Nobody has ever succeeded in having a rich economy without inequality, though many countries have tried it.
For just one example, SpaceX would not exist without inequality. Nor that supercomputer in your pocket.
For just one example, SpaceX would not exist without inequality. Nor that supercomputer in your pocket.
https://www.businessinsider.com/goldman-sachs-chart-shows-us...
Much of Western Europe has similar GDP per-capita and much less inequality.
Apologies if I misunderstood your comment.
Sounds wonderful if you like communism.
To me, as someone who doesn’t, that sounds bad.
Therefore we should be trying to end the trade deficit ASAP.
Unlike almost all other countries in the world, where they have to work hard with their hands and brains to get something. USA printed more trillions only in the last year, that China - country that provides all the world, including US, with clothes, electronics and just about everything else - managed to save in the last 20 years.
This position is incredibly profitable for the USA, but it needs the largest military power to maintain status quo, because all the other countries understand they're being ripped off. And this military power immediately kills anyone who renounce use of dollar for trade (see Iraq, Libya).
If USA will end trade deficit somehow, it would mean that it would be on par with other countries, and population of USA would have to reduce its consumption of goods and resources by 15-20x. It will be the end of USA, most probably civil war and collapse.
And also no SpaceX.
EDIT: We used to make the computer in your pocket, but now that too is in the US and China.
IMO on the whole they're also not a great example of sustainable progress. (Unless I'm overestimating their carbon footprint.)
And were awarded public contracts early on:
Neither was the government space program.
Besides, NASA has consistently been completely unable at making launches cost-effective. NASA failed at making reusable rockets. NASA simply retreated.
Compare the arcs of NASA's space shuttle with what SpaceX is accomplishing.
The space shuttle was unsustainable, too. Partly because the winged craft design was the result of politics rather than economic sense.
SpaceX, however, looks to be very much sustainable, and profitable. SpaceX has rebooted the entire space industry in the US.
They were sustainable in the sense that they kickstarted something the private market wasn't interested in doing at the time, and then made that knowledge available in a way that the private market could leverage and commercialize.
Same as the Internet. Companies didn't build the Internet, it got kickstarted outside of the market by the government and by researchers/universities, and then it was (partially) handed over to the market so it could be optimized.
In general, we don't try to get the government to be hyper-efficient. We try to get the government to fill in gaps that the market is unwilling to address, and to occasionally step in and regulate/subsidize the market when it goes off the rails. One of the biggest purposes of Capitalism is to use the market as an optimizer when possible.
But you're kind of jumping all over the place in these threads. I don't understand what this current debate you're having over government efficiency has to do with either inequality or Adam Smith. The original article's argument was that Capitalism does not require maximizing inequality, and that seeking to minimize inequality is not fundamentally incompatible with a Capitalist system. The debate over Socialism vs Capitalism has very little to do with that argument, the article doesn't even mention Socialism.
Companies built numerous networks, like Bix, Compuserve, Timenet, MCIMail, Prodigy, the RBBS system, etc.
The early internet also ran over the existing phone lines. Dedicated lines came later. That's why we used modems and dialup.
Highly regulated phone lines, and a market that exploded in innovation when the government stepped in and forced Bell Systems to allow 3rd-party devices and license their patents royalty-free. And the fact that other networks existed doesn't change anything about the fact that the modern Internet we have was largely built by researchers and government projects.
But you're still missing the point.
Who CARES who built the Internet? What does that have to do with whether or not Capitalism requires extreme levels of wealth inequality to function well? You keep on arguing about government vs companies, and that has nothing to do with the original article. You're still debating about Socialism on an article about Capitalism.
You can't have capitalism without wealth inequality. Larger levels of such inequality allows larger endeavors to be undertaken. Everybody equal under socialism doesn't produce much of any wealth.
First, nobody is talking about getting rid of all wealth inequality, but Adam Smith is questioning whether extreme wealth inequality benefits innovation and indicates a healthy economy. He makes a number of points about inequality, one of them being that the more efficient a market gets, the less profit margin individual products should generate (since they'll be priced efficiently at or near cost), and the harder it will be in an efficient market for any Capital owner to generate profits on what they build.
