I love the phrase, "in this wintery economic climate." To me, nothing is funnier than saying this to justify something. You here it a lot these days. I heard it on the radio saying that the current economic situation made this the perfect time to buy a new car. Paul Krugman used it to argue for $600 billion in government spending. The most recent time I heard it was in this video from CNN.com.
The video is a commentary from Campbell Brown. According to the video, the CEO of Merrill Lynch, requested a $10 million bonus this year. Why so much money? Because he kept Merrill Lynch's losses down to $11.67 billion. In a frigid economy where other companies like Bear Stearns and Lehman Brothers are going bankrupt, that is actually quite an accomplishment.
Brown's opinion is that this CEO shouldn't get the bonus, but (and I'm sure you already guessed it) my opinion is that he should get the bonus. Many people hate the idea of the huge CEO compensation packages and ask, "if the company does badly, why should they get paid millions?" But let's extend this logic...
Let's say we pay a surgeon only if she saves the patient's life. The result will be that surgeons only operate on patients that are a safe bet. The severely sick and injured patients (the ones who need the best care) will suddenly be unable to find doctors willing to help them*.
What about our education system? Most people claim the way to fix it is to pay teachers more, but let's say we only pay teachers if they're students pass. Same thing is likely to happen. The worst students will suddenly be unable to find teachers.
We're in a deep financial mess and are people reacting by saying, "the solution is to pay CEO's less," but the truth is that CEO pay is high and the contracts pay even in the event of failure because that is the only way to attract well-qualified candidates to companies that need good leadership.
The other big objection to high CEO pay is that if the company is laying off employees, then the people at the top shouldn't be earning bonuses, but if you examine this "fairness" argument, you see that it doesn't help people either.
If a manufacturing plant is no longer earning money, then it will be shut down regardless of what the CEO makes. Unprofitable operations are stopped if the CEO earns two dollars or two million dollars. People act as if there is a fixed amount of money to go round and if it goes to CEO's then it must necessarily come from the workers**. Capping CEO pay doesn't suddenly make it worthwhile to keep employing workers. In fact, a good CEO will know which branches are worthwhile and which aren't so you need to pay CEO's a good salary in order to incentivize them to find the parts that aren't working.
My feeling is that the prejudice against CEO pay is based on jealousy. Everyone likes to think that a CEO job is a nice cushy job that any idiot can do and so they shouldn't earn more than anyone else. In reality, these CEO's are working in a market where things are very uncertain and even if they pick the optimum strategy, they could still fail based on the outcome unknowable variables.
To assuage concerns you may have about the overpayment of CEO's think about the Board of Directors. They don't want to give the CEO money that could be theirs. They'll work hard to make sure the contracts don't pay out more than the CEO is worth. If the Board makes a mistake, then they'll get burned.
As I close I'd like to point out one ironic thing in this video. The tagline for this segment is "No Bias, No Bull." However, halfway through, Brown says that she has a neighbor that was laid off by Merrill Lynch. Perhaps she and this neighbor aren't friends, but if they are that then that probably qualifies as bias.
*I've seen several studies showing that the best hospitals actually have the worst survival rates because the patients that are worst off flock there.
**This is how Marx sees it.
Tuesday, December 9, 2008
Monday, December 8, 2008
Don't Build Factories
While browsing the internets, I came across a series of pictures. These come from the Facebook picture album of a friend of a friend. They come from a project called "Fingerpainting for Sustainability." I googled it, but nothing came up. Given that I found these pictures on Facebook, I am led to assume that a college educated person made these posters. Let's start with this one:
I'm not entirely sure how shorter showers are more sustainable. As far as I know, the water in my shower goes back into a pipe and goes back to a processing facility. So, I haven't really destroyed or used up any water. I think the assumption must be, more water in my shower less water in the lake. I guess that's true. In any case, I'd recommend another poster though: Don't Subsidize Biofuels to Save Water.
So this sounds reasonable; buying in bulk reduces packaging which reduces the need for landfills. I'm going to turn to a well-informed professor of mine, Dr Dan Benjamin, on this one. He's written a piece for PERC, on the Myths of Recyling. He notes that extensive packaging actually reduces waste by reducing breakage. This isn't exactly what this poster is getting at, but buying in bulk may increase waste. If I get food in bulk I frequently can't eat it all before it goes bad, so I would have to toss the waste food. My caption would be: Buy in bulk if it makes sense to.
This one has to be my favorite. Clearly the answer to our problems to is to stop building factories. Let's forget for the moment that the paint and the paper in this poster were both made at a factory. Factories aren't the problem. Almost everything we consume comes from a factory. Factories are good and we should build more of them. Pollution on the other hand is bad, and that's what we want less of. Instead of building fewer factories, we should be building cleaner factories. There are a number of ways to get factories to be cleaner, but the most efficient (by which I mean best for the environment and people's consumption) is to price the pollution. If firms (and ultimately consumers) have to pay more for goods that damage the environment we would either consume less or switch to greener technology. My alternative caption: Make them pay to pollute.
I'm not entirely sure how shorter showers are more sustainable. As far as I know, the water in my shower goes back into a pipe and goes back to a processing facility. So, I haven't really destroyed or used up any water. I think the assumption must be, more water in my shower less water in the lake. I guess that's true. In any case, I'd recommend another poster though: Don't Subsidize Biofuels to Save Water.
So this sounds reasonable; buying in bulk reduces packaging which reduces the need for landfills. I'm going to turn to a well-informed professor of mine, Dr Dan Benjamin, on this one. He's written a piece for PERC, on the Myths of Recyling. He notes that extensive packaging actually reduces waste by reducing breakage. This isn't exactly what this poster is getting at, but buying in bulk may increase waste. If I get food in bulk I frequently can't eat it all before it goes bad, so I would have to toss the waste food. My caption would be: Buy in bulk if it makes sense to.
This one has to be my favorite. Clearly the answer to our problems to is to stop building factories. Let's forget for the moment that the paint and the paper in this poster were both made at a factory. Factories aren't the problem. Almost everything we consume comes from a factory. Factories are good and we should build more of them. Pollution on the other hand is bad, and that's what we want less of. Instead of building fewer factories, we should be building cleaner factories. There are a number of ways to get factories to be cleaner, but the most efficient (by which I mean best for the environment and people's consumption) is to price the pollution. If firms (and ultimately consumers) have to pay more for goods that damage the environment we would either consume less or switch to greener technology. My alternative caption: Make them pay to pollute.
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