Posts Tagged ‘economics’
Just about everyone on the planet agrees that CEOs earn too much. Except CEOs. But how much is too much? Let’s put it this way: the average American worker would earn almost $2 million a year if he were paid a fair salary based on the compensation of U.S. CEOs.
That’s just one of the many details to emerge from a fascinating post over at the Harvard Business Review, visualizing the pay-gap ratio between chief executives and average workers internationally…
CEOs are making a lot more than what people deem fair. In the United States, the average American CEO makes a whopping 354 times the salary of the average worker. But ask Americans what a fair salary for a CEO is, and the consensus is just 6.7 times the salary of an average worker.
That means that if the average American were paid the “ideal” fraction of the average CEO’s actual salary, he would rake in $1.8 million a year.
In 1984, legendary management guru Peter Drucker argued that paying any CEO more than 20 times the wages of the average American worker was anathema to the well-being of corporations. Pay your CEO more than that, Drucker argued, and all you did was increase employee resentment, decrease morale, and reward greed over responsibility. If Drucker could see the size of the paychecks of today’s CEOs, he’d be spinning in his grave…
Read more at “The Insanity Of CEO Paychecks, Visualized“; read the HBR piece (and see more charts) here; and then read this short piece at the Financial Times that unpacks the mechanics of greed– and its stifling effect on innovation and growth– here.
* Peter Drucker
As we fume over fatted cats, we might take a moment to celebrate Ask a Stupid Question Day, celebrated by teachers and students on this date (or sometimes, the last school day of September).
What would be the most expensive way to fill a size 11 shoebox (e.g. with 64 GB MicroSD cards all full of legally purchased music)?
- Rick Lewis
A shoebox full of valuable stuff seems to top out at about $2 billion. Surprisingly, this turns out to be true for a wide range of possible fillings…
Randall Munroe explains, as he runs through the candidates– from diamonds to Lucy in the Sky with Diamonds– at What If?
As we ponder pricing, we might might send simple birthday greetings to Henry George; he was born on this date in 1839. A writer, politician and political economist, George is best remembered for Progress and Poverty, published in 1879, which treats inequality and the cyclic nature of industrialized economies, and proposes the use of a land value tax (AKA a “single tax” on real estate) as a remedy– an economic philosophy known as Georgism, the main tenet of which is that, while individuals should own what they create, everything found in nature, most importantly the value of land, belongs equally to all mankind.
It was George’s work that inspired Elizabeth Magie to created The Landlord’s Game in 1904 to demonstrate his theories; ironically, it was Magie’s board game that became (as recently noted here and here) the basis for Monopoly.
In 1977, Joseph Stiglitz showed that under certain conditions, spending by the government on public goods will increase aggregate land rents/returns by the same amount. Stiglitz’s findings were dubbed “the Henry George Theorem,” as they illustrate a situation in which Henry George’s “single tax” is not only efficient, it is the only tax necessary to finance public expenditures.
A not-so-dismal look at the “science” of economics: “the world’s first and only stand-up economist” Yoram Bauman reviews the weirdest and most wonderful papers ever published in economics journals… Consider, e.g.,
“Japan’s Phillips Curve looks like Japan” (2008) by Gregor Smith
Smith’s webpage used to link to a version of the paper with this note: “The title is also the abstract and, frankly, most of the text.”
Japan’s Phillips Curve is shown in the right-hand panel of Figure 1. The data are monthly from January 1980 to August 2005.
For ease of viewing, the left-hand panel of Figure 1 rotates the Phillips Curve around the vertical axis so that minus the unemployment rate now is on the horizontal axis. Clearly visible are the islands of Hokkaido and Honshu, though it is somewhat difficult to separately distinguish the southern islands of Kyushu and Shikoku. The Noto-Hanto Penninsula is evident to the north of the southern end of the main island of Honshu. Tokyo Bay is also visible. The data point to the far left in Figure 1 is the island of Fukue-Jima.
Ten others– including Bauman’s own hysterical take-down of Gregory Mankiw and “On the efficiency of AC/DC? Bon Scott versus Brian Johnson,” featured here in pre-blog times– at “Top 11 Funniest Papers in the History of Economics.”
* Nikita Khrushchev (widely attributed)
As we search for one-armed economists, we might spare a thought for Charles Darrow; he died on this date in 1967. It was Darrow who took a Quaker game that inveighed against acquisitiveness and turned it into the monopoly that is Monopoly.