In general, whether extreme consolidation increases or decreases startup potential is not an absurd question to ask. I understand you have a particular philosophy about Capitalism that states that extreme wealth concentration is enabling opportunities, but that philosophy is not universally shared by every Capitalist, and you don't get to just say that's how it works just because.
Obviously Capitalism requires some inequality, and obviously Capitalism requires some equality and social mobility. You see this mirrored in the market itself; it's good for some companies to be more successful than others (that's how we know that the market is working) but almost all Capitalists outside of very narrow anachro-Capitalist sects also believe that monopolies (even natural monopolies) are bad for the market.
Second, just saying "you can't have Capitalism without wealth inequality" doesn't add anything to the conversation. It's the equivalent of just commenting under an article, "No, you're wrong."
The article argues that Adam Smith advocated against extreme wealth consolidation, it's describing his economic theories. Do you think the article is mischaracterizing Adam Smith? Do you want to point to any of Adam Smith's quotes in Wealth of Nations and explain why they're flawed? Do you want to explain what Adam Smith didn't realize about Capitalism? Or do you just want to keep repeating that he's wrong?
> Everybody equal under socialism
Again, this is totally irrelevant to what we're talking about, and I do not care about Socialism.
The private sector also comes in flavors like ULA, Lockheed Martin, or Boeing. Given that NASA was prevented from continuing their successful approach in favor of building what Congress wanted to steer money to major private companies, any explanation which focuses on the sector alone is guaranteed to be wrong. What matters is how the incentives are structured: giving money to a contractor to keep people employed in certain areas won’t yield successful launch systems the way paying for successful launches will.
(And, no, it’s not as simple as saying the root cause is government: those companies spend enormous amounts of money trying to influence the government so the relationship again is not that simple.)
> their successful approach
NASA successfully landed on the moon, which was a great accomplishment. What they did not do successfully was do it in a sustainable, cost-effective manner. Which is why NASA's budget was cut. An economy simply cannot consist of operations that are all losing money.
Trying to force equality means you've got to hammer people down, and that means take away the freedom.
Tyranny, such as Haiti, also produce inequality, but without the prosperity.
Haiti wasn't a tyranny. In fact, it was a prime example of proprietarian capitalism run totally amok - a regime in which the state did not restrict individuals from, say, owning other humans and reaping large profits on them.
It does not include the right to harm others or enslave them. Enslaving people obviously prevents them from having the right to trade freely.
> Haiti wasn't a tyranny
Owning other people is tyrannical.
Except the numerous exceptions where that isn't true. I can't engage in insider trading. I can't get a child to give me his lunch money in exchange for a lollipop. I can't deal heroin. The point being that markets aren't absolutely free, they're free within the limits of what we deem to be culturally and politically acceptable. If you look at the logic surrounding the end of slavery in 19th century Europe, much of the debate was about the property rights of slaveholders and how they ought to be compensated for their lost property.
How is that a relevant point at all to what the parent said?
The US produced it. The US produced NASA. Why shouldn't SpaceX benefit from NASA and vice versa.
SpaceX is doing taxpayers a tremendous service by having replaced the disaster that was the Space Shuttle and its $500m launch costs. To say nothing of SpaceX hopefully getting us back to the moon and then on to Mars. Left to NASA (and or the prior launch monopoly), how long would that have taken and how much would it have cost? See: SLS. They're better off working together, contributing what they're good at, resulting in a better overall outcome.
Western Europe's economic dynamism is overall shockingly bad. And their stagnation in terms of innovation and new wealth creation is similarly bad. In terms of old wealth vs new wealth it's the worst among major economic regions - they're still turning over the same old family fortunes decade after decade. The old dynastic wealth is strangling Western Europe.
There is a price to be paid for the approach that Western Europe follows. Across the long-term they're falling further and further behind the US and China in strength, both economic and military. Europe risks becoming a colony split between two superpowers. Both Merkel and Macron are fully aware of that, they see the power gulf. If the US were politically wise, it'd be subtle with how it handles Europe, keep them asleep at the wheel (Trump's belligerence nearly spooked them into action by reminding them of their weak positioning).
