Some issues i would like to hear an Austrian opinion about:
1. Without state intervention (or strong labour unions), how can it be avoided that the income of top managers becomes obscenely high while the income of all others is declining?
2. Would you advocate to hold the CEOs of failing companies responsible for their mistakes and dispossess them when appropriate (e.g. CEOs of AIG, GM, Lehman etc.)?Best regards everyone!
G.
gottfried:1. Without state intervention (or strong labour unions), how can it be avoided that the income of top managers becomes obscenely high while the income of all others is declining?
gottfried:2. Would you advocate to hold the CEOs of failing companies responsible for their mistakes and dispossess them when appropriate (e.g. CEOs of AIG, GM, Lehman etc.)?
1. under free markets the phenomenon of rising real wages for ceo's and falling real wages for employees is really quite impossible. If a factory increases it's output it increases its profits while increasing wages since wages now exchange for more things.
2. No since a free market would handle a situation like this much better than a state could. I could imagine the CEOs becoming more corrupt and slower to meet consumer demands under state management.
Managers, CEOs, etc.. are just hired employees no different then the receptionist or mail room guy. Their wages are determined by their marginal value productivity just like any other wage rate on the market.
Most people confuse the CEOs with the owners and entrepreneurs. The owners are all those who have provided the capital for the firm. The share/stock holders or any other private investors.
gottfried: 1. Without state intervention (or strong labour unions), how can it be avoided that the income of top managers becomes obscenely high while the income of all others is declining?
Imagine a free-market where nominal wages were allowed to fall to their market price. This effectively would create full employment, as everyone willing and able to work would find a job, because the employer could employ them at the wage specified by the amount of money chasing labor and the supply of labor itself. Given high nominal wages today, there would probably be a decrease in wages in most industries. But, at full employment there are two phenomenon which gives way to higher wage rates:
State intervention has only caused the rich to become richer, and the poor to become poorer. Minimum wage has not kept up with inflation, largely caused due to all this massive welfare and warfare spending.
2. Would you advocate to hold the CEOs of failing companies responsible for their mistakes and dispossess them when appropriate (e.g. CEOs of AIG, GM, Lehman etc.)?
Their companies should be allowed to fail and redistributed through the free-market (i.e. others buying up healthy assets).
As Snowflake eluded to these apparently 'obscene' salaries to which you refer tend to occur in the most regulated industries.
Strong labor unions which focus on worker salaries and benefits instead of productivity combined with high gov't regulation tend to create uncompetitive zombie companies, e.g. GM.
Gunverment regulation, despite the best of intentions, usually results in more of a partnership between several big businesses and the polytrixters, each serving the other while stifling competition and innovation.
We are the soldiers for righteousnessAnd we are not sent here by the politicians you drink with - L. Dube, rip
I've already addressed this point in your protectionism thread.
If a company is poorly run, it should fail, period. This would free up its scarce and vital resources to those companies which aren't poorly run.
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
Your #1 seems like a rehash of Ricardo's "iron law of wages." Ricardo basically argued that wages will always return to basic sustenance levels, in order to keep the workers alive enough to work and earn profits. The fact of the matter is, though, that the more profitable businesses become in real terms as the economy grows, the more they'll compete for workers from other firms, and the more they'll have to increase wages/salaries/benefits and improve working conditions (e.g. less hours for higher pay, better workplace safety, etc.).
As for the whole executive-disposition shenanigans, it's best if the government leaves this alone. It should be up to the shareholders of these companies to decide what happens with the CEOs. As for the bailouts, the government should get out of those equity positions ASAP. And even if the government doesn't decide to get out of the bailouts soon, it should at least not prevent private shareholders from controlling the CEOs. Obviously, profit-motivated investors will be better at controlling their companies than a corrupt government.
Political Atheists Blog
Snowflake:People are responsible for their own actions. Period.
which means they should be held responsible or responsible only before god?
Esuric: If a company is poorly run, it should fail, period. This would free up its scarce and vital resources to those companies which aren't poorly run.
agreed, the question is, what should happen to the CEOs of above companies? Should they be able to keep the millions they made while running the companies in the ground?
gottfried:which means they should be held responsible or responsible only before god?
So you all agree that the sky rocketing income for CEOs occurs primarily in state controlled businesses.
If this is so how do you explain the income of the CEO of e.g. AMD. The company is running huge deficits yet the CEO earns millions per year. (the same argument could be made for half of the bank, pharma, car, computer, fashion industry etc.
Also how do you explain the chart below showing the income ratio between an average employee and the CEOs and the fat that the income of the average worker has been decreasing since the mid 70s while the top managers get more and more money(http://www.epi.org/economic_snapshots/entry/webfeatures_snapshots_20060621/).
