The Pitchforks are Coming

[_EAllusion]

This entire argument assumes that minimum wage laws are enforced. People are already voting against capitalism. The Democrats have been in power basically since 2006. Inequality has continued to increase under their rule, not decrease. What I see in the future is a burgeoning black market economy where people realize that the only way to upward mobility is by breaking the law.

Min wage laws are enforced. The more disparity between the natural labor rate and the min wage, the greater the incentive for black market labor and thus the greater the likelihood of people willing break the law. That doesn't mean the law isn't being enforced at all. It means people are willing to try and end-run that enforcement.

Right now, cheap black market labor largely supplied by illegal immigrants is a very small portion of the economy, as there are very few industries where the supply demand curve dictates something well below the min wage. The fact that the min wage happens to be quite low right now and that cheap labor supplies are readily available from imports maintains that fact.

[_EAllusion]

One of the negative effects of min wage laws that is known about, but not often discussed in articles like this is that when it is beneath the going rate of labor, it isn't simply inert. What it does is create a psychological starting point of labor negotiations that is artificially low. People might make more than the min wage, but likely less than if the min wage didn't exist at all. There's lots of good economic studies on how arbitrarily setting a negotiating starting point psychologically affects what people will regard as an acceptable deal. There are risks with the min wage if it goes too high, but also if it goes too low. It's a tricky tool.

[_canpakes]

As a libertarian, I see the problems more in terms of government policy facilitating the flow of capital into the hands of a few. I don't see it so much as an issue of not enough wealth redistribution to the poor so much as too much wealth redistribution to the rich. In any case, it is a problem. We are a consumer economy.

'Facilitating' in this case means nothing more than making something more appealing to some people. It isn't indicating a requirement or mandate to follow any strategy.

Notwithstanding that some government policies make excessive CEO compensation more likely these days, no government policy mandates that a corporation maintain an excessive ratio of CEO compensation to average wages paid to that company's employees.

This is not a problem "in terms of government policy" unless you want the government to mandate a wage floor that is significantly higher, or want the government to mandate a maximum ratio between CEO compensation and average employee wages. Neither seems to be an option that someone claiming to be a libertarian would want to see implemented.

Consider also that within the ideal libertarian business environment - little or no government regulation or taxation - there would exist no incentive (that I'm aware of, anyway) to create a more equitable ratio between CEO compensation and average employee wage, and every incentive to do just the opposite.

I don't think that there's a practical libertarian solution to the problem. Likewise, to blame 'government policy' for the current state of affairs, then rest one's case, is to not consider more pertinent causes.

[_EAllusion]

Consider also that within the ideal libertarian business environment - little or no government regulation or taxation - there would exist no incentive (that I'm aware of, anyway) to create a more equitable ratio between CEO compensation and average employee wage, and every incentive to do just the opposite.

Labor is negotiated. The incentive for creating a more equitable ratio of CEO and average employee wage is the bargaining power of labor. Boards' don't have the capacity to set wages by fiat. They have to negotiate the terms of employment like everyone else. That the government artificially kneecaps the negotiating power of labor with anti-union legislation on anti-trust grounds is something that would not exist in a truly free market.

Outside of that, a very small % of the workforce is in min wage. You seem to think that if not for government dictated wage floors, businesses would be run by a ultra-wealthy plutocrats paying peanuts. Rather obviously not.

[_EAllusion]

'Facilitating' in this case means nothing more than making something more appealing to some people. It isn't indicating a requirement or mandate to follow any strategy.

That's not true at all. When a government body intentionally gives Wal*Mart selective tax breaks it will not give to its competitors, taxes the local population to build roads, sewers, water, etc. to Wal*Mart, gives straight cash-subsidy incentives for Wal*Mart to build, offers a host of regulatory policies that give Wal*Mart's business model a distinct advantage over small-business competitors, or gives sweetheart contracts to Wal*Mart, the government is taking an active role in transferring wealth to the owners of Wal*Mart at the expense of the middle-income earners that comprise the small business base it is crushing. Either you are doing abuse to the notion of "make something more appealing" or you aren't getting the complaint.

[_Bach]

So hard to explain economics to those who have never created jobs but simply spend their life on message boards.

[_MeDotOrg]

So hard to explain economics to those who have never created jobs but simply spend their life on message boards.

So we should listen to the job creators like Milton Friedman?

[_Kevin Graham]

So we should listen to the job creators like Milton Friedman?

I think he meant we should listen to anonymous online blowhards claiming to be "job creators" (like him), whose education on economics seems to mirror that which we find coming from Glenn Beck's radio show.

If owning a business and hiring people is what he calls creating jobs, then I'm probably the only guy here posting under his real name, who is qualified to speak. My wife and I owned an English school in Brazil, and at its peak it had nearly 200 students and a dozen or so teachers. It doubled in size during the first year and then tripled the second year. So yes, I think I have more credibility on the matter of creating jobs/wealth, than Mr. "Bach" and whatever imagined multi-billion dollar business he fancies for himself.

