The Obama Arbitrary CEO Pay

Let me first give an introduction to this piece I am going to talk about. This was written for Slate Magazine by Eliot Spitzer. Yes, the former Governor of New York that was involved in the prostitution scandal. He writes a column once and a while for Slate and they are usually pretty good. This article is on the Obama CEO salary-cap of $500,000. This has been something I wanted to discuss. First, let’s start out with a quote:

“What should really be done about executive pay? First, let us acknowledge that the $500,000 bar is arbitrary. It will be way too low in some circumstances and way too high in others; it affects too few executives; it can be easily avoided through alternative pay techniques; and it injects the government into a sphere where it is uniquely inept—setting private-sector wages.”

This is an important point the reader should take away. That is this is a arbitrary number that has been imposed upon people with absolutely no calculation. This is a key problem to socialism. As in because we can only ballpark the wage, which was solely decided upon by looking at other markets, we have no clue if $499,999 is the right amount or $500,000. The main reason for a CEO’s wage is to attract the best and brightest, while not putting all your eggs in one basket. When the government takes over a business the incentive for them to take off and run away with the money is huge. This is not a small detail to be missed. This is a huge problem when creating policy, when you talk about social justice it is all arbitrary. For example the progressive income tax, the rich should be taxed 33%, 45%, 56%? Pick one and tell me why. Now this is where Governor Spitzer goes wrong:

“If we are to stop outrageous pay, the objective should not be to match the foolishness of the Bush ideological embrace of wild-eyed libertarianism masquerading as capitalism with an equally foolish “government knows best” approach that ignores the market. We must create a genuine market for CEO services, generating meaningful competition and socially acceptable results.”

He then goes on to describe how he would set up a corporation with checks on CEO’s pay. First, Bush was no where near libertarianism and he definately did not ignore the market. He has made some of the larges moves towards socialism by messing with the markets we have ever seen since FDR. Then there is the major fallacy, he makes. He decides to come up with is own corporate system and acting like it is a policy prescription.

If you do this then you are making the best possible case for central planned socialism. So sure, maybe he does have some points and you can read those in the link below, but he needs to pitch these to corporations not to the American people. If they adopted his plan and it was superior then all investment would flood this business and CEO would be begging for a job.

The rest is here.


Published in: on February 25, 2009 at 1:15 pm  Leave a Comment  
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