Lastly, your theory sounds nice and might work in a world where you have small companies competing with each other. Ideally in this world the CEOs coincide with the people who founded the companies and who invested their own capital and heart and soul into the companies. In the real world however, you have multi billion dollar international conglomerates. These companies are run by a clique of top managers who don't care what happens to the company in the long run or its workers as long as they get their bonuses. The worst thing that can happen to them is that the company goes down in which case the take the golden parachute out.
Snowflake:I'm saying that if you do something bad you should be held accountable for that
sounds good ... so what should happen to the wall street bank managers who are responsible for the current disaster? I'm not aware that the heads of lehman brothers had to pay back the money they made over the last 8 years.
gottfried:agreed, the question is, what should happen to the CEOs of above companies? Should they be able to keep the millions they made while running the companies in the ground?
Most here would say not necessarily, since the corporation is a product of the state. In a free society, the CEO's wealth would be exposed to liability. As such, s/he would be liable to creditors for the losses.
At most, I think only 5% of the adult population would need to stop cooperating to have real change.
Jonathan M. F. Catalán: Competition for labor. If there is full employment, then new firms entering the market will have to offer higher wages to attract these workers. Naturally, this will cut into their marginal revenue per capita and it will distribute more of the profit to the workers. During the 1920s, workers' wages increased at a higher rate than entrepreneurs' profits. Capital accumulation leads to investment, which leads to higher productivity. The fastest growth in wages would be real wages, meaning as goods become cheaper the purchasing power of the same nominal wage rate will increase. This is why in a free-market there would be steady long-term deflation, if we assume that the supply of money remains constant.
fair enough ... but how do you explain that the wages of the top managers increased tremendously over the last 40 years while the income of the employees stayed constant or decreased?
Spideynw:Most here would say not necessarily, since the corporation is a product of the state.
can you elaborate on that? How are AMD (not bankrupt yet), PanAm, GM, Ford (not bankrupt yet), Chrysler, Lehman brothers, etc. a product of the state?
gottfried: If this is so how do you explain the income of the CEO of e.g. AMD. The company is running huge deficits yet the CEO earns millions per year. (the same argument could be made for half of the bank, pharma, car, computer, fashion industry etc.
The CEO should be held liable to his creditors, and so in the case of bankruptcy would have to distribute his earnings to satisfy all outstanding debt. This is one of the reasons why inside-trading is so important; it allows the general public to unveil the real value of a company much sooner than they would otherwise.
Like I alluded to, this a product of the welfare state. It is a product of insatiable inflation (making everyone poor equally as fast, but those with less money are hurt much more) and welfare which curtails investment, employment and production.
Lastly, your theory sounds nice and might work in a world where you have small companies competing with each other. Ideally in this world the CEOs coincide with the people who founded the companies and who invested their own capital and heart and soul into the companies. In the real world however, you have multi billion dollar international conglomerates. These companies are run by a clique of top managers who don't care what happens to the company in the long run or its workers as long as they get their bonuses.
This sounds like an appeal to emotion, of some sort. Everybody is interested in long-term income. If an entrepreneur can get away with fraud due to the loop-holes in State legislation, the free-market is not at fault.
gottfried:sounds good ... so what should happen to the wall street bank managers who are responsible for the current disaster? I'm not aware that the heads of lehman brothers had to pay back the money they made over the last 8 years.
krazy kaju:It should be up to the shareholders of these companies to decide what happens with the CEOs
so why doesn't it work? I am not seeing law suits against anyone of the wall street crowd.
krazy kaju:the more profitable businesses become in real terms as the economy grows, the more they'll compete for workers
is that so? in the real world it rather seems they continue moving to the most undeveloped nation in order to be able to produce for minum wages and lowest environmental standards while pushing the cheaply produced goods back into the domestic market.
I agree that what you are saying might work in areas where you need highly skilled and well educated workers but it obviously doesn't work for all those areas where no particular education is required.
gottfried: Spideynw:Most here would say not necessarily, since the corporation is a product of the state. can you elaborate on that? How are AMD (not bankrupt yet), PanAm, GM, Ford (not bankrupt yet), Chrysler, Lehman brothers, etc. a product of the state?
I would recommend checking out this thread for a thorough discussion about it: http://mises.org/Community/forums/t/10084.aspx
The current sallaries of CEOs has to do with anti trust laws and other regulations. Tom Dilorenzo has an excellent piece on this. Found here
Snowflake:It would be one thing if they had used goernment powers for social good, but instead used them for personal gain. Confiscate all their wealth until damages are repayed.
100% agreed!
What's wrong with disparity in pay?
On AMD...
Every Fab they built in the past 15 years was about half-funded by states.
They had just won a $1.5B anti-trust settlement, which is another case of state intervention.
Jerry started the company, it was his company, and he did what he wanted with it. Despite the CEO getting paid so much, people still agree to continue working, or even start working for the firm.
What's wrong with CEOs getting paid a lot of money if their company is doing well?
Sure. Should the CEOs pay out $10 million a year if the company is losing money?