Here are the economic engines - the economic might - of Europe:
Germany GDP: 2021 $4.3t (2021 IMF estimates) | 2008 $3.7t ($4.8t inflation adjusted)
UK GDP: 2021 $3.1t | 2008 $2.9t ($3.7t adjusted)
France GDP: 2021 $2.9t | 2008 $2.9t ($3.7t adjusted)
Italy GDP: 2021 $2.1t | 2008 $2.4t ($3.1t adjusted)
Russia GDP: 2021 $1.7t | 2008 $1.7t ($2.2t adjusted)
Spain GDP: 2021 $1.4t | 2008 $1.6t ($2.1t adjusted)
Netherlands GDP: 2021 $1t | 2008 $950b ($1.2t adjusted)
Poland GDP: 2021 $650b | 2008 $533b ($689b adjusted)
Sweden GDP: 2021 $622b | 2008 $517b ($669b adjusted)
Belgium GDP: 2021 $580b | $515b ($666b adjusted)
US GDP: 2021 $22.6t | 2008 $14.7t ($19t adjusted)
China GDP: 2021 $16.6t | 2008 $4.6t ($5.9t adjusted)
Notice anything interesting?
Greece and Italy have seen zero net economic growth in roughly 30 years. Germany and France have seen zero net economic growth in 26 years.
Wait a minute, that is surely impossible? Germany is an economic juggernaut, everyone says so. Germany GDP 1995: $2.6t. That's $4.5t in today's dollar, their GDP estimate for 2021 is $4.3t. France's GDP was $1.6t in 1995, which is $2.9t in today's dollar, their GDP estimate for 2021 is $2.9t.
For Germany, their economy has net contracted over 26 years. Germany and France are already so far deep into their economic malaise they've nearly lost a full generation to it.
The UK was at $3.1t in 2007. That's $4.1t in today's dollar. Their 2021 estimate is $3.1t. They're down a trillion dollars. They've added nearly 10% to their population in that time. That's a lot less economy per person. What does that process do to social costs and services over time, as well as the burden per capita?
Spain's economy is 7% larger than it was in 1990, while their population has expanded by 20% in that time.
Sweden's GDP in 1990: $261b; $560b in today's dollar. Their 2021 estimate is $625b. That's three decades to grow 12% (their population increased by ~20% in that time). Finland was $141b in 1990; $302b in today's dollar. Their 2021 estimate is $300b, so zero economic growth in a generation.
Austria's GDP in 1995: $241b; $437b in today's dollar. Their 2021 estimate is $481b. Roughly 10% growth over 26 years. Their population expanded by 10-11% in that time.
Belgium's GDP in 1995: $288b; $523b in today's dollar. Their 2021 estimate is $578b. Roughly 10% growth over 26 years. Their population has expanded by 14% in that time.
Since 2008 the US has added economy equal to: Germany + France + Netherlands. China's outcome speaks for itself. Europe is at risk of losing an entire generation to zero or negative economic growth, while social costs keep increasing. That's obviously an unsustainable, looming disaster. It's tilting Europe into a position of subservience (and that includes Russia in regards to China).
But growth isn't everything? Sure, if the cost of living stays comparable and social costs don't climb, which hasn't been the case over the last three decades as populations have continued to age in affluent nations.
It's easy for a rich country to abandon the policies that made it rich, by adopting social democracy, and subsequently see stagnation in their per capita growth rate and a reduction in their GINI, while still remaining among the wealthiest countries in the world for a few decades before they are inevitably leapfrogged.
https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)...
Norway does a bit better, but 20% of Norway's GDP is pumped out of the ground.
Neither would exist without massive government-led taxpayer-funded investments, made during an era when inequality was far lower than it is today.
Remember, it was Morse that invented digital telecommunications, and AT&T invented the transistor.
Whenever anyone had two computers, the first thing they'd invent next is a digital protocol to connect them.
Besides, a digital protocol is not the result of "massive government led taxpayer funded investment".
