out when someone buys up the stock, but that is kind of like a general overthrowing the government and then holding an “election.” If you don’t have the tanks/money, you have no power.
Why should we be pissed? Where is the money for these salaries coming from? From profits, which drives down stock prices. From workers salaries, which drives down consumption. From true investment in the company. And as we seen when the CEO from that company over there gets a bit and unjustified raise, all the others follow suit.
As for competition, many CEOs get hired from inside, and there are few jobs with lots of potential candidates. Could you point me to evidence of a bidding war? Plus, a lot of the problem comes from CEOs with the job still getting massive raises.
Sure there is a possibility of failure, especially because you often don’t change CEOs when times are good. But when you and I get offered a job, it does not come with a gigantic leaving bonus if we screw up.
I won’t ask for a cite because this sounds plausible and demonstrates that stockholders have no power.
I already said that Jobs was worth his pay. So was Gates. Ballmer? Did that guy do anything particularly worth his large salary?
And look at HP. Carly did not get a CEO job - she just threw away money running for Senate. (Not as much as Meg did, though.) And screwed up in the McCain campaign (well, no one can be all bad.) Mark Hurd got fired and wound up hired by Larry Ellison more out of spite than anything. And the last guy couldn’t even come to the US without getting served, wasted a ton of money on a bad acquisition, and got fired in no time with a big bonus. Then we have Meg who at least was successful at one totally different company, but showed her frugal ways in the campaign. All those people added tons of value.
The theft was less direct, but getting huge bonuses through strategies which suck money from the public and are not sustainable in the long term counts in my book. The CEO of Countrywide deliberately pushed writing mortgages to those who could not afford them and then sold them in deceptively labeled packages. People lost their houses and went into bankruptcy. Burn down a house and drive a family out, you go to jail. Give them a crap mortgage so they lose their house, you maybe get a tiny fine eventually.
The OP states that the pot is doubled. You can talk to the OP about the magic extra dollar. It looks to me like you’re reading the OP wrong.
No, what you are doing is talking past me and actually repeating a point I originally made, but acting like you are saying something different. And if you’re going to respond to my original post, you are going to have to stop using the term “rational” in some generic way, since I was using it in an economic sense. If you aren’t going to do that, then you aren’t dealing with what I actually wrote. Here is a reasonable definition of rationality:
Now, if you don’t understand that, I’m happy to walk you through it. But when you use a term like “rational economists” in response to my original post in this thread, you make it very clear that you don’t actually understand the economic terms I was using. Now, you don’t have to do that type of economic analysis if you don’t want to, but I’m not going to argue against your misinterpretation of my post. If you don’t understand this type of economics, that’s fine, and I can explain in greater detail the point I made, if you are actually interested. But arguing against a construction of your own isn’t something I’m interested in doing, since it’s not going to lead anywhere and it’s not even the actual point I made.
This kind of analysis is annoying. Capitalist economic theory says that in a “competitive market” as the price of something increases, we’re supposed to get more of that thing so the price comes back down. If the price of shoes goes up, then more companies start producing shoes, and the price comes back down. And if the price of, I don’t know, say computer programmers go up, then a competitive market will start producing more programmers so the price goes back down.
That’s clearly not happening with CEOs. So, whatever is happening, it ain’t a competitive market. Something else is going on. Now, if you like what is happening, so be it. Or if you think that there isn’t really a way to make the market for CEOs competitive, because of something intrinsic to that specific market, then make that argument (I make that argument all the time about other markets). But don’t point at a market that’s not behaving the way a competitive market should behave, and claim that it’s a competitive market.
ETA: It occurs to me that you might be using the term “competitive” here just to mean high-stakes or something like that. Is that how you’re using it?
Brokerage firm MF Global stole customer money. The firm did collapse, though, and the partners have to repay all the stolen money, so that’s more than a slap on the wrist. But nobody actually went to jail for the theft. If I stole money, I’d have to repay it, and I’d get jail time. I’ve already listed 2 examples in this thread of criminal activity being let off with few consequences, and here’s the third. Do I have to keep listing these?
Wouldn’t most people over the age of say 35 be somewhat impervious to this sort of shame? Either you are one of 2 things at a certain age a) You know who you are and what you think and only associate with likeminded people and everyone else is wrong or 2) You hang around with lots of different types of people; in which case you are so used to people judging you for various things that you really become indifferent.