If the CEO of Nintendo made $100 million a year, while the company lost $500 million a year what is it my business? If we are dealing with completely private industry that produces things I want at a price I'll buy, what does it matter how much the CEO gets paid?
There is a large disparity, and that fact isn't an ethical problem, unless ethics are found on stealing, not recognizing private property, or on the use of force to set things the way they "should" be set.
@all
thanks for the useful links. i will have a look at them!
here is a final question. Consider the following (frequent) scenario:
Lets say you are a worker at company XYZ, which is by far the largest employer in town. The management of XYZ announces that either the employees accept a 20% wage cut and work 10 hours more a week or the plant gets closed and the production is moved to China. Since you own a flat in the town (which would be worthless if the company closes and 50% of the people have to leave the town to find a new job) and you are afraid of not finding a new job you accept the new working conditions. At the same time you find out the manamgenet increased their own wages by 30%. You would consider this ok because this is how the free market must be allowed to operate?
I can tell you that you will have to do a LOT of convincing in order to get this raw form of social darwinism acceped by society. (lets see how far Peter Schiff gets in his senate race).
Please learn what social darwinism is before using the term.
gottfried: Lets say you are a worker at company XYZ, which is by far the largest employer in town. The management of XYZ announces that either the employees accept a 20% wage cut and work 10 hours more a week or the plant gets closed and the production is moved to China. Since you own a flat in the town (which would be worthless if the company closes and 50% of the people have to leave the town to find a new job) and you are afraid of not finding a new job you accept the new working conditions. At the same time you find out the manamgenet increased their own wages by 30%. You would consider this ok because this is how the free market must be allowed to operate?
Much like a mining town where the mine is quickly becoming worthless?
It's also possible for these people to organize and to advertise the fact that there will be plenty of labor for companies to buy in the town after XYZ shuts down. The company owes people only as much as the contract states. If these people stay in town, don't do anything, lose their jobs, and get assistance from the state, what have the learned? They plunder from the rest of society because they feel they have the right to be shielded from mistakes they make. Just because people feel like they should have something isn't justification for them to get it.
We can take the moral approach, where these people adapt or get help from voluntary charity. Or we can have things arbitrarily stolen from other people to shield these now unemployed people from their lack of foresight, planning, and responsibility.
This has nothing to do with what's popular. It has everything to do with what's ethically sound and evades moral hazard. What happens the next time a company like XYZ comes around, pulls the same stunt and leaves, and the people get bailed out again?
If XYZ had 1000 employees who were laid off, and the next company had 1000 employees who were laid off, don't you think that people would start flocking to this city looking to get employed by the next XYZ? When this one takes off and leaves people unemployed, they'll be saved by government yet again! Meaning more people can come to the town, and know that they don't have to worry about getting laid off or their wages reduced because the government will step in to save them yet again! In fact, they'll get lazier and let the place offer the ultimatum because they know that they will be covered by the government without having to work!
Welfare for people or companies helps to nullify the incentive for people to become productive members of society.
If this mining town closes, so be it. It's usefulness to the free society has been greatly diminished.
Care to get into explaining the bourgeois? We have lots of material countering that nonsense. :)
gottfried:You would consider this ok because this is how the free market must be allowed to operate?
Do you think it is OK for the government to tell Peter Schiff he is on a hiring freeze?
gottfried: You would consider this ok because this is how the free market must be allowed to operate? I can tell you that you will have to do a LOT of convincing in order to get this raw form of social darwinism acceped by society. (lets see how far Peter Schiff gets in his senate race).
You would consider this ok because this is how the free market must be allowed to operate?
1. If it's their money, they can do with it as they please. Just because it looks like they're greedy and mean doesn't mean that they don't get the same property rights you or I do.
2. Class warfare is at the foundation of Marxism. If people in this country succumb to that type of politics, they deserve what they get. Peter Schiff represents a turn away from class warfare in my opinion. If he wins, it will be proof that there are people out there who are willing to consider principle and precedent instead of the emotional appeal of class and identity politics.
You forgot to mention the ensuing worker strike and slashing of tires of all the managers Lamborghinis..
gottfried: can you elaborate on that? How are AMD (not bankrupt yet), PanAm, GM, Ford (not bankrupt yet), Chrysler, Lehman brothers, etc. a product of the state?
AMD's products are protected by international copyright law. Nobody can make processors they have patented without legal penalties, granting them an artificial advantage in the microprocessor market. Pan American Airlines is, of course, an airline, and airlines are one of the most regulated industries on the planet (and one of the most inefficient). In some places, I believe, they are legally required to be subsidized. General Motors, Ford and Chrysler have both received significiant protectionist advantages in the past, as well as IP benefits internationally. As well as this, General Motors recently received bankruptcy protection to the tune of billions from the United States government. Lehman Brothers benefitted from the fractional reserve banking system and the Federal Reserve, as well as a trader in US treasury securities.
Gottfried, did you see the thread with the story about the eternal skeptic?