[PEN-L:11226] Re: on CEO Pay

[Gil Skillman <gskillman@xxxxxxxxxxxx>]

While agreeing with the sentiment of Paul's comments, I'm puzzled by many of
their details.  He writes:

>I must admit I am a little suprised that Pen-l-ers would be
>debating this issue in terms of neoclassical marginal
>productivity.  This is the equivalent of arguing, what is
>the marginal productivity of a mugger? (i.e. someone who has
>market power because of some non-market force.)

I don't see this point.  Re the first sentence, we've been discussing the
issue in terms of marginal productivity because that's how the question was
first framed.  That doesn't mean anyone believes that marginal productivity
explains executive salaries, it means the question is being addressed on its
own terms.  In my original post, I argued that executive marginal
productivity is essentially beside the point, since executives might be
expected to earn economic rent whether or not they are paid their marginal
product, however that might be defined.

Re the second, one can certainly speak of the marginal productivity of a
mugger without paradox, but I doubt the analogy.  The power muggers possess
is not "market" power; e.g. Paul isn't arguing that muggers get an
above-competitive return from fencing their ill-gotten gains. Conversely,
CEOs don't need to mug boards of directors to get compensation exceeding
competitive levels.

>  The moment one moves to a non-neoclassic frameworke (as Jim D
>suggests) then the problem is "solved".  There is a surplus
>distribution problem.  This is not a market problem, but a power
>problem.

I don't see that the distinction as phrased is particularly useful, since
power is expressed in and through markets.  Certainly this is the case with
CEO pay, granting that the *basis* for this power may originate outside of
markets.  And I don't see what being inside or outside a neoclassical
framework has to do with this, since the latter can *represent*
distributional outcomes, although it doesn't have any way to *evaluate* them.

> (Why is it that non-neoclassical economists avoid the
>issue of power?)

They don't.

> One can utilize rent theory to justify the
>resulting justification.  But, if we were honest, that is really
>crap.  Let us put it a different way, what is the mp of
>a crime king (and are CEOs really different?)

What?  Saying that some portion of compensation is economic rent in no way
"justifies" it.  I take Paul's point to be that putting this discussion in
"marginal productivity" terms shifts attention from the fact that CEOs enjoy
inappropriate levels of power.  But this is not a necessary consequence.
Again I return to the question originally posed.  I don't think Wojtek would
have considered his question answered by the riposte, "CEOs are like muggers
and crime kings."

>And on a different stream, a colleague of mine posted a
>document documenting horrendous war crimes against the Unites
>States  Government, specifically with regard to the use of
>biological warfare against Cuba.  Yet, despite the level of
>despisity (is that a word) of the offense, not one member
>of this list from the US has responded.  Comment?

If the suggestion here is that silence implies approval, far from it.  As
Jim says, we can't comment on everything.  And this is a case of same old
same old.  US policy toward Castro's Cuba has been despicable from the get-go.

Paul's comment reminds me of one by another Paul, the conservative
commentator Paul Harvey, who once criticized some human rights activists for
their "selective indignation."  The only way to avoid such a charge is to be
vocally indignant about everything obnoxious, and at every opportunity.  But
that would take some of the fire out of it, don't you think?

In solidarity, Gil