One may imagine that economics has little bearing on the more frivolous frontiers of everyday life; but in fact it explains why one consumes so much “animal antics” online and so little Shakespearean seriousness…
Economics sometimes has surprising applications. One example is the Alchian-Allen theorem, an observation that came from a footnote in an economics textbook in the 1960s about how quality demand is affected by transport costs…
The Allen-Alchian theorem explains why places with high-quality produce (Allen and Alchian had in mind apples in Seattle, which is where apples come from in the US) nevertheless do not always get to consume that same high quality (they pointed to the market for apples in New York city, where no apples grow) because of the relative costs faced by consumers in each case (for New York consumers, a high-quality apple, once you account for transportation costs, was actually relatively cheaper than a low-quality apple compared to relative prices in Seattle). Hence the market sent the high-quality apples to New York.
You’re still with me? It’s all about relative costs. When you move something, or impose any fixed cost, the higher-quality item always wins, because it now has a lower relative cost compared to the lower-quality item.
The interesting idea is that this also applies in reverse – namely when we remove a fixed cost. The internet does this: it removes a cost of transport, and it does so equally for high quality and low quality content. Following the Allen-Alchian theorem, this should mean the opposite. Low-quality items are now relatively cheaper and high-quality items are now relatively more expensive. This idea was first explained by Tyler Cowen, but the upshot is that the internet is made of cats…
The internet lowers the cost of “transport” for every idea, high and low quality alike. It’s the opposite of the apples situation. It means that low quality apples are now relatively cheaper. It means that cats-doing-funny-things is now relatively cheaper than say German Opera. Economics insists that when demand curves look like this we can expect more cat watching, and less German opera watching.
This theorem means that we expect a lower quality, “bittier” consumption to proliferate on the internet (as a technology that lowers transport costs of high-quality and low-quality ideas alike). Which is what we observe. So that’s a win for micro-economic demand theory.
Is this really what’s happened? Have we all gotten dumber? Read more– including the arguments, pro and con– at “The internet is made of cats – and you can blame economists“: and read the paper the lays out the “economics of cute” in “The Alchian-Allen Theorem and the Economics of Internet Animals.”
* John Kenneth Galbraith
As we come to terms with the fact that all our bases are belong to them, we might spare a slightly skewed thought for Giuseppe Arcimboldo; he died on this date in 1593. An Italian painter best known for creating partraits composed entirely of such objects as fruits, vegetables, flowers, fish, and books, he is considered a Mannerist… though he might well be the first Surrealist. He was certainly cited by many– from Dali through Ocampo to Švankmajer– as an influence.
LittleSis– the opposite of Big Brother–is a free database of who-knows-who at the heights of business and government.
It’s a kind of “involuntary Facebook of the 1%”…
We’re a grassroots watchdog network connecting the dots between the world’s most powerful people and organizations… We bring transparency to influential social networks by tracking the key relationships of politicians, business leaders, lobbyists, financiers, and their affiliated institutions. We help answer questions such as:
- Who do the wealthiest Americans donate their money to?
- Where did White House officials work before they were appointed?
- Which lobbyists are married to politicians? Who do they lobby for?
All of this information is public, but scattered. We bring it together in one place. Our data derives from government filings, news articles, and other reputable sources. Some data sets are updated automatically; the rest is filled in by our user community.
The database is large; at this writing:
And as the explanation above suggests, it’s growing.
Readers might do well to browse. If, as a recent Princeton study suggests, the U.S. is no longer a democracy, but an oligarchy, it’d be wise to meet the new bosses.
* Alice Walker
As we contemplate cronyism, we might recall that it was on this date in 1884 that the brokerage firm of Grant & Ward, in which former President Ulysses S. Grant was a partner, failed under the weight of $16,725,466 worth of debts. The firm, founded in 1881, had done well at first, bolstered by the salesmanship of Ferdinand Ward– “The Young Napoleon of Finance”– and by Grant’s name. The former president bragged to friends that he was worth two and a half million dollars, and family members and friends poured money into the firm. But Grant was largely disengaged from the company’s business (he later argued in his autobiography), often signing papers without reading them. In the event, it turned out that Ward was running a Ponzi scheme (before Ponzi had given the technique its name). Ward was eventually convicted of fraud and served six years at Sing Sing. Grant was financially ruined, but was bailed out by William Henry Vanderbilt, who paid off Grant’s debts, and by Mark Twain, whose generous offer for Grant’s autobiography financed the ex-President’s final years.