But like Nick Hanauer, I never referred to myself as a "job creator," because like him, I understood that it was consumer demand that created those jobs. I simply took advantage of that demand and provided a service. I beat out my competitors mainly because I was an American, and so Brazilians wanting to learn English were willing to pay top dollar to taught by a native speaker.

[_Kevin Graham]

Min wage, if high enough, will inevitably cause less employment...

But that isn't what you initially said some months ago. The context was the proposed minimum wage increase and you were clearly against it, citing the same "economics 101" principle Nick Hanauer just refuted.

If the min wage is raised to $100 an hour, the economy would collapse.

Well no crap, but you know that no one has suggested that, so why even mention it?

What studies have found is that modest increases in the min wage don't necessarily increase unemployment (or, put in a more sophisticated way, create a net drag on the employment rate). But $15 an hour isn't a modest increase those studies look at.

Exactly. These are dramatic increase, which makes those studies you reference outdated.

Consider the current State minimum wage in Oregon is 25% higher than the Federal. In 2003 Oregon's minimum wage was $6.90 with a state unemployment rate of 9%. State minimum wage increases were implemented each year reaching $7.95 by 2008, just before the recession. According to what you're saying, those annual increases in the minimum wage should have increased unemployment. However, the unemployment rate dropped dramatically from 9% to the national average of 5.0%.

In another high minimum wage state, Washington, the state minimum wage in 2002 was also $6.90with an unemployment rate of 7.6%. By 2008 it had increased its MW to $8.07. And again, your economic theory was refuted, as unemployment dropped dramatically from 7.6% to 4.8% by 2008. But the minimum wage hikes continued on, even through and after the great recession of 2008-2009, and it stands now at an impressive $9.32. That is a full 28% higher than the Federal rate. This is hardly a "modest" increase, and unemployment in Washington and Oregon continued to drop at the same rate as the national average, despite having much higher minimum wages than all other states.

I've pointed this out several times in the past, and you still don't seem to grasp the point.

Oh, I understood exactly what you said at the time. You're just more cautious in your wording now.

It'll be interesting to see how Seattle is affected. As I said, it may very well be high enough on the curve to cause unemployment depending on local conditions.

Oh so if your theory doesn't hold up, just blame it on local conditions? So what local conditions in Washington and Oregon prevented your economic theory from working?

Like I said, if you distributed the equivalent injection of capital into the hands of low-income earners via an EIC, you would have the same wealth redistribution effects, only it would be spread across the progressive tax system rather than disproportionately on the backs of relatively low-income earners. But that isn't as politically viable and economic ignorance is the rule of the day for people who think the solution to poverty is simply to raise wages by legal fiat.

Yes, because we all know low income earners would much prefer to receive the money they rightfully earn in a lump sum in the form of a tax return, as opposed to getting paid for their work in a timely manner. You truly are out of touch with working America, huh?

Regarding the government, there are many ways it has affected income inequality in favor of the wealthy.

Yes, and I have never denied that. But you're trying throw out the baby with the bathwater just because corporations are able to bribe government officials! This is like blaming the ax instead of the murderer who is wielding it. The ax can cut both ways depending on how it is used. I already told you that the number one problem with our system is legalized bribery but you went on about how lobbyists were and important part of the system, etc. So don't pretend to have solutions, because you don't. All you have done is sing the same anti-government tune while willfully ignoring the role and responsibility of the private sector/corporations.

You seem to follow this delusional principle that says if government were completely out of the picture (the Libertarian shtick "limited government, limited government" ad nauseum) then all would be well in the Free Market. But you ignore the fact that without government we'd have much worse problems in a truly free market. Monopolies would rule for about a decade until all corporations became one giant corporation. And the middle class would have been history long ago. What I have said is that you can't point to examples in which corporations have written legislation for themselves to kill off their competition, and then say "ah ha, the problem is Government." No, the government is just an arm used by corporate powers in certain circumstances. But it is also true that the government is the only thing there is that gives the working people a standing chance at negotiating a fair deal, the only thing standing between our current plutocracy and absolute corporate tyranny. When it works, it works well. And it works well when politicians do their jobs and represent the people over "special" interests.

But you're talking about something completely different anyway, and I think I know why. CEO pay isn't increased to astronomical levels because of the Government. CEO pay is increased to astronomical levels because the corporate structure allows it. Sure, ridding yourself of competition is going to put more money into the pockets of the higher ups in that company, but it is also going to benefit the middle-class workers in that company as well. But we're talking about how wide the divide here between CEO and low level pay. The Free Market principles have little to do with it, otherwise you'd never see CEO's receiving massive bonuses during years when their company's stock is way down. And you'd see worker incomes increase as productivity increases, which hasn't happened with Reaganomics took effect.

A change in tax policy for high level executive pay under the Clinton administration, ironically meant to curb it, is widely understood to be a major contributor to the massive rise in salaries in for CEO's complained about in this article.