In fact, Morse was supported by Congress to build a demonstration of his telegraph system (https://en.wikipedia.org/wiki/Samuel_Morse):
> Morse made his last trip to Washington, D.C., in December 1842, stringing "wires between two committee rooms in the Capitol, and sent messages back and forth" to demonstrate his telegraph system.[19] Congress appropriated $30,000 (equal to $833,250 today) in 1843 for construction of an experimental 38-mile (61 km) telegraph line between Washington, D.C., and Baltimore along the right-of-way of the Baltimore and Ohio Railroad.[20] An impressive demonstration occurred on May 1, 1844, when news of the Whig Party's nomination of Henry Clay for U.S. president was telegraphed from the party's convention in Baltimore to the Capitol Building in Washington.[20]
The next line was funded when Morse partnered with Amos Kendall forming the Magnetic Telegraph Company. It built lines from New York to Philadelphia, Boston and Buffalo. Receipts for the first for days on the NY to Philadelphia run was $100. And the telegraph was off and running.
2 years later there was 2,000 miles if wire, and another two years added another 10,000 miles.
The government line proved to be irrelevant, not crucial.
See "The Victorian Internet" by Tom Standage
The advantages of reducing the size and power requirements of electronics have always been recognized and improvements in it have been ongoing since the first devices.
After all, the transistor was invented by AT&T, not the government.
All of that foundational work happened when the top marginal tax rates were much higher, showing that “don’t tax rich people so they can fund innovation” is too simple a thesis to be correct.
And of course literally any company is based on the whole history of technology.
You might say that SpaceX only exists because rich people in China wanted to see fireworks (and there was likely state involvement).
But equally does SpaceX depend on a long existing private market and centuries of private investment into manufacturing, incremental improvement in all related technologies and millions of experiments and different things tried.
This arguments are kind of tiered by now.
Its true that the way European state bureaucracy works makes companies like SpaceX unlikely. Its equally true that part of US ability to have such company is based on defense spending over the last 100 years.
There are a ton of similar examples — microchips being the most common here — and the point wasn't that everyone should develop their stack from scratch but rather that the original claim that scientific and engineering progress depends on current US levels of inequality just doesn't fit the history. Most people who aren't committed to a particular political position tend to agree that you need both and in the U.S. we've certainly seen a lot of successes from the combined approach, as well as educational levels of inefficiency when the incentives are misaligned.
You can't just pick one piece out of a large number of inventions and say it was the lynchpin.
And carbon fiber also a had huge amount of development from commercial companies to drive it into 100s of applications. The total amount of investment in carbon fiber is dwarfed 100-1000x compared to government investment. Both are required to actually drive a technology forward consistently.
> the original claim that scientific and engineering progress depends on current US levels of inequality just doesn't fit the history
I don't think that was the claim.
Nobody has built a CPU that draws zero power, nor does anyone believe we can, yet we still we dump billions of dollars every year into R&D to reduce their power consumption.
My point is, even though the ideal of "no inequality" is unattainable, it doesn't mean we should give up on trying to reduce it in sensible, measured ways. Things like universal health care, affordable housing and liveable minimum wages don't just improve life for the poor - they make society safer for the wealthy too (through property crime reduction, less access to drugs for children, not stepping in human feces etc. etc.).
Improving the state of the poor does not imply it is necessary to prevent others from doing much better.
Just like if your goal is to decrease auto travel times from Seattle to LA, removing air travel is not the answer.
I never said it does.
I was just saying that providing a minimum standard of living for the poor, at the expense of the rich (through increased taxes for health care, lowered property portfolio values for affordable housing, and increased wage expenditures for a liveable minimum wage) is a noble goal to pursue - arguably more noble than reusable rockets.
The fact that you can't eliminate economic equality doesn't mean you should make no effort to reduce its harm.
When you frame the problem as "inequality", you are saying it does.
Is a rich economy just a bigger economy than most? Or an economy with surplus? Or an economy with lots of value (and then we define value)?
Is inequality some people having less money than others? Or not having as much stuff? Or privileges? Or not being able to self-sustain? Or unequal social treatment?
I think the more important questions come from fully understanding what we want and how we're trying to get it. If all we care about is that some people have more than others, we will literally be fucked for eternity. But if instead what we care about is that everyone can eat food and live somewhere without struggling to do it, we can achieve that in probably many kinds of economies, but the economy obviously has to be set up to be sustainable in the face of that requirement.
A lot of economies are just shitty regardless of how they're set up, for the same reason that a lot of humans don't have the same privileges, even though they're made of the same meat.
Focus on maximizing one's own potential is far more fulfilling.
https://en.wikipedia.org/wiki/Hunger_in_the_United_States#21...