As income and wealth inequality has grown in the developed world, so have the ranks of security guards—for gated communities, upscale residential buildings, corporate offices, exclusive events, and more. That trend– more inequality, more guards– seems especially apparent here in the U.S. We now employ as many private security guards as high school teachers — over one million of them, or nearly double their number in 1980. And that’s just a small fraction of what we call “guard labor.” In addition to private security guards, that includes police officers, members of the armed forces, prison and court officials, civilian employees of the military, and those producing weapons: a total of 5.2 million workers in 2011– a far larger number than we have of teachers at all levels.
Samuel Bowles, a professor at the Santa Fe Institute, and Arjun Jayadev, of the University of Massachusetts- Boston, explore these findings in their Opinionator piece “One Nation Under Guard.”
In America, growing inequality has been accompanied by a boom in gated communities and armies of doormen controlling access to upscale apartment buildings. We did not count the doormen, or those producing the gates, locks and security equipment. One could quibble about the numbers; we have elsewhere adopted a broader definition, including prisoners, work supervisors with disciplinary functions, and others.
But however one totes up guard labor in the United States, there is a lot of it, and it seems to go along with economic inequality. States with high levels of income inequality — New York and Louisiana — employ twice as many security workers (as a fraction of their labor force) as less unequal states like Idaho and New Hampshire.
When we look across advanced industrialized countries, we see the same pattern: the more inequality, the more guard labor. As the graph shows, the United States leads in both…
Bowles and Javadev conclude by quoting an august Utilitarian…
“It is lamentable to think,” wrote the philosopher John Stuart Mill, in 1848, “how a great proportion of all efforts and talents in the world are employed in merely neutralizing one another.” He went on to conclude, “It is the proper end of government to reduce this wretched waste to the smallest possible amount, by taking such measures as shall cause the energies now spent by mankind in injuring one another, or in protecting themselves from injury, to be turned to the legitimate employment of the human faculties.”
This venerable call to beat swords into plowshares resonates still in America and beyond. Addressing unjust inequality would help make this possible.
*”Who will watch the watchmen” (or literally, “who will guard the guards themselves?”) Juvenal, Satires (VI, lines 347–8)
As we shore up our defenses, we might recall that it was on this date in 1967, at the close of a show in Astoria (Finsbury Park, North London) that Jimi Hendrix first set fire to his guitar. Hendrix was treated for minor burns later that night (but apparently got the technique down quickly, as subsequent “lightings” didn’t require medical follow-up). The slightly scorched 1965 Fender Stratocaster was sold at auction in 2012 for £250,000 (about $400,00).
Over the past several years, the job market has (obviously) been pretty grim. The recession ended four and a half years ago, in June 2009. But there are still 1.3 million fewer U.S. jobs than there were in December 2007, when the recession began.
Still, when you look more closely, the picture is more nuanced. Since the recession started in December 2007:
- Health care has added 1.5 million jobs.
- Restaurants and bars have added roughly 700,000 jobs.
- The number of construction jobs has fallen by 1.6 million.
- The number of manufacturing jobs has fallen by 1.7 million.
- The number of government jobs has fallen by about 500,000.
For more on jobs lost and gained since the recession — and on average wages in different sectors — see Where The Jobs Are (And Aren’t).
Read the full story– and find a larger version of the chart– at Planet Money.
As we remind ourselves that “career” is both a noun and a verb, we might recall that it was on this date in 1981 that millions of Polish workers boycott their jobs in support of a demand by Solidarity for a 5-day work week. Formed the prior year, Solidariyy was the first non–communist party-controlled trade union in a Warsaw Pact country; by 1981, it’s membership was roughly 10 million– about one third of the total working age population of Poland. It became a broader-based anti-bureaucratic social movement as the decade progressed, surviving authoritarian attempts to quash it, and by 1989 forced negotiations with the government, resulting in semi-free elections. A Solidarity-led coalition government was formed; and in December 1990, Solidarity’s leader, Lech Wałęsa, was elected President of Poland. Solidarity remains an active labor union.