So are we talking gross or net? This law is about tax loopholes. What about stock options, exorbitant bonuses, company jets, etc? The law signed by Clinton was intended to do the opposite, but it inadvertently created loopholes for clever tax attorneys. I agree it is one of many stupid parts of the tax code, and Obama has tried to get rid of such loopholes. But guess who opposes such action? Conservatives and Libertarians! And why blame government when in many cases these CEOs are moving money around in such a way as to present an illusion of increased profits just so they can receive larger bonuses.

[_Kevin Graham]

Why Executive Pay Is So High

When it comes to the way corporate boards oversee chief executives–or, all too often, fail to–few people have as many war stories to tell from as many vantage points as Gary Wilson. He was Walt Disney Co. ‘s chief financial officer and, as a director, the subject of scorn when its board was twice ranked the worst in the country. As a Yahoo director Wilson was targeted by investor Carl Icahn, who sought to oust the board during a 2008 failed shotgun marriage with Microsoft . As a private equity guy he led the 1989 Northwest Airlines buyout along with Alfred Checchi.

So Wilson can say, with more than a little credibility, that the boards supposedly overseeing management are instead packed with lackeys with appalling frequency. It’s a familiar complaint but one that he believes is responsible for out-of-control pay, the short-term greed that helped spawn the recent financial meltdown and a staggering waste of resources. Wilson’s solution: Abolish the joint role of chief executive and chairman and install independent bosses to oversee boards.

“From what I’ve seen, managers are interested in what goes into their pockets and willing to use lots of leverage to add short-term profits, boost the stock price and sell their options,” says Wilson, 70. “Long-term shareholders risk getting screwed.”

The Alliance, Ohio native has joined up with Ira Millstein, a Wall Street attorney, and Harry Pearse, former General Motors general counsel and Marriott Corp. director, to push for independent chairmen. Their platform is the Millstein Center for Corporate Governance at Yale.

Does splitting the title benefit shareholders? Evidence is inconclusive, but here’s an indicator suggesting they’re on to something: 76% of the 25 bosses who rank lowest on our annual survey comparing compensation to shareholder return hold dual titles. Only 44% of the best 25 hold both titles. The dual players include Richard D. Fairbank of Capital One, Ray Irani of Occidental Petroleum , David C. Novak of Yum Brands and Howard Solomon of Forest Labs. Wilson and Pearse insist that they saw boards transformed overnight from supplicants to independents when the roles were separated at companies where they were directors.

Boards occasionally go through spasms of feistiness. In 1992 General Motors’ board ousted Robert Stemple as chairman, which led to similar moves at American Express , Westinghouse and other companies. But today only 21% of boards are chaired by bona fide independents, says RiskMetrics Group, a New York financial advisory firm that owns ISS Proxy Advisory Services. In 43% of big companies the roles are ostensibly split, but the chairman, says RiskMetrics, is an ex-chief executive or otherwise defined as a company “insider.”

In some cases nothing less than corporate survival is at stake, Wilson argues. He points to Lehman Brothers , where Richard Fuld was chief executive and chairman for 15 years and where management took the sorts of big risks that ultimately sank the firm.

Wilson isn’t against stock options but believes in tying them to long-term returns with strike prices that rise at the rate of inflation plus some risk premium, as he has done at some companies he has invested in. That way management isn’t rewarded just for showing up.

Independent boards might also rein in pay. In Europe Wilson sat on KLM’s advisory board and says it’s no coincidence that (a) chief executives typically run a management board, which reports up to the separate advisory board, and (b) pay is well below U.S. levels. At many U.S. companies, he says, the combined boss often recruits board members and then “directors feel obligated to the CEO/chairman, make the friendliest member chairman of the compensation committee and then hire a friendly consultant to do an analysis that favors high management pay.”

Last year proxy proposals to separate the chief executive and chairman roles were supported by an average of one-third of shareholders, RiskMetrics says. Bank of America ‘s proposal received majority support and led to Ken Lewis’ loss of his chairmanship. But don’t expect a revolution anytime soon. Institutional investors, accountants and law firms all could lose business if they challenge the chief executive/chairman. Wilson adds, “Independent directors are not going to rock the boat of a chief executive who brought them in, pays them $250,000 a year, flies them around on the jet and does nice things for their charities.”

Wilson’s remedy: Pressure boards to split the chief executive and chairman jobs during successions. He scoffs at the notion that it will scare off top talent. Not one serious chief executive candidate, says Wilson, walked away during searches he’s been involved in at four major companies in the past decade.

Lots of Titles

These bosses hold the titles of chief executive and chairman. They also rank low on our survey of pay versus shareholder return.

Richard D. Fairbank

Capital One Financial

6-year annualized total return: –7%

6-year average compensation: $66 mil

Howard Solomon

Forest Labs

6-year annualized total return: –15%

6-year average compensation: $29 mil

Jeffrey R. Immelt

General Electric

6-year annualized total return: –5%

6-year average compensation: $13 mil

John V. Faraci

International Paper

6-year annualized total return: –4%

6-year average compensation: $8 mil