Early soviet history had attempts to eliminate currency and other actions which invariably failed. The Soviet Union didn’t lack inequality but it was much more equal than tzarist Russia.
There are also many examples of failed communal ownership utopias at the local level. The outcome has largely been to move asset control to whoever has the greatest political clout in the community.
This is like describing the freeing of the slaves in America as "attempts at eliminating wealth inequality" (and/or "hatred of rich people").
Yes, the people who owned slaves were generally wealthy. Yes, the slaves were not wealthy. Being given back legal ownership of themselves and their children could be seen as a kind of wealth transfer from rich to poor, but that wasn't the point of it.
Some historical context:
https://www.rbth.com/history/331117-how-abolishing-serfdom-l...
What we are arguing against is high levels of inequality, I think most understand that some inequality must exist. But that level is much lower than what you tend to see today.
I think in Nordic countries (where I am from) have shown that relatively low levels of inequality is possible while still achieving economic success. Although we have seen rising levels of inequality in Nordic countries as well as neoliberalism has taken over in Nordics as well.
One has to distinguish between aspirations and hard goals. Equality is a lot about where you want to go as a society. Many free market advocates don’t even view it as a desirable goal. They even view it as harmful.
Unless you are entirely devoid of pragmatism, it is not a harmful goal.
None of the Nordic countries have very low wealth inequality and both Denmark and Sweden are in the top 10 for wealth inequality.
Here are the latest available wealth inequality numbers for the Scandinavian countries:
Denmark 0.838
Finland 0.742
Iceland 0.694
Norway 0.798
Sweden 0.867
As a comparison the US is 0.852.
The entire range for the world (where there are stats) is 0.498 - 0.902
https://en.wikipedia.org/wiki/List_of_countries_by_w
>...What we are arguing against is high levels of inequality, I think most understand that some inequality must exist. But that level is much lower than what you tend to see today.
I think you also need to put things in context and realize that the issue of wealth inequality is one of many variables that determine quality of life. For example, East Timor has one of the world's lowest rankings for wealth inequality at 0.565, but given a choice many people would likely prefer to live in Sweden which has a wealth inequality of 0.867.
Would people be happier if Elon Musk made a shittier space company? Inequality would be lower and yet the world would be objectively a worse place.
The only legitimate argument I've heard is that it creates a biochemical stress response in people, especially men, who are not as successful, which leads to poor health outcomes. But inequality in social capital also does that in spades but I don't see anyone clamoring to remove and equalize Instagram followers.
That tells me that the real underlying motivation is an intrinsic disgust with inequality due to unstated jealousy, rather than an earnest concern for the poor. If it was the latter you would see those motivations revealed in rhetoric that focuses more on prosperity and lifting those specific people up and fixing the real issues underlying poverty and disease and suffering, whereas instead most rhetoric is around the delta between them and the top which only indirectly impacts them through a very fuzzy and unproven mechanism.
Why do you think common advice is to avoid too much dilution early on, or to avoid founder fallout with almost half the equity walking out the door. It's because, like it or not, this kind of thing motivates humans. Maybe you are a monk and can work hard for a company as a founder with very little equity, but knowing myself, I would never do that, and I am not so unusual as to believe I am unique in that department.
Also I don't see this as a pure question of incentives, but also a question of property rights. He made that wealth via value add. We owe him our gratitude for that and have no right to swipe his property. If he stole that money or made it by spewing toxic pollution, then by all means take away his wealth.
I suggested Musk would still be worth $19B. Truly I am a monk if I should want so little.
The SP500 is a fixed number (500) of companies, which means that as the real economy grows, the average size of the company that happens to be in the top 500 will be larger, which will skew the average up merely because of a side effect of using a fixed threshold instead of a percentile or market cap threshold. Consider an economy of 50,000 companies that grows to an economy of 100,000 companies. Due to the power law distribution of market caps, the top 500 in the latter is going to be much larger than the top 500 in the former.
There's also been a general trend towards centralization which drives up the market caps of the top 30 due to the arrival of network effect companies (Facebook) combined with government policy to bail out large companies in '08 and '20/'21. This gives CEO more leverage, meaning their decision making is more impactful due to the size of the org, and legitimizes higher pay.
