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Thanks, Dr. Boettke. Name graces now graces the front page of the Austrian Economists! haha.

I actually wrote a front page piece on it at a site that I co-blog for.

http://www.swordscrossed.org/node/1533

It's not a masters thesis but worth a read.

It builds on one of the silly comments (well, silliest) comments I found in the thread.

I responded to Mark Thoma directly on a new topic prompted by R. Reich saying CEO deserve their pay. Thoma didn't necessarily agree. My comment, with quoted parts from Dr. Thoma are below the line. Am I wrong to say this to someone who obviously knows a lot more about economics than I do? (...albeit from a different POV obviously)

BTW, I'll be at the Graduate Open House at GMU on 9/19. Don't know if you attend it but I'm looking forward to visiting GMU!

http://economistsview.typepad.com/economistsview/2007/09/reich-ceos-dese.html
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John says...
Dr. Thoma,

You say:

There are lots of reasons to believe CEO pay does not reflect underlying fundamentals and hence is inconsistent with the best interests of shareholders (e.g. agency issues).....

While a higher marginal tax rate is one answer to reining in CEO pay, doing what we can to ensure that CEO compensation contracts are consistent with shareholder interests,...and that business interests do not have undue influence over legislation and other political decisions might also make a difference. The issue extends beyond CEOs, when power is unbalanced of course people are going to take advantage of that, and we need to do more than we have in recent years to ensure that no individual or firm has the opportunity or ability to influence market and political outcomes.

This all strikes me as a bit odd.

The first part of the quote is odd because, at least for me, you seem to be passing judgment from a point of view that implies that something is inherently wrong and should be "fixed". Whatever the market forces may be that are putting these CEO salaries at the level noted, I don't see what economic principle of market processes or price allocation or "theory of error" from these phenomena can be put into question and/or used to defend any action to influence change on this CEO issue. All I see is a result of competition among decision makers in firms for CEO talent to get them a better return. If there is an error of over compensation, those decision makers will evaluate their own data and adjust accordingly because it is in their interest to do so. I don't see any justification for outside action.

On the second part of the quote, again, you seem to suggesting that there are supposed laws that can possibly affect change in some meaningful and positive way by shifting the balance of power in decision making on this matter or assessing a tax on CEO salaries (which can just be averted with alternate forms of compensation). If decision makers who have a majority stake in the business are not making decisions that reflect the values and ends of your policy ideas, it can only be assumed that such action is not in the best interest of the company. If it were, the salaries would reflect without coercion.

Again, I don't the economic justification for all this reasoning. If Keynesianism has some basis of looking at the data to promote such suggestions, perhaps you could share this.

In this context of who should make these decisions and how (force of law), you then speak about lobbyists and too much political power to influence outcomes. Well, Dr. Thoma, I see these ideas of trying to influence power to influence the behavior of firms as a direct catalyst to much of the lobbying these same firms do. Much of the rest of it is from these firms trying to stretch imperfect laws to parasitically do it to each other....all of which puts government in the unneeded position of power broker...and a clumsy power broker at that...one which is even more imperfect than the decision makers acting on the firms behalf with their large private stakes on the line.

If precise lasers are thought to be inadequate for a surgery, I doubt an old fashioned knife is the answer.

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