Tag Archives: ceo

Eat those mofo CEOs! Or maybe not.

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For me the  “Eat the Mofo CEOs!” argument, aka “CEO pay is an outrageous inequitable violation of human rights”, etc, etc.  isn’t necessarily wrong, it’s just very incomplete.

What we DO KNOW is that most folks are a lot better off here in USA than in most of the alternative economies.  This is particularly true for those of us making more than a modest amount per year, but I think it’s hard to make a case that even welfare folks here are not better off than in, say, any of the other top 10 populated countries with perhaps Japan as an exception.

What has generated that prosperity for so many?    Certainly “high CEO pay” is at best only a small factor in this, but I’m not clear how you can start modifying things like “maximum CEO benefits” without running into some complications with innovation and productivity.

One can reasonably note that there’s not a correlation between CEO pay and corporate productivity  (at least I think this is indicated by several studies).   However a better question is really “is there a correlation between the lack of intervention in economies and productivity?”.   This has been tested now for many centuries across many countries, and we generally find that lack of intervention seems to create more total wealth and massive intervention as in old school communist crazy stuff tends to bring a sh**storm of economic trouble.

However US style ALSO seems to push the distribution more to the rich.    Of course it would be better to have more equal distribution IF you could keep all that productivity, but how do you arrange that?

It’s the biggest question of our lives.  I don’t have the answer, but when I look around the USA (where distribution is NOT equitable even after heavily progressive taxing of the rich) I see a LOT better standard for pretty much everybody than when I look around places that don’t have vibrant capitalistic economies (or have only had them a short time).

One can offer up Scandinavia as the “alternative model” and I’d agree that if we could duplicate Scandanavian standards of living at US scale we should do so.    but I don’t think you could apply that model effectively to a country the size of the USA.   These countries  have some major advantages that have to do with oil wealth and demographics and history.  They are smaller than many US states and thus not really comparable if you are talking about global economic architecture, as you must do when trying to “fix” the many problems the world is facing after the boom and recent mini-bust of the post WWII era.

It seems to me that the *first* line of discussion with respect to any economy needs to be “how do we create wealth?” rather than “how do we distribute he wealth we have created?”

This point is completely obvious to pretty much anybody I talk to from the right or in business, and seems to be completely opaque to many on the left side of the political equation, especially the wall street occupation forces.   Many of those folks seem out of touch with basic business economics and hell bent on the destruction of capitalism – naively assuming that massive productivity will continue under all scenarios, so the only thing we should focus on is making sure the rich don’t get … richer, because then we’ll see all that prosperity flow more equitably to … usually… their causes or even to them.

But be careful what you wish for because when taking a global perspective on things redistribution will not necessarily flow in your direction!   Folks in China and India are living at much lower levels than almost anybody here in the states, so as we work for equitable distribution (as we should), we’ll need to work to get THEM more involved in the economy so they can raise their standards to a fraction of ours!   Globalization is taking care of this right now in the sloppy form capitalism usually takes, but it’s ironic to me that occupiers seem to think the wealth of the super rich should be heading back to mainstreet USA rather than to the truly needy.    Rich or poor, pretty much everybody seems to think they are the underpaid and overworked folks.    Take out a map folks and put your finger on your location.   If it’s in USA then equitable distribution is likely to flow AWAY from you.

I’m all for more equitable distribution IF you can do it without hurting productivity, though I also would like to see that prosperity flow to those who really need it rather than simply bloating the bureaucracy as we tend to do when taxes go up.

Ray Dalio of Bridgewater Capital – the world’s largest Hedge Fund – both makes a ton of money and pays a ton of taxes.    Like most of the rich he pays both a greater total amount and a greater percentage of his income to federal taxes.   His point on Charlie Rose the other night was direct and simple.   Like Gates, Buffett, and legions of other super-wealthy folks Dalio is going to be giving most of his billion dollar fortune away to the poor.   He’d be happy to give it to the government IF they’d spend it wisely, but he knows that they will NOT.

Countrywide v. Congress and the China Connection

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Today CSPAN had the congressional hearings with Mozilo, who has a 40 year tenure with Countrywide as founder and CEO.  He presided over Countrywide’s meteoric rise and much of the meteoric fall.    I hope people hurry up and wake up to the significance of the events underway in housing right now.    The mortgage meltdown is likely to become the greatest loss of wealth in human history.    CEO pay is a mostly trivial aspect of this situation.I think we’ll see another 10-20% loss from current values and I think we are already down some 4 *trillion*  2+ trillion  in housing value (need to check this, but the number is staggering).    A discussion of the amount is HERE.   Housing is a major depository of American wealth and prosperity, and the recent boom in values has led to various forms of reckless spending by individuals as well as the usual wild, stupid, and reckless spending suspect: the Government.   This is especially true of our unconscionable  and totally indefensible levels of mililtary spending.  Note that you *cannot* be a fiscal conservative and support the current military budget.     $550,000,000,000 to the military and fiscal conservatism are mutually exclusive positions.The impact of the meltdown and the reckless spending will be felt forever because in addition to direct housing problems that we are only starting to feel, I think all this will to depress our economy for several years and thus accelerate the shift of business to China.     This last notion is speculative, but I think it is now pretty clear that the Fed will keep rates low for many years in an effort to fend off an even more disastrous housing and credit situation.    This means China will be buying less of our debt, but I think will switch to investing more*directly* in US companies, and thus owning more and more of the American empire.      Russia’s leader and architect of communism Vladimir Lenin is famous for saying  “The Capitalists will sell us the rope with which we will hang them.”  But he was dead wrong.     The “Communists”, to the extent that term has meaning anymore, have no intention of destroying the USA.   In fact they want to keep us in good shape for as long as needed.  Now it is China who is making the rope, buying the rope, and learning the capitalistic ropes so they can slowly and gradually replace us as the empire of choice on the global landscape. A few things I noted during the Countrywide questions and testimony:

 * Probably Mozilo was just a high powered opportunistic guy and probably was pretty much within the law with his trades and pay, however he must have known things were poised to melt down to some degree.      

* Our congressional system is failing to produce people who are worthy of ruling the amazing American empire.      I don’t think there is much corruption but these guys sure are uninspired.  The congress-as-corrupt view is a “naivety of the skeptic” idea that is not based on a study of the money flow, personalities, and history of public servants who for the most part are bright, helpful people.   However they are mostly lacking in the key skill sets required for innovation and smart reform.   In short:  American politics selects for the wrong skill sets. To wit:  

* Republicans can’t see past Ayn Rand’s ass.   They understand the virtues of capitalism, but simply refuse to focus any attention on the key topic of how our brilliant capitalisic experiment has *failed* in many ways to deliver enough products to the neediest folks and how many capitalists are mostly focused on the creation of opportunistic business structures that are exploitable by the clever and the wealthy to the detriment of the greater society. .

* Democratic congresspeople are overwhelmed by math and economics.  They concentrate on people, “good vs bad”, “rich vs poor”.  * People want to find bad guys rather than find the obvious.   In the case of mortgages  the system as a whole incentified unwise practicies.     Reminds one of the savings and loan debacle although I think government regulations (loan guarantees) were clearly at fault with S&Ls were the mortgage crisis cannot be blamed mostly on the government.

* Is there a simple legal remedy for all the CEO pay and stock manipulation issues?    I propose a  “Captains go down with the ship” law.    If a company you founded fails you lose everything you made from that company except some modest monthly stipend.    This would incentify stability over pump and dump strategies.   I don’t think it would inhibit founding quality companies.   What unintended consequences would this law bring to the business landscape?