Another factor is the commodification of labor due to globalization of trade. That increases the supply at the low end which increases the disparity between CEO pay and worker pay due to the relative scarcity of CEO talent and oversupply of commodity labor.
I think the framing of justifiable or not is the wrong framing. If these CEOs are adding value above and beyond their huge pay packet, then their existence is making your and my lives better off, so their incredible wealth should not concern anyone. Everyone wins. If there are losers due to externalities, that's where the government needs to step in.
Additionally, the trends don't really change if you take the S&P500 out of it - economy-wide CEOs are paid much more relative to ordinary workers than they used to be. Even if the biggest companies are bigger and more complicated than they used to be (I find this hard to believe - is Facebook really bigger and more complicated than Standard Oil, AT&T, IBM, or GE?), the typical company probably isn't.
Most economists would also point out the tight correlation between CEO pay and stock market caps, which means that CEOs aren't being paid more because they're doing a particularly good job.
> I think the framing of justifiable or not is the wrong framing. If these CEOs are adding value above and beyond their huge pay packet, then their existence is making your and my lives better off, so their incredible wealth should not concern anyone. Everyone wins. If there are losers due to externalities, that's where the government needs to step in.
Everyone else who takes home less money as a result, loses. But if you don't believe me, consider a scenario in which CEOs earn thousands or tens of thousands of times the wage of the average worker - does that seem justifiable? What about a scenario in which the CEO earns everything?
Yeah. That's only part of the explanation for the observation.
However, looking at it as a percentage of GDP is flawed and leads to an understatement of the effect. We need to look at it after adjusting for inflation only, since all that matters is how big these companies are in the absolute after applying the fixed threshold cutoff of 500. If you're normalizing by GDP, you're not comparing apples with apples when doing a temporal comparison.
> economy-wide CEOs are paid much more relative to ordinary workers than they used to be.
That's right, and I outlined some of the reasons for that, such as commodification of domestic lower skilled labor due to globalization and technology.
> tight correlation between CEO pay and stock market caps, which means that CEOs aren't being paid more because they're doing a particularly good job.
This hinges on how we define a "good job".
If I'm the CEO of a small accounting firm, at best my decision making can improve profits by $1 million. If I'm the CEO of Apple, my decision making can improve profits by billions. That extreme leverage afforded by large companies is why one person can be paid so much money.
The other aspect is supply and demand. Running Apple is not as easy as running a small accounting firm. The supply of people capable of doing that is much less. Hence the higher compensation.
There's also selection effects we need to consider. Tim Cook is significantly more skilled than a randomly chosen CEO amongst small companies. Just like Michael Jordan is more skilled than a randomly chosen team captain from high school teams. It would be inaccurate to say that Michael Jordan isn't better than some randomly chosen team captain, just as it's inaccurate to say that Tim Cook isn't making superior decisions to some randomly chosen CEO from a small company.
> Everyone else who takes home less money as a result, loses.
This zero-sum mindset is just not accurate. If Tim Cook gets paid $500 million and his decision making leads to $50 billion in extra benefit for the org compared to what a second-best CEO could have brought in, then the org has gained $49.5 billion in excess value. Your mindset is that the org (and the people inside it) have lost ~$500 million without considering the unique value add that makes it worthwhile and win-win for everyone. If the board didn't think that Tim Cook was adding unique value above his compensation, then they would give him a pay cut or hired someone cheaper.
There are plenty of historical companies with higher market caps than today's companies in 2021 dollars. And again, if you compare the largest companies in 2021 with the largest companies in 1965 (using 2021 dollars), you'd find that their market caps are only ~2.5-3x the size (but yet their CEOs are paid 15x more relative to the average employee). But I think this misses the mark because a bigger company isn't necessarily harder to run. Nor is it clear that the CEO is making dramatically harder decisions. In fact, it seems equally plausible that the larger the company, the less of an effect the CEO has.
> That's right, and I outlined some of the reasons for that, such as commodification of domestic lower skilled labor due to globalization and technology.
This argument doesn't hold water, because the average employee salary (the one we're comparing the average CEO salary to) hasn't dramatically dropped in terms of purchasing power. In other words, your argument is that the average salary has gotten lower and therefore CEO pay appears higher - this isn't the case.
> This hinges on how we define a "good job".
If CEO pay was correlated to performance, we'd find that CEOs whose companies did better were better compensated. But we don't find this - we find that CEO pay is most correlated to the stock market.
> This zero-sum mindset is just not accurate. If Tim Cook gets paid $500 million and his decision making leads to $50 billion in extra benefit for the org compared to what a second-best CEO could have brought in, then the org has gained $49.5 billion in excess value. Your mindset is that the org (and the people inside it) have lost ~$500 million without considering the unique value add that makes it worthwhile and win-win for everyone. If the board didn't think that Tim Cook was adding unique value above his compensation, then they would give him a pay cut or hired someone cheaper.
This isn't true, because as noted above there isn't evidence that better-performing CEOs are paid better. Tim Cook isn't being paid his salary because the board believes he's adding such-and-such amount in value, but instead because CEO compensation is not related to the value added.
However, you didn't answer my final question: is there a level of inequality that you would consider unjustifiable?
"In fact, it seems equally plausible that the larger the company, the less of an effect the CEO has."
"your argument is that the average salary has gotten lower"
"If CEO pay was correlated to performance, we'd find that CEOs whose companies did better were better compensated."
"is there a level of inequality that you would consider unjustifiable"
All you're really saying is that bigger companies have more to lose, not that CEOs of bigger companies have larger effects. It could be easily argued that the CEO of a smaller company is able to more directly affect the business - fewer intermediaries making decisions, less oversight etc. As for your real-world examples, you can find countless counterexamples of companies who replaced "good" CEOs and performed just as well or perhaps better. In big organizations the factors that lead to success extend far beyond the CEO.
> That is not my argument. My argument is that the increasing supply of low skilled labor has meant that wages have not gone up alongside productivity growth, which contributes to the wage gap with CEOs. That's a subtle but important difference.
Just to be clear here, I'm talking about domestic workers. So arguments about globalization etc. don't apply.
> That's exactly what we find. CEO comp in the form of stock and options are usually tied to milestones or stock performance. Look at Musk's arrangement. The stock price is often used as a proxy for performance because it aligns incentives and is harder to game than explicit metrics.
Exactly my point.
1) If CEO compensation was based on performance, then their compensation would rise and fall based on performance relative to their peers. Instead, CEO compensation rises and falls relative to the overall strength of the stock market. Just graph executive compensation vs value of the S&P or Dow and this is easy to see. (Put another way - were 100% of CEOs doing a terrible job in Spring 2020 or Fall 2008?)
2) Since CEOs are compensated in stock (or, historically, stock options), their compensation has nothing to do with the "value" they bring and everything to do with the value of the stock market.
> Not at all. If someone invents nuclear fusion in their basement and delivers $50 trillion worth of value to humanity, I really could not care if they keep a $5 trillion slice of that. They've gifted $45 trillion onto the species and I am extremely grateful to them for doing that.
Executives of the British and Dutch East India Companies were probably compensated at rates tens of thousands of times greater than that of their average "worker". Do you consider that justifiable? What about companies that use (and used) slave labor?
"not that CEOs of bigger companies have larger effects."
Your point seems to be that a small company CEO has a bigger impact relative to the size of the company. I agree with you on that. If a company has one employee - the CEO - that will be true by definition. But it's a trivial point and not one that is relevant because a one person operation who increases revenue from $200,000 to $400,000 shouldn't be compensated more than a large company CEO that drives an unexpected 5 percent growth in $100bn of revenue. The latter has much more value add and people that are thought to be able to do it will therefore be paid much more.
"So arguments about globalization etc. don't apply."
You are correct that domestic jobs like Uber drivers don't face international competition. But that's missing the point that low skilled labor is a fungible commodity. If all the factory workers get laid off, they start competing with Uber drivers for those same domestic jobs which increases the labor supply for a shrinking number of jobs and depresses wage growth.
"Instead, CEO compensation rises and falls relative to the overall strength of the stock market."
And not all stocks have positive beta. Biotech for example.
But I actually agree that beta should be stripped out when determining CEO pay, not because the market moves don't correlate with company performance (it does due to the macro confounder), but since market moves are merely good luck and not attributable to the skill of the CEO.
It doesn't happen which I see as a failure of boards.
At the same time, I can sort of see the validity in keeping it rather simple. The shareholders just want the stock to go up, and adding complexities that might disalign incentives could lead to bad second order effects such as a CEO pursuing an unnecessary hedging strategy (consider a CEO of an airliner who would be tempted to over hedge oil prices) in order to secure outperformance and therefore compensation in a downturn. But on balance, I do support the idea of stripping beta out.
"Do you consider that justifiable? What about companies that use (and used) slave labor?"
There's obvious grey areas where the devil is in the details and a binary answer isn't appropriate. Airliners that contribute to pollution, consumer goods companies that might have some child labor in the supply chain, etc. I can't give a one sized fits all answer to these cases. But if we pick specific examples like SpaceX or the hypothetical person that invents fusion, then I want them to keep all of what they earn.
But Enron is the absolute extreme case, not the typical case - and even there, there were large numbers of individuals involved in Enron's scandals so you can't just point to the CEO. Where's the evidence that Nadela was the primary factor in Microsoft's performance in the last 10 years? Was Steve Jobs a bad CEO because he was run out of a (then-failing) Apple? The point I'm trying to make here is that I don't think there's any evidence that CEOs at most big companies are "adding value" on the scale required to make your argument work - that CEOs deserve their extremely high pay because they provide extremely high value. (Do CEOs in the United Kingdom, Japan, or Germany provide substantially less value?). I think it seems much more reasonable that large company performance has to do with a huge number of factors, of which CEO performance is but a small one, and that CEO pay has more to do with the tax/regulatory regime as well as political and cultural attitudes.
> It is highly relevant. It's why US manufacturing collapsed, because China does it cheaper and better. The average Joe now has to compete with an increasingly global workforce who have a lower cost of living and no minimum wage laws.
It's a little bit relevant. The average Joe now has to compete with an increasingly global workforce, but that may actually increase the average typical salary of domestic workers as much as decrease it, because jobs that can be done more cheaply are not done in the United States.
> This is a great point but I will take issue with your claim that it has "nothing" to do with performance.
Sorry, "nothing" was a little hyperbolic.
> I believe I addressed that in my initial post. If they're making money not due to legitimate value add, then no I do not think they're entitled to keep their wealth. Whether that's via rent seeking, pollution, slave labor.
I'm glad we agree then inequality is political and not some emergent economic property :). You simply happen to buy into the current political justification for inequality ("people who add more value earn more money") but not myriad past ones ("the nobility and the clergy provide important functions to a harmonious society" or "property rights are inviolable").
In reality, the Nordics have higher GDP per hour worked than the USA with much lower inequality and much higher public ownership.
And of course, the state played a pivotal role in space and phone technology. The following book on how government rather than the private sector is the key driver of innovation and technological advancement, is a great read, and has a key chapter focused on Apple in particular: https://en.wikipedia.org/wiki/The_Entrepreneurial_State
> the state played a pivotal role in space and phone technology.
There wouldn't be phones we have today without Apple. There was no government program to create them. Apple invested billions of investor money in creating them.
I've seen books like the one you cite before. Their central theme is if a technology is based on ABCDEF, and the government did only C, then government gets all the credit. If the government did only A, then the government gets all the credit. If the government did F, then the government gets all the credit.
For example, Samuel Morse invented digital telecommunications. But of course, the government gets all the credit for making an improvement on it.
But if the government does deserve the credit for the technology stack that makes for a successful phone, why didn't any communist country make a phone?
The article claims the government invented touch screen technology. I don't know how true that is, but it omits that the GUI, an essential technology for the phone, came from Xerox, not the government.
P.S. The history of the touch screen https://en.wikipedia.org/wiki/Touchscreen is long and complicated. To hand it all to the government is confirmation bias.
Wrong again, the Nordics do not rely on oil to fund their welfare states - not even Norway.
> To hand it all to the government is confirmation bias.
Your whole comment screams confirmation bias for your own ideological view. Drawing a clean dividing line between "government" and "markets" is of course a fool's errand because they aren't separate - governments create markets through enforcement of property law and many other laws and programs.
It's still part of the reported GDP.
> governments create markets through enforcement of property law and many other laws and programs.
If you're familiar with my posts, I often write that the purpose of government is to protect property rights so